Ellomay Capital Ltd.

20-F 1 zk73826.htm Created by EDGAR Ease Plus (EDGAR Ease+) Project: \backup\office\EDGAR Filing\Nur Macroprinters Ltd\73826\a73826.eep Control Number: 73826 Rev Number: 1 Client Name: Nur Macroprinters Ltd Project Name: 20-F Firm Name: Zadok-Keinan Ltd 20-F

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
(Mark
One)
o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
	OR
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
	For the
fiscal year ended December 31, 2006
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
	OR
o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
	Date of
event requiring this shell company
report.
	For the
transition period from __ to ____
Commission File Number 000-26498
●
NUR MACROPRINTERS LTD.
(Exact Name of Registrant as specified in its charter)
ISRAEL
(Jurisdiction of incorporation or organization)
12 Abba Hillel Silver Street
P.O. Box 1281, Lod 71111, Israel
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b)
of the Act: None
Securities registered or to be registered pursuant to Section 12(g)
of the Act:
ordinary shares
NIS 1.0 par value per share
Title of Class
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
None
Title of Class
Indicate
the number of outstanding shares of each of the issuers classes of capital
or common stock as of December 31, 2006: 60,523,886 ordinary shares, NIS 1.0
par value per share

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

Yes o No x

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.

Yes o No x

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.

Yes x No o

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. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

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

Item 17 o Item 18 x

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):

Yes o No x

Table of Contents

Forward-Looking Statements		Page — 4
Part I
Item 1:	Identity of Directors, Senior Management and Advisers	5
Item 2:	Offer Statistics and Expected Timetable	5
Item 3:	Key Information	5
	Selected Financial Data	5
	Risk Factors	7
Item 4:	Information on NUR	15
	History and Development of NUR	15
	Business Overview	17
	Organizational Structure	31
	Property, Plants and Equipment	31
Item 4A:	Unresolved Staff Comments	33
Item 5:	Operating and Financial Review and Prospects	33
	Operating Results	33
	Liquidity and Capital Resources	46
	Research and Development, Patents and Licenses, Etc.	51
	Trend Information	51
	Off-Balance Sheet Arrangements	52
	Contractual Obligations	53
Item 6:	Directors, Senior Management and Employees	53
	Directors and Senior Management	53
	Compensation	60
	Board Practices	61
	Employees	68
	Share Ownership	69
Item 7:	Major Shareholders and Related Party Transactions	73
	Major Shareholders	73
	Related Party Transactions	75
Item 8:	Financial Information	77
	Consolidated Statements and Other Financial Information	77
	Significant Changes	79

Item 9:	The Offer and Listing	80
	Stock Price History	80
	Markets	81
Item 10:	Additional Information	81
	Memorandum of Association and Amended and Restated Articles of
Association	81
	Material Contracts	86
	Exchange Controls	92
	Taxation	92
	Documents on Display	101
Item 11:	Quantitative and Qualitative Disclosures about Market Risk	102
Item 12:	Description of Securities Other than Equity Securities	102
Part II
Item 13:	Defaults, Dividend Arrearages and Delinquencies	102
Item 14:	Material Modifications to the Rights of Security Holders and Use of
Proceeds	102
Item 15:	Controls and Procedures	103
Item 16:	[Reserved]	104
Item 16A:	Audit Committee Financial Expert	104
Item 16B:	Code of Ethics	104
Item 16C:	Principal Accountant Fees and Services	104
Item 16D:	Exemptions from the Listing Standards for Audit Committees	105
Item 16E:	Purchases of Equity Securities by the Company and Affiliated Purchasers	105
Part III
Item 17:	Financial Statements	105
Item 18:	Financial Statements	106
Item 19:	Exhibits	106

FORWARD-LOOKING STATEMENTS

In addition to historical information, this annual report on Form 20-F contains forward-looking statements. Some of the statements under Item 3.D: Risk Factors, Item 4: Information on NUR, Item 5: Operating and Financial Review and Prospects and elsewhere in this annual report, constitute forward-looking statements. These statements relate to future events or other future financial performance, and are identified by terminology such as may, will, should, expect, scheduled, plan, intend, anticipate, believe, estimate, aim, potential, or continue or the negative of those terms or other comparable terminology. These forward-looking statements are subject to certain risks, uncertainties and assumptions about us that could cause actual results to differ materially from those reflected in the forward-looking statements. These forward-looking statements are based, among other things, on assumptions in connection with:

	the price and market liquidity of our ordinary shares;
	our ability to attain necessary working capital;
	the growth of the market for wide format and super wide format
digital printing systems;
	the market demand for our products;
	our ability to retain key technical and management personnel;
	our ability to retain our current suppliers and subcontractors;
	the possibility of future litigation; and
	our future performance, sales, gross margins, expenses (including
stock-based compensation expenses) and cost of revenues.

Assumptions relating to the foregoing involve judgment with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives or plans will be achieved. Factors that could cause actual results to differ from our expectations or projections include the risks and uncertainties relating to our business described in this annual report under Item 3.D: Risk Factors, Item 5: Operating and Financial Review and Prospects and elsewhere in this annual report. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect managements analysis as of the date hereof. We undertake no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof, except as required by applicable law. In addition to the disclosure contained herein, readers should carefully review any disclosure of risks and uncertainties contained in other documents that we file from time to time with the Securities and Exchange Commission (the SEC).

PART I

ITEM 1: Identity of Directors, Senior Management and Advisors

Not Applicable.

ITEM 2: Offer Statistics and Expected Timetable

Not Applicable.

ITEM 3: Key Information

Unless the context in which such terms are used would require a different meaning, all references to NUR, we, our or the Company refer to NUR Macroprinters Ltd. and its consolidated subsidiaries.

A. Selected Financial Data

The selected consolidated statements of operations data for the years ended December 31, 2004, 2005 and 2006, and the selected consolidated balance sheet data as of December 31, 2005 and 2006, have been derived from the audited consolidated financial statements of NUR Macroprinters Ltd. set forth in Item 18: Financial Statements. The selected consolidated statement of operations data for the years ended December 31, 2002 and 2003 and the selected consolidated balance sheet data as of December 31, 2002, 2003 and 2004 have been derived from our audited consolidated financial statements not included in this report. Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles.

The following tables present the financial data for NUR together with its subsidiaries NUR Media Solutions, NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers, NUR Hungary Trading and Software Licensing Limited Liability Company, NUR DO Brazil Ltda., Encre Consumables B.V., NUR Japan, NUR Italy, NUR UK and Excite Ink. Financial data for Stillachem is included only with respect to 2002 and the first three months of 2003, and financial data for NUR Pro Engineering is included only with respect to 2004 and 2005.

Certain amounts from prior years have been reclassified to conform to the current year presentation. The reclassification had no effect on previously reported net loss and shareholders deficiency. For additional information regarding the reclassification see Item 5.A: Operating Results.

The selected consolidated financial data set forth below should be read in conjunction with and is qualified by reference to NURs consolidated financial statements and the related notes, as well as Item 5: Operating and Financial Review and Prospects included elsewhere in this annual report.

Consolidated Statements of Operations (in thousands of U.S. Dollars except per share and share data)

	Year ended December 31, — 2002		2003		2004		2005		2006(1)
Revenues:
Products	80,217		64,283		71,326		67,072		72,576
Services	4,669		4,431		5,397		4,306		5,392
Total revenues	84,886		68,714		76,723		71,378		77,968
Cost of revenues:
Products	50,492		34,505		44,612		43,505		43,060
Inventory write-off	975		13,154		9,658		2,721		806
	51,467		47,659		54,270		46,226		43,866
Services	6,857		6,832		6,278		5,772		7,379
Total cost of revenues	58,324		54,491		60,548		51,998		51,245
Gross profit	26,562		14,223		16,175		19,380		26,723
Operating expenses:
Research and development expenses, net	7,742		6,546		8,008		7,086		5,827
Selling and marketing	12,744		11,321		9,529		10,865		11,747
General and administrative	12,077		11,134		10,819		12,171		9,803
Doubtful accounts expenses (income)	2,881		6,694		6,266		(1,132	)	(314	)
Impairment of goodwill	3,836		-		-		-		-
Amortization and impairment of technology and other
intangible assets	9,049		118		862		169		167
Restructuring charges	1,300		2,001		-		-		-
Total operating expenses	49,629		37,814		35,484		29,159		27,230
Operating loss	(23,067	)	(23,591	)	(19,309	)	(9,779	)	(507	)
Financial expenses, net	(1,322	)	(1,406	)	(2,639	)	(3,448	)	(1,316	)
Fair value of warrants issued to former director	-		-		-		(1,441	)	-
Other expenses, net	-		(182	)	-		-		-
Loss before taxes on income	(24,389	)	(25,179	)	(21,948	)	(14,668	)	(1,823	)
Taxes on income	34		1,191		19		38		98
Net loss	$ (24,423	)	$ (26,370	)	$ (21,967	)	$ (14,706	)	$ (1,921	)
Basic and diluted net loss per share	$ (1.44	)	$ (1.52	)	$ (0.91	)	$ (0.46	)	$ (0.03	)
Weighted average number of shares used in
computing basic and diluted net loss per share	17,005,606		17,272,089		24,235,406		31,932,345		60,506,854

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

(1) Includes $1.3 million of stock based compensation expense as a result of the adoption of SFAS 123(R) on January 1, 2006 on a prospective basis (see Note 2v to NURs consolidated financial statements included as a part of this annual report on Form 20-F for more details).

Consolidated Balance Sheet Data (in thousands of U.S. Dollars except share data)

| | At
December 31, — 2002 | 2003 | | 2004 | | 2005 | | 2006 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Working capital (deficiency) | $ 31,009 | $ 14,636 | | $ (27,744 | ) | $ (3,444 | ) | $ 356 | |
| Total assets | $ 85,860 | $ 61,481 | | $ 51,586 | | $ 39,716 | | $ 41,203 | |
| Total liabilities | $ 68,402 | $ 66,494 | | $ 75,228 | | $ 67,270 | | $ 62,206 | |
| Total shareholders equity (deficiency) | $ 17,458 | $ (5,013 | ) | $ (23,642 | ) | $ (27,554 | ) | $ (21,003 | ) |
| Capital stock | $ 49,899 | $ 51,782 | | $ 56,631 | | $ 74,211 | | $ 75,591 | |
| Ordinary shares outstanding | 17,155,859 | 17,414,281 | | 26,165,215 | | 60,498,062 | | 60,523,886 | |

B.	Capitalization and Indebtedness
	Not
Applicable.
C.	Reasons for the Offer and Use of Proceeds
	Not
Applicable.
D.	Risk Factors

Investing in our securities involves significant risk. You should carefully consider the risks described below as well as the other information contained in this annual report before making an investment decision. Any of the following risks could materially adversely affect our business, financial condition, results of operations and cash flows. In such case, you may lose all or part of your original investment.

The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition or results of operations .

Our ability to maintain sufficient liquidity is dependent on our ability to continue our recent revenue growth and successful expense reduction initiatives, and on the availability of additional debt or equity financing. If we are unable to secure necessary additional financing, through debt or equity financing, we may not be able to fund our operations and would potentially have to sell assets, refinance debt or downsize operations. Our net loss decreased to $1.9 million in 2006 from $14.7 million in 2005. We believe that our liquidity and profitability have improved since 2005, and anticipate that they will continue to improve in 2007, but we were still unable to generate cash from operations in 2006 and there can be no assurance that we will achieve profitability or positive cash flow in 2007. We have recently relied on equity financing to fund our operations due to our inability to generate cash from operations. In January and February 2007, we raised approximately $6.3 million through a private placement of our ordinary shares and warrants to purchase our ordinary shares. However, due to the risks described herein, and if we fail to achieve our revenue goals and expense reduction targets, in the future we may be unable to maintain adequate financial resources for capital expenditures, expansion or acquisition activity, working capital and research and development and therefore we may be required to seek additional equity and/or debt financing. These financings may not be available on acceptable terms, or at all. An equity financing could also be dilutive to our existing shareholders. Our failure to secure additional financing could have an adverse impact on our continued development or growth.

If we are unable to comply with certain covenants contained in our bank loans, our lender banks may declare a default and exercise their remedies. If our lender banks exercise these remedies we may not be able to continue our operations. If we do not meet certain covenants provided for in our loan agreements with our lender banks, our lender banks may exercise the remedies available under such loan agreements, including requiring us to immediately repay our outstanding bank debt or enforcing a lien against all our assets. We agreed to maintain certain financial ratios, which will be measured on each quarter following the end of the third quarter of 2008. If we default under our bank loans and our lender banks exercise their available remedies, we may be forced to cease operations. If we ceased operations and were forced to liquidate no assets would be available for distribution to holders of our ordinary shares.

Because our ordinary shares are quoted on the pink sheets and their trading may become subject to the Securities and Exchange Commissions penny stock regulations, the market liquidity of our ordinary shares is very limited. On May 19, 2005, our ordinary shares were delisted from the Nasdaq Capital Market. The basis of the delisting was our failure to comply with the minimum stockholders equity requirement for continued listing on the Nasdaq Capital Market. Our ordinary shares are currently quoted on the over-the-counter market in the Pink Sheets under the symbol NURMF.PK.

As a result of the removal of our ordinary shares from quotation on the Nasdaq Capital Market, our ordinary shares are not regularly covered by securities analysts and the media and the liquidity of our ordinary shares is very limited. Such limited liquidity could result in lower prices for our ordinary shares than might otherwise prevail and in larger spreads between the bid and asked prices for our ordinary shares. Additionally, certain investors will not purchase securities that are quoted on the pink sheets, which could materially impair our ability to raise funds through the issuance of our ordinary shares in the securities markets.

Because our ordinary shares have been removed from quotation on Nasdaq and the trading price of our ordinary shares is less than $5.00 per share, trading in our ordinary shares may become subject to the requirements of Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Although we currently meet the criteria of average revenues in excess of $6 million set forth in Rule 3a51-1(g)(2) which exempts our ordinary shares from being deemed penny stock, brokers are still subject to special record keeping requirements with respect to our ordinary shares and must demonstrate that we have met these criteria. Pursuant to Rule 15g-9, brokers and dealers who recommend penny stocks to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchasers written consent prior to the transaction.

The Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires additional disclosure in connection with any trades involving a stock defined as a penny stock (generally, according to regulations adopted by the SEC, any equity security not traded on an exchange or quoted on Nasdaq or the OTC Bulletin Board that has a market price of less than $5.00 per share, subject to certain exceptions), including the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith. Such requirements could further limit the market liquidity of our ordinary shares.

We depend on a few key products in a business subject to rapid technological change and any decline in demand for these products could severely harm our ability to generate revenues. We depend upon the sale of our principal products - the NUR Fresco printers, the NUR Tempo printers, the NUR Expedio printers and the NUR Tango printers, and upon the sale of ink products. The markets for our products are characterized by rapid changes in technology, customer preferences and evolving industry standards. Our future financial performance will depend upon our ability to update our current products and develop and market new products to keep pace with technological advances in the industry. During 2004, 2005 and 2006, we invested approximately $8.0 million, $7.1 million and $5.8 million, respectively, in research and development projects. Although we plan to continue to invest in research and development, our business could seriously suffer if we fail to anticipate or to respond adequately to changes in technology and customer preferences, or if our products are delayed in their development or introduction. We cannot assure you that we will successfully develop any new products. If our competitors introduce new products, the sales of our existing products and our financial results could be negatively affected.

Our reliance on sole source suppliers for certain components of our printers could harm our ability to meet demand for our products in a timely manner or within budgets. We currently purchase certain components used in our NUR Fresco, NUR Tempo and NUR Expedio printers from sole suppliers. If any of these sole suppliers experience problems that result in production delays, our sales to new customers and existing customers that rely on our inkjet components to operate their printers could be delayed. Production delays could result from fire, flood or other casualty, work stoppages, production problems or other unforeseen circumstances. Although we have not experienced any major production delays to date, we cannot assure you that such delays will not occur in the future. Because the success of our business depends on the sale of our printers, supply problems could have a material adverse effect on our financial results. In addition, if any of our sole suppliers reduce or change the credit or payment terms they extend to us, our business and results of operations could also be harmed.

We rely on subcontractors to help us manufacture our products and if they are unable to adequately supply us with components and products, we may be unable to deliver our products to customers on time or without defects. We employ a limited number of unaffiliated subcontractors to manufacture components for our printers. Because we rely on subcontractors, however, we cannot be sure that we will be able to maintain an adequate supply of components or products. Moreover, we cannot be sure that any of the components we purchase will satisfy our quality standards and be delivered on time. Our business could suffer if we fail to maintain our relationships with our subcontractors or fail to develop alternative sources for our printer components. We cannot assure you that we will be able to develop alternative sources of production for our products.

The market for our printers is very competitive and if we do not compete effectively, our operating results could be adversely affected. The printing equipment industry is extremely competitive and many of our competitors may have greater management, financial, technical, manufacturing, marketing, sales, distribution and other resources than we do. We compete against several companies that market digital printing systems based on drop-on-demand inkjet technology and other technologies that are similar to the technologies utilized in our products. These competitors have introduced products that compete with the NUR Fresco, the NUR Tempo and the NUR Expedio printers. We have also witnessed continued growth of the Chinese and Korean markets where Chinese and Korean companies that were developing, manufacturing and selling inexpensive printers mainly to the local markets, have also begun penetrating the international market. Our ability to compete depends on factors both within and outside of our control, including the performance and acceptance of our current printers and any products we develop in the future. We also face competition from existing conventional wide format and super wide format printing methods, including hand painting, screen printing and offset printing. Our competitors could develop new products, with existing or new technology, that could be more competitive in our market than our printers. We cannot assure you that we will be able to compete effectively with any such products.

We face strong competition in the market for ink products. If we do not compete successfully, our revenues will decline. We compete with independent manufacturers in the market for ink products. The ink manufacturing industry is highly competitive. We are currently the exclusive or principal manufacturer and supplier of ink for our UV ink based printers and for a majority of our other printers. We cannot assure you that we will be able to maintain our position as the exclusive or even principal ink manufacturer and/or supplier for these printers. We also cannot assure you that we will be able to compete effectively or achieve significant revenues in the ink business.

If we fail to meet our customers performance expectations, our reputation may be harmed, causing us to lose current and prospective customers. Our ability to retain existing customers and attract new customers depends to a large extent on our relationships with our customers and our ability to maintain a reputation for high quality products, professional services and integrity. As a result, if a customer is not satisfied with our products or services, our reputation may be damaged, adversely affecting the relationship with this and other existing customers and our ability to attract new customers.

Our products could contain defects, which would reduce sales of those products or result in claims against us. We develop complex and evolving products and we participate in an industry that is subject to significant product liability and other litigation. Despite testing by us and our customers, undetected errors or defects may be found in existing or new products. The introduction of products with reliability, quality or compatibility problems could result in reduced revenues, additional costs, increased product returns and difficulty or delays in collecting accounts receivable. The risk is higher with products still in the development stage, where full testing or certification is not yet completed. This could result in, among other things, a delay in recognition or loss of revenues, loss of market share or failure to achieve market acceptance. We could be subject to material claims by customers that are not covered by our insurance. Many of these claims also involve significant defense or settlement costs.

We depend on our executive officers and other key employees and the loss of their services could adversely affect our business and results of operations. During the previous two years, our senior management has undergone significant changes, including the replacement of our principal executive officers, the regional managing directors of our four main divisions and most of our senior management team. In addition, we have experienced a high turnover of other employees during 2006 and the beginning of 2007. We believe that our success depends to a large extent upon the contributions of key personnel, and especially our senior management. Our business could seriously suffer if David Reis or Yosef Zylberberg, our principal executive officers, or other key personnel, were to leave our company. In addition, we do not have, and do not plan to apply for, key-man life insurance for any of our key employees. The high turnover in other employees and the possible loss of knowledge and expertise as a result could also materially adversely affect our results of operations and our growth prospects. Our future success will also depend in part on our continuing ability to attract highly qualified employees. We cannot assure our continued success in attracting or retaining highly qualified personnel.

If we are unsuccessful in protecting our proprietary technology through trade secrets, licenses and patents, our ability to compete effectively may be impaired. We rely on a combination of trade secrets, licenses, patents and non-disclosure and confidentiality agreements to establish and protect our proprietary rights in our products and our intellectual property. We cannot provide any assurance that our existing patents or any future patents will not be challenged, invalidated, or circumvented, or that our competitors will not independently develop or patent technologies that are substantially equivalent or superior to our technology. We cannot be sure that we will receive further patent protection in Israel, the United States, or elsewhere, for existing or new products or applications. Even if we do secure further patent protection, we cannot provide any assurance it will be effective. Also, although we take precautionary measures to protect our trade secrets, we cannot guarantee that others will not acquire equivalent trade secrets or steal or replicate our exclusive technology. For example, in some countries, meaningful patent protection is not available. Third parties may assert infringement claims against us in the future, and the cost of responding to such assertions, regardless of their validity, could be significant. In addition, such claims could be found to be valid and result in large judgments against us. Even if such claims are not valid, the cost to protect our patent rights and the harm caused to our operations during the litigation of such claims could be substantial.

We may be subject to liabilities under environmental laws due to our use of hazardous materials such as methyl ethyl-ketone solvent. We mix the solvent ink used in some of our printers with a methyl ethyl-ketone solvent. Methyl ethyl-ketone solvent is a hazardous substance and is subject to various government regulations relating to its transfer, handling, packaging, use and disposal. We store the ink at warehouses in Europe, the United States, South East Asia and Israel, and a shipping company ships it in accordance with our instructions. We face potential responsibility for problems that may arise when we ship the ink to customers. We believe that we are in material compliance with all applicable environmental laws and regulations. However, if we fail to comply with these laws or an accident involving our ink waste or methyl ethyl-ketone solvent occurs, our business and financial results could be harmed. In addition, in recent years the operations of all companies have become subject to increasingly stringent legislation and regulation related to occupational safety and health and environmental protection. Such legislation and regulations are complex and constantly changing, and we cannot assure you that future changes in laws or regulations would not require us to install additional controls for certain of our ink products, to undertake changes in our manufacturing processes or to utilize additional measures of care and compliance where such measures are not currently required.

We may face adverse consequences as a result of the restatement of our financial statements. The amendment of our annual report on Form 20-F for the year ended December 31, 2004, which was filed with the SEC on March 13, 2006, included a restatement of our financial statements for 2002, 2003 and 2004. As a result of the restatement, we may face certain risks and potential adverse consequences and costs associated with addressing any potential actions or inquiries; and the diversion of our managements attention and resources. Each of these could have a material adverse effect on our business, prospects and results of operations.

We benefit from certain tax benefits related to capital investment incentives. In the event these benefits are reduced, it will adversely affect our results of operations and our growth prospects. We benefit from certain Israeli tax legislation principally related to capital investment incentives. Our operations could be adversely affected if these tax benefits are reduced or eliminated and not replaced with equivalent benefits, or if our ability to meet the conditions to benefit from such tax benefits were significantly reduced. We cannot assure you that favorable tax legislation will continue in the future. In addition, to receive such tax benefits, we must comply with a number of conditions. If we fail to comply with these conditions, the tax benefits that we receive could be partially or fully canceled and we would be forced to refund the amount of the canceled benefits received, in whole or in part, adjusted for inflation and interest.

Political instability in Israel may disrupt important operations and our business. Our headquarters and research facilities, operations and some of our subcontractors and suppliers are located in the State of Israel. Although most of our sales are currently made to customers outside of Israel, we are nonetheless directly influenced by the political, economic and military conditions affecting Israel. Our business could be harmed by any major hostilities involving Israel, the interruption or curtailment of trade between Israel and its trading partners, or a significant downturn in the economic condition of Israel. The prospect of peace in the Middle East is uncertain and has deteriorated due to the continued violent conflicts between Israelis and Palestinians. In addition, in July and August 2006, significant fighting took place between Israel and Hezbollah in Lebanon, which involved numerous missile strikes and disrupted day-to-day civilian activity in northern Israel. Furthermore, over the last seven years and more significantly in April, May and June 2007, Palestinian militants have been firing rockets from the Gaza strip to the neighboring southern part of Israel, including to areas in Ashkelon, where our ink manufacturing plant is located. While the work in our plant has not been impacted so far, we cannot predict the full impact of the continuation or escalation of the conflict in the Gaza Strip and southern Israel on our results of operations and business. Furthermore, several countries restrict business with Israeli companies. We could be adversely affected by further setbacks to the peace process or by restrictive laws or policies directed toward Israel or Israeli businesses. Our operations could be materially and adversely affected by acts of terrorism or if major hostilities should occur in the Middle East or trade between Israel and its present trading partners should be curtailed, including as a result of acts of terrorism in the United States or elsewhere. In addition, all nonexempt male adult citizens of Israel, including some of our officers and employees, are obligated to perform military reserve duty and are subject to being called for active duty under emergency circumstances. While we have operated effectively under these requirements and circumstances since our formation, we cannot predict the full impact of such conditions on us in the future, particularly if emergency circumstances occur. If many of our employees are called for active duty, our operations in Israel may be slowed and our business may be harmed.

We have significant operations in countries that may be adversely affected by acts of terrorism, political or economical instability or major hostilities. We supply our products to various countries. Over 60% of our sales are in North America and Western Europe. However, we expect to derive an increasing portion of our sales and future growth from other regions such as Latin America and Central and Eastern Europe, which may be more susceptible to political or economic instability. As we import our products into such countries, we face possible denial of access to our customers as a result of a closing of the borders of the countries in which we sell our products, due to economic, legislative, political and military conditions, including hostilities and acts of terror, in such countries. Our executive offices and a substantial percentage of our manufacturing capabilities are located in Israel.

You may have difficulty enforcing U.S. judgments against us in Israel. We are organized under the laws of Israel and our headquarters are in Israel. Most of our officers and directors reside outside of the United States. Therefore, you may not be able to enforce any judgment obtained in the U.S. against us or any of such persons. You may not be able to enforce civil actions under U.S. securities laws if you file a lawsuit in Israel. In addition, if a foreign judgment is enforced by an Israeli court, it will be payable in Israeli currency.

Our operating results are subject to significant fluctuations from period-to-period, which could cause us to miss expectations about these results and, consequently, could adversely affect the trading price of our ordinary shares. The results of our operations for any quarter are not necessarily indicative of results to be expected in future periods. Our operating results have in the past been, and will continue to be, subject to quarterly fluctuations as a result of factors such as price reductions by us and our competitors, increased competition in the printing equipment and ink industry, the introduction and market acceptance of new technologies and standards, changes in interest rates and availability of bank or other financing to our customers, substitution of our ink products for third party ink by users of our products, delay, rescheduling or cancellation of orders, costs related to our entry into new geographic markets, changes in general economic conditions and changes in economic conditions specific to our industry. Furthermore, our revenues may vary significantly from quarter to quarter as a result of, among other factors, the timing of new product announcements and releases by our competitors and us. We do not typically have a material backlog of orders at the beginning of each quarter. We may not learn of shortfalls in sales until late in, or shortly after the end of, such fiscal period. As a result, our quarterly earnings may be subject to significant variations, which could cause us to miss expectations about our earnings and, consequently, could adversely affect the trading price of our ordinary shares.

Our business is subject to risks from international operations that could increase our expenses and require increased time and attention of our management. A significant portion of our business is conducted internationally. Accordingly, our future results could be materially adversely affected by a variety of uncontrollable and changing factors including, among others, foreign currency exchange rates, credit risk in less developed markets, difficulties in staffing management and other positions, difficulties in collecting accounts receivables, regulatory, political, or economic conditions in a specific country or region, trade protection measures and other regulatory requirements, business and government spending patterns, and natural disasters. Any or all of these factors could have a material adverse impact on our business and results of operations.

Currency fluctuations may decrease our earnings. Because we generate revenues and expenses in various currencies, including the U.S. dollar, the New Israeli Shekel and the Euro, our financial results are subject to the effects of fluctuations of currency exchange rates. We cannot predict, however, when exchange or price controls or other restrictions on the conversion of foreign currencies could impact our business. Currency fluctuations could decrease our profitability.

Our stock price has decreased significantly and may continue to be volatile, which could adversely affect the market liquidity of our ordinary shares and our ability to raise additional funds. Our ordinary shares have experienced substantial price volatility, particularly as a result of variations between our anticipated and actual financial results, the published expectations of analysts, and announcements by our competitors and us. The market price for our ordinary shares has followed a historical downward trend since 2000. On May 19, 2005, our ordinary shares were delisted from the Nasdaq Capital Market due to our failure to comply with the minimum stockholders equity requirement for continued listing. Our ordinary shares are currently quoted on the over-the-counter market in the Pink Sheets under the symbol NURMF.PK. In addition, the stock market has experienced extreme price and volume fluctuations that have negatively affected the market price of many technology and manufacturing companies in particular, and that have often been unrelated to the operating performance of these companies. These factors, as well as general economic and political conditions, may materially adversely affect the market price of our ordinary shares in the future. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, many of whom have been granted stock options, and negatively affect our ability to raise funds through both debt and equity, discourage potential customers and partners from doing business with us, and could result in a material adverse effect on our business, financial condition, and results of operations.

If we fail to implement and maintain effective internal controls over financial reporting, our business, operating results and share price could be materially adversely affected. Beginning with our annual report for our fiscal year ending December 31, 2007, Section 404 of the Sarbanes-Oxley Act of 2002 will require us to include a report by our management on our internal controls over financial reporting. This report must contain an assessment by management of the effectiveness of our internal controls over financial reporting as of the end of our fiscal year and a statement as to whether or not our internal controls are effective. Beginning with our annual report for our fiscal year ending December 31, 2008, the report must also contain a statement that our independent auditors have issued an attestation report on their assessment of such internal controls. Our efforts to comply with Section 404 are likely to result in significant costs, the commitment of time and operational resources and the diversion of managements attention. We expect to expend significant resources and management time documenting and testing our internal controls systems and procedures. This process may be complicated by the complexity of our international operations and various foreign subsidiaries. If we or our independent auditors are unable to assert that our internal controls over financial reporting are effective, market perception of our financial condition and the trading price of our stock may be adversely affected, customer perception of our business may suffer and we may face increased difficulty raising capital, all of which could have a material adverse effect on our operations.

We are controlled by a small number of shareholders, who may make decisions with which you may disagree. In October 2005, a group of investors led by Fortissimo Capital Fund GP, LP (Fortissimo), invested $12 million in our company. Consequently, these shareholders are currently the beneficial owners of 61.2% of our ordinary shares and acting together, could exercise significant influence over our business, including with respect to the election of our directors and the approval of change in control transactions. This concentration of control may have the effect of delaying or preventing changes in control or changes in management, or limiting the ability of our other shareholders to approve transactions that they may deem to be in their best interest.

Provisions of Israeli law may delay, prevent or make difficult an acquisition of NUR, which could prevent a change of control and, therefore, depress the price of our shares. Israeli corporate law regulates mergers, requires tender offers for acquisitions of shares above specified thresholds, requires special approvals for transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions. Furthermore, Israeli tax considerations may make potential transactions unappealing to us or to some of our shareholders. These provisions of Israeli law may delay, prevent or make difficult an acquisition of NUR, which could prevent a change of control and therefore depress the price of our shares.

Additional tax liabilities could materially adversely affect our results of operations and financial condition. As a global corporation, we are subject to income taxes both in Israel and various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenues and expenses in different jurisdictions and the timing of recognizing revenues and expenses. Additionally, the amount of income taxes paid is subject to our interpretation of applicable laws in the jurisdictions in which we file. From time to time, we are subject to income tax audits. While we believe we comply with applicable income tax laws, there can be no assurance that a governing tax authority will not have a different interpretation of the law and assess us with additional taxes. Should we be assessed additional taxes, there could be a material adverse affect on our results of operations and financial condition.

ITEM 4: Information on NUR

A. History and Development of NUR

Our legal and commercial name is NUR Macroprinters Ltd. Our main office is located at 12 Abba Hillel Silver Street, P.O. Box 1281, Lod 71111, Israel, and our telephone number is (011) 972-8-914-5555. NURs registered agent in the United States is CT Corporation System, 111 Eight Avenue, New York, New York 10011.

NUR is a leading supplier of wide format and super wide format digital printing systems worldwide.

NUR was incorporated as an Israeli corporation on July 29, 1987. On August 1, 1993, the Company changed its name from NUR Advertising Industry 1987 Ltd. to NUR Advanced Technologies Ltd. and, on November 16, 1997, it again changed its name from NUR Advanced Technologies Ltd. to NUR Macroprinters Ltd. Our corporate governance is controlled by the Israeli Companies Law, 1999, as amended (the Companies Law).

Our ordinary shares were traded on the Nasdaq National Market between October 1995 and July 2003. During 2002, the bid price for our ordinary shares closed below the minimum bid price of $1.00 per share as required for continued listing on the Nasdaq National Market for a period of 30 consecutive trading days. Accordingly, in July 2003, we transferred our securities to the Nasdaq Capital Market, whereby we were granted an extension of 180 days to meet the minimum requirement of $1.00 per share. NUR regained compliance with this requirement in October 2003. Our ordinary shares were traded on the Nasdaq Capital Market between July 2003 and May 2005. As a result of our failure to comply with the minimum $2.5 million stockholders equity requirement for continued listing set forth in Marketplace Rule 4320(e)(2)(B) and Rule 4310(c)(3)(A), our ordinary shares were delisted from the Nasdaq Capital Market on May 19, 2005 and are currently quoted in the over-the-counter market in the Pink Sheets under the symbol NURMF.PK.

Significant Events

On June 29, 2005, we entered into agreements with our lender banks amending the financial covenants that governed the loan agreements with our lender banks for the second, third and fourth quarters of 2005. Under these agreements the lender banks waived the non-performance by NUR of certain financial covenants for all periods prior to March 31, 2005.

On August 21, 2005, we reached an agreement with Fortissimo regarding an investment by a group of investors led by Fortissimo of $12 million in NUR. As a condition to consummate the investment Fortissimo required, among other things, that NUR will enter into a debt restructuring agreement with its lender banks.

On September 12, 2005, NUR reached an agreement with its lender banks, providing for the conversion of $14.5 million of NURs then outstanding debt into 8,000,000 warrants, the conversion of $5 million of NURs then outstanding debt into three-year subordinated notes, and the repayment of $2 million of the outstanding debt (consisting of $1.9 million of principal and $0.1 million fixed interest) within 1 year. The debt restructuring agreement further provided for the replacement of the remaining $22 million of the outstanding debt with new credit facilities. NUR also agreed to extend the exercise period of 1,340,000 outstanding warrants previously granted to the lender banks by 18 months.

The Fortissimo investment and the debt restructuring agreement were consummated on October 31, 2005 and December 8, 2005, respectively.

In October 2005, Dan Purjes, a former chairman and controlling shareholder of NUR, filed a complaint against NUR, seeking reinstatement of his voting rights. This complaint relates to a January 2005 voting agreement and a March 2005 voting trust agreement between NUR and Mr. Purjes. NUR has filed a motion to dismiss this complaint. For a detailed discussion of these agreements and the complaint, see Item 8.A: Legal Proceedings and Item 10.C: Material Contracts below.

During 2004 and 2005 NUR did not have material capital expenditures or divestitures. During the first half of 2006 we made leasehold improvements in our new manufacturing site in Lod, Israel. We invested in these leasehold improvements approximately $0.80 million. In addition, we are currently in the process of upgrading our ERP system and IT infrastructure. The expected aggregate investment in these projects is approximately $0.45 million.

In the beginning of 2007 we raised $6.3 million through the private placement of 11,734,950 of our ordinary shares to various investors at a price of $0.54 per share. The investors also received warrants to purchase additional 3,520,485 ordinary shares at an exercise price of $0.65 per share, exercisable for a period of five years following the closing of the private placement. The private placement included two stages, an initial closing resulting in gross proceeds in the amount of $3.8 million in January 2007 and a follow-on investment resulting in gross proceeds of $2.5 million in February 2007. In connection with the private placement, we paid our adviser, Meitav Underwriting Ltd., a cash fee of $0.25 million. The private placement was effected in accordance with the exemptions from registration provided under Section 4(2) under the Securities Act of 1933 (which we refer to as the Act) and Regulation S promulgated under the Act.

For more information on our financing activities please refer to Item 5: Operating and Financial Review and Prospects.

B. Business Overview

NUR Macroprinters Ltd. is a leading supplier of wide format and super wide format digital printing systems worldwide. We develop, manufacture, sell and service digital color printers for the printing of large images such as billboards, posters and banners, point of purchase displays, exhibition and trade show displays, as well as decorations and backdrops for construction scaffolding covers, showrooms, television and film studios, museums and exhibits. We also supply our customers with ink and solvent products for use with wide format and super wide format digital printers.

NUR conducts the research and development activities related to printing equipment and ink at its facility in Lod, Israel. We have worldwide marketing, sales and service subsidiaries or divisions in Europe, North America, South America, Asia Pacific and the Middle East and Africa regions.

We offer several lines of printers in the wide and super wide format categories.

We offer both solvent-ink based and UV-ink based printers. In the Solvent market we offer the NUR Fresco III and The NUR Tango (as of May 2007). In the UV market, we offer the NUR Tempo series and the NUR Expedio series, consisting of the NUR Expedio 3200, the NUR Expedio 5000 and the NUR Expedio Revolution. These printers are sometimes referred to collectively herein as the NUR printers or our printers. We ceased sales of the NUR Ultima printers during 2004. As customary with respect to other printers we no longer sell, we continue to service and provide ink products to the NUR Ultima printers.

We also sell specialized ink products for use with our printers. The ink products sold by NUR to its customers for use with the NUR Fresco, the NUR Ultima, the NUR Salsa, the NUR Blueboard, the NUR Tempo, the NUR Expedio and the NUR Tango printers are resistant to water and ultraviolet rays and are well suited for indoor and outdoor use.

We sell our printers and related products primarily to commercial digital printers, design and service firms, screen printers, commercial photo labs, outdoor media companies and trade shops. NUR printers are installed in more than 800 sites throughout Europe, North and South America, Africa and Asia.

Industry Background

The market for printed applications requiring wide format and super wide format printing has expanded during the last few years. Wide format and super wide format printing applications include billboards, flags, posters and banners, special event and trade show displays, point of purchase displays, fleet graphics, decorations and backdrops. For example, the retail, automotive, restaurant, travel and gasoline industries use outdoor advertising to promote their products in numerous locations including roadside billboards and posters displayed on streets and buildings, as well as the outside of buses, vans, trucks and trains, so-called vehicular graphics. Wide format and super wide format prints can also be found in theaters as stage decorations, in museums and exhibitions as backdrops or displays and on construction sites as building site coverings. Prior to the introduction of digital printing systems, wide format and super wide format short-run prints were produced either by hand painting, which is relatively slow and expensive, and produces lesser quality images, or by screen or offset printing, both of which are relatively expensive and time consuming processes.

With the cost of digital printing expected to decrease and the ability of digital technology expected to produce more economically, we believe that the use of wide format and super wide format prints, such as those produced by NUR printers, should grow over time, and that the portion of the market serviced by digital printing will continue to increase. The ability to produce wide format and super wide format images digitally has also opened new media opportunities for advertisers, such as mural printing, carpet printing and new forms of fleet graphics printing. The growth in demand for wide format and super wide format digital printers is fueled by both the replacement of conventional print methods and by the development of new printing applications.

Traditional Wide Format and Super Wide Format Printing Methods

Conventional methods of wide format and super wide format printing have included hand painting, screen printing and offset printing. Generally, producing wide format and super wide format color prints by traditional methods in relatively short runs (i.e., a few copies to a few hundred copies), depending on the application, has either been relatively slow and expensive or of limited quality. Because of the inherent limitations of the traditional wide format and super wide format printing methods, quality wide format and super wide format prints produced by these methods are generally limited to long runs of identical prints, designed and prepared well in advance or, in the case of hand painting, to single print applications. As a result, traditional methods of producing wide format and super wide format prints have not provided timely and economic solutions for the needs of the short run printing market.

Hand Painting. Hand painting involves either the projection of an image onto a substrate, which is then drawn onto the substrate and subsequently painted by hand, or the spraying of paint onto material covered by a template that has been cut to the desired shape. The process of hand painting is an alternative mainly in developing countries where labor costs are significantly lower and where the significantly lower image quality is tolerated by the local market.

Screen Printing . The screen-printing process is distinguished by its ability to print finely detailed images on practically any surface, including paper, plastics, metals and three-dimensional surfaces. However, the process requires significant set-up time and investment in materials before the image can be sent to press. This cost constrains the minimum number of copies the screen printer can produce economically. As screen-printing is a highly labor-intensive process, it is best suited for run lengths between 50 to 400 copies. Hence, this is a market in which we believe our digital printers can be highly competitive.

Offset Printing. Offset color printing generally produces very high quality images compared to hand painting or screen-printing. However, because of the complex steps involved in offset color printing, each printing job, whether small or large, involves substantial set-up time and costs. In addition, much like hand painting and screen-printing, alterations and customizations are not economically feasible unless the entire offset color printing process is repeated. Another drawback is that the variety of substrate materials and widths suitable for use with offset printing machinery is limited. In general, offset color printing is best suited for long print runs.

Wide Format and Super Wide Format Digital Printing

The introduction of digital printing is aiding in the transformation of the wide format and super wide format printing industry by lowering set-up costs, shortening turnaround time and reducing labor requirements. We believe that the availability of wide format and super wide format digital printing should lead to an increase in demand for limited runs of customized and localized advertising campaigns. In addition, we believe that single use applications, such as the use of banners, displays and backdrops for trade shows, theme parks, entertainment and special events, should become more popular. We believe that the market for wide format and super wide format printing should increase as current applications gain market acceptance and as new applications are developed.

Digital printing involves the production of hard-copy images and text from digital data that is either generated on a computer at the printing site or originated by a customer on the customers computer system. The digital data is then transferred directly from an electronic pre-press or desktop publishing system to the digital printer. There are currently several digital printing technologies available, including electrostatic, piezo drop-on-demand, thermal transfer and continuous inkjet printing.

Electrostatic Printing. Electrostatic printing is a non-impact printing technique that employs an array of metal styli, selectively pulsed to a high potential to generate a charged latent image on dielectric-coated paper, which is then toned to develop the latent image into a visible image. The achievable printing resolution is up to 400 dots per square inch. The main drawback of the technology is the need for special and expensive substrates and toners. This requirement increases the cost of consumables considerably.

Piezo Drop-On-Demand Inkjet Printing. Drop-on-demand technology involves the intermittent firing of ink drops when needed on the substrate. It provides high resolution and enables use of a variety of inks for home, office and industrial use. To address the needs of the wide format market for images with higher resolutions compared to those of other digital printing methods, for use with shorter viewing distances, we utilize drop-on-demand inkjet technology in our printers.

Thermal Transfer Printing. Thermal transfer printing is a contact printing technology that employs arrays of heated needles and pressure to melt and transfer wax based inks from a carrier roll onto a restricted variety of substrates. Like electrostatic printing, thermal transfer printing requires relatively expensive consumables.

Continuous Inkjet Printing. Continuous inkjet printing technology involves the continuous flow of electrically conductive ink within a closed loop that is deflected onto a specific location on a sheet of paper or other medium. The ink is separated into uniform micro-drops and the micro-drops are electronically directed to be printed onto a selected area of the medium. Continuous inkjet printing technology allows for high-speed printing and produces images with good resolutions sufficient for viewing from distances of beyond five feet. Continuous inkjet printers also produce multiple copies with consistent color quality. The cost of equipment using continuous inkjet printing technology is relatively high in comparison to printers using electrostatic technology. However, the cost of the output produced with continuous inkjet printers is lower than that of electrostatic printers.

Our Strengths and Strategy

We believe that the productivity of the NUR printers makes them an attractive choice for screen printers that wish to go digital and for high volume digital printers. The NUR Tempo was designed as a digital alternative to screen printing presses to handle diverse applications, especially short to medium, on-demand print runs that are not cost effective using traditional screen printing methods. In operation, it is designed to eliminate the extra steps and costs of finishing laminating and cutting/trimming processes common to other traditional methods of printing graphics on rigid surfaces. The NUR Expedio series is the first of its kind the first roll-fed wide-format inkjet production printers equipped with UV-curable inks. The UV-curable inks used by the NUR Expedio printers allow them to print on wide variety of media, including standard less expensive uncoated substrates that ensure low operating costs and higher profit margins. With NUR Expedio printers users can also explore new premium priced printing applications on specialty media. The NUR Expedio Revolution offers billboard printers higher productivity and lower operating cost per printed square feet than competitive digital printers. We believe that the NUR printers have been designed and engineered to fit the overall needs of their respective wide format and super wide format printing markets.

NURs strategy is to:

| § | strengthen
our position as a world leader in the wide format and super wide format
digital printing markets by supplying productive and cost-effective wide
format and super wide format digital printers and totally digitally-based
printing solutions for the out-of-home advertising market; |
| --- | --- |
| § | enable print
service providers to digitally produce a large portion of the graphics
currently produced with screen printing processes; |
| § | be our
customers vendor of choice for their ink needs; |
| § | enable our
customers to develop new ways to profit from our printing systems; and |
| § | provide our
customers with highly responsive and capable support, service and supplies. |

Products

NURs revenues are derived primarily from the sale and service of NUR printers and the sale of ink and solvent products used with NUR printers. See Item 5.A: Geographic Breakdown of Revenues for more information on the breakdown of revenues by category of activity and into geographic markets.

Printers

UV-Ink Based Roll-Fed Printers

NUR Expedio 5000

In May 2004, we introduced the NUR Expedio 5000, a 5-meter/16-feet super wide inkjet production printer that uses UV-curable inks. The machine is the first roll-fed wide-format inkjet production press equipped with UV-curable inks to reach the market. Its speed, quality, environmental friendliness, and ability to print on a very wide variety of substrates made this super wide printer a success, with over 100 printers installed worldwide.

NUR Expedio 5000 can print 8-color, 720 dpi, high quality indoor signage for close-up viewing, as well as billboards and other super wide applications at super-fast speeds up to 150 square meters (1600 square feet) per hour making it both productive and exceptionally versatile. Its multi-roll printing capability even further increases productivity. The machines use of UV-curable inks eliminates the need for costly solvent disposal equipment and addresses the requirements of environmental regulations imposed in some areas. The UV-curable inks also mean the machine will not require expensive, specially coated substrates for good ink adhesion.

NUR Expedio Revolution

In April 2007 we introduced the NUR Expedio Revolution, based on the Expedio 5000 platform, designed to enable billboard printers to print at exceptionally high speeds of up to 300 square meters (3200 square feet) per hour using a special billboard ink that produces excellent billboard quality with a very high ink coverage. The NUR Expedio Revolution is also able to print with regular ink and achieve the same results as the NUR Expedio 5000 in 4-color modes, for Point of Purchase (POP) applications.

NUR Expedio 3200

In the second quarter of 2006, we released the NUR Expedio 3200, a 3.2 meter, UV roll-to-roll printer, printing at a speed of up to 120 square meter/hour. Based on similar technology to that of the NUR Expedio 5000, the NUR Expedio 3200 applies to a wider target audience, offering both Billboard and POP capabilities on a 3.2 meter high-production printer.

NUR Expedio Inspiration

In June 2007, we launched the NUR Expedio Inspiration in the industry trade show held at Fespa, Berlin on June 5-9, 2007 and we expect that it will be commercially available towards the end of 2007. The NUR Expedio Inspiration is a 3.2 meter, wide-format inkjet production printer that offers high quality and high productivity on the same platform with the ability to print on both flexible and rigid materials. With a maximum speed of 112 square meter/hour and resolution of up to 800*635 dpi, the printer is well suited for the high volume needs of wide-format and super wide-format digital print service providers.

NUR Expedio 3200 / Expedio Inspiration Flatbed Module

In September 2006, we introduced a newly designed flatbed add-on module for the NUR Expedio 3200 and the NUR Expedio Inspiration wide-format UV-inkjet production printers and we expect that this module will be commercially available towards the end of 2007. The flatbed add-on module is designed to ensure maximum media flexibility and compatibility with a wide variety of applications ranging from POP materials to billboards and many more. A simple mounting mechanism will make it fast and easy to switch between rigid and roll-fed printing modes.

UV-Flatbed Digital Printers

NUR Tempo

In September 2003, we commercially released the NUR Tempo flatbed digital printer. The NUR Tempo uses UV-curable inks that give it the flexibility to print on almost any type of substrate. These include corrugated board, foam-core paperboard, acrylic sheets, PVC, polycarbonate, fluted polypropylene, glass, wood and standard rolled media. It also features a large format table (10 ½ ft. x 6 ½ ft. or 3.2m x 2m) to accommodate a wide variety of applications and job formats. It can handle both rigid and rolled substrates with fast and easy changeover between the two for ultimate flexibility. The printer offers 4 and 8 color printing modes, delivering a combination of high speed and photo-realistic image quality. The printers fully encapsulated construction ensures a comfortable working environment. The NUR Tempo is designed to eliminate the extra steps involved in lamination and cutting/trimming processes common to other traditional methods of printing graphics on rigid surfaces.

The roll-to-roll printing capability for the NUR Tempo is optional and the machine could be ordered in a rigid configuration only or as a hybrid configuration, with flatbed and roll-to-roll capabilities. In May 2004, NUR also introduced the white ink option that lets users use white ink as the basis for overprinting to cover non-white areas of a graphic or to make the backside of an image printed on transparent media more opaque. White ink can also be used as a spot color for reproducing the white elements in an image. The use of white ink in the workflow is familiar to customers that operate screen printing presses in particular.

Based on our experience with the NUR Tempo platform, with over 180 installations worldwide, and 4 years of market experience, we developed the following additional printers in the NUR Tempo series.

NUR Tempo L

In April 2004, we introduced the Tempo L, a new mid-range, 4-color flatbed printer joining the NUR Tempo flatbed inkjet press product line. The new NUR Tempo L model is targeted at customers who wish to enter the UV-curable inks flatbed printing market with a lower up-front capital investment than is required for the top-of-the-line 8-color NUR Tempo model, while securing the growth path for future increase in performance. The NUR Tempo L prints at a speed of up to 50 square meters (540 square feet) per hour and is based on the platform of the top-of-the-line NUR Tempo with the same printing format and robust design. In 2006 we stopped selling the Tempo L as most of our customers opted for the NUR Tempo.

NUR Tempo II

In April 2006 we released the NUR Tempo II. Based on the NUR Tempo robust platform, the NUR Tempo II is a flatbed wide-format inkjet printer that provides an excellent digital solution to conventional and digital print service providers on short- and medium-run jobs. The NUR Tempo II inkjet printers use UV-curable inks technology to produce high quality rigid display graphics with no need for the extra finishing steps of mounting and lamination. For high quality, high volume, our NUR Tempo II provides production speeds of up to 120 square meters (1,300 square feet) per hour.

NUR Tempo Q

In March 2007, we released the NUR Tempo Q. Based on the NUR Tempo robust platform, the NUR Tempo Q is a perfect solution for customers seeking a very high quality at production speeds. The NUR Tempo Q takes the NUR Tempo quality a step further. The NUR Tempo Q provides up to 1270*800 dpi at a printing speed of up to 100 square meters (1,070 square feet) per hour in its 4-color mode and up to 50 square meters (530 square feet) per hour in its 8-color mode.

Solvent-ink based Digital Printers

NUR Fresco

Our first NUR Fresco printer was commercially released in February 2000. We believe that the NUR Fresco printer offers a digital alternative to screen printing for short to medium length prints, eliminating the high set-up cost associated with films and screen preparation costs which are the basis of screen printing. The NUR Fresco printers use piezo drop-on-demand inkjet technology to produce high quality graphics for a wide range of applications. These include point-of-purchase displays, banners, sheet billboards, bus shelter graphics, posters, shopping mall displays, airport terminal displays and many more.

The NUR Fresco printers print on a wide variety of substrates in roll-to-roll or roll-to-sheet modes. The machines outputs in widths up to 3.2 meters (approximately 10 feet).

NUR Fresco HiQ 8C

In September 2002, we released the NUR Fresco HiQ 8C models. The NUR Fresco HiQ 8C is based on the previous model which was modified to print using 8-color mode instead of the standard 4-color mode. Modifications to the printer included changes to the ink system to accommodate eight colors and a new switch box that enables fast and easy switching between the 4-color and the 8-color printing modes. NURs software has also been modified to support 8-color printing.

NUR Fresco X-Press 100

In December 2002, we introduced a new mode of operation for the NUR Fresco product line, the NUR Fresco X-Press 100 printing mode. This new 4-color printing mode extends the productivity and versatility of the NUR Fresco photorealistic production printers to accommodate long print runs and high volume production environments. Applications suitable for the NUR Fresco X-Press 100 printing mode include billboards, outdoor banners and any mesh application such as building murals, construction covering and wallscapes.

NUR Fresco II

In April 2004, NUR released the NUR Fresco II series that replaced the NUR Fresco HiQ models. It is possible to upgrade former Fresco models to the Fresco II level of performance. The NUR Fresco II entails improved printing speed, which allows the machine to print up to 120 square meters (1,300 square feet) per hour.

NUR Fresco III

In September 2006, we released the NUR Fresco III printer that is well suited for the high volume needs of wide-format digital print service providers. The speed and productivity of the NUR Fresco III will enable our customers to handle any job cost-effectively. Equipped with the latest print head technology that provides faster jetting frequency, the NUR Fresco III now provides higher density and print speeds of up to 144 square meters (1,550 square feet) per hour. These capabilities mean true industrial-strength productivity and performance with improved print quality and color density.

NUR Tango

In March 2006, we introduced the NUR Tango printer in the Graphics of the Americas conference, held in Miami, Florida. The NUR Tango has been commercially available since May 2007 and is aimed at the mid-range Solvent marketplace. The NUR Tango printer is manufactured by a third party under an exclusive OEM agreement.

With an innovative printing technology and outstanding performance, the NUR Tango offers a superior return on investment. The NUR Tango printers provide print speeds of up to 82 square meters (882 square feet) per hour for outdoor applications and a cruising speed of up to 30 square meters (320 square feet) per hour for high-quality applications, all at very competitive prices.

The NUR Tango also offers additional Color Activator (dryer) and switch-able Ink system for direct or indirect solvent dye sublimation printing. The NUR Tango prints to both transfer paper or directly to fabrics with vibrating colors. The NUR Tango gives our customers the option to print directly on a wide variety of textile materials, flag, fabric, banners and more. Solvent dye sublimation inks are available in 4 colors.

NUR Printers - General

NUR printers require little operator supervision, enabling one operator to run several machines at once. While an operator must be specifically trained in the operation of a printer, no special color mixing skills are required unlike conventional methods such as offset printing.

As compared to traditional methods of wide format and super wide format printing, NUR printers can significantly reduce the set-up costs associated with each print job such as the skill level of the personnel required and the number of skilled personnel required. These advantages make wide format and super wide format short-run color printing significantly more economical than conventional printing methods. Additionally, the relatively quick turnaround for the printed product enables NUR printers to produce more output in a given period, thereby lowering the costs of labor per print.

Unlike hand painting, screen or offset printing, the layout can be viewed through the pre-press workstation prior to printing, permitting last minute fine-tuning. By running a single copy of the print, corrections of text, enhancements of images, and additions of color can all be accomplished with minimal time, effort and cost. Additionally, since the format can readily be changed, NUR printers allow the end-user to make each print in the run different, with little time, effort, or additional cost. For example, if so desired, different languages, graphics and text can be added to each print in a run.

Currently, the retail prices of NUR printers generally range from $140,000 to $500,000 per machine.

Consumables

Inks

The NUR Tempo and the NUR Expedio printers use specialized UV curable inks designed for the needs of the wide and super wide format market. The ink is resistant to water and ultraviolet rays, making it fairly durable and thus well suited for outdoor conditions. The NUR Tempo, through the utilization of the ink, can print on almost an unlimited variety of substrates, including corrugated board, foam-core paperboard, acrylic sheets, PVC, polycarbonate, fluted polypropylene, glass, wood and standard rolled media. The NUR Expedio prints on a variety of media, including standard less expensive uncoated substrates that ensure low operating costs and higher profit margins. The ink enables the output of the NUR Tempo and NUR Expedio to be used both for indoor and outdoor advertising without additional lamination.

The NUR Fresco and the NUR Ultima printers use specialized all-in-one solvent-pigment based ink designed for the needs of the wide format and super wide format market and suited for drop-on-demand technology printers. This ink is developed to ensure color-real, long lasting, color consistent, weather resistant prints. The NUR Blueboard printers still in our installed base use specialized solvent-based pigmented ink designed for the needs of billboard application. The ink is resistant to water and ultraviolet rays, making it fairly durable and thus well suited for outdoor conditions.

We manufacture ink in our plant in Ashkelon, Israel, and our ink research and development activities are located in Lod, Israel.

Sales and Marketing

We distribute and sell our products directly and through the following wholly owned subsidiaries: NUR Europe, NUR America, NUR Asia Pacific, NUR DO Brazil and NUR Japan.

Our marketing activities include participating in relevant tradeshows worldwide, advertising in trade publications, marketing directly to a target base, as well as publishing our own newsletters, participating in services and industry forums and maintaining an Internet site.

In addition, we work to develop, market and sell a wide range of advanced ink products, all of which are designed to work with our existing range of printers.

The Israeli Government, through the Fund for the Encouragement of Marketing Activities of the Ministry of Industry, Trade and Labor (the Marketing Fund), awarded participation grants for marketing expenses incurred overseas. During 2006 we did not receive grants from the Marketing Fund and we are no longer eligible to receive such grants. Under the terms of grants awarded in prior years by the Marketing Fund, NUR was obligated to pay a royalty of 3-4% of the export added value to the Marketing Fund until 100%-150% of the grants received in prior years have been repaid. In connection with a dispute with the Ministry of Industry, Trade and Labor, NUR withheld payments owed to the Marketing Fund. In February 2006, the District Court in Jerusalem has approved a settlement between NUR and the Ministry of Industry, Trade and Labor. Under the terms of the approved settlement, NUR will make aggregate payments of approximately $0.78 million to the Marketing Fund over a three-year period. For more details regarding the settlement agreement see Item 8.A: Legal Proceedings.

Production and Sources of Supply

On January 24, 2006, we entered into a lease agreement with Telrad Networks Ltd. (Telrad) to lease approximately 3,400 square meters (36,597 square feet) in the Telrad Campus in Lod, Israel for the purpose of housing our manufacturing facility. The Fortissimo entities, which as a group are considered a major shareholder of Telrad, are, together with Kanir Joint Investments (2005) Limited Partnership (Kanir), the beneficial owners of 61.2% of NURs ordinary shares and have appointed 4 members to NURs board of directors. For more information see Item 7.B: Related Party Transactions. NUR manufactures and assembles NUR printers at a single large manufacturing facility located in the Telrad Campus in Lod, Israel.

Full system integration and acceptance and quality control testing of the printers are conducted by our employees at the manufacturing facility. Product quality control tests and inspections are performed at various steps throughout the manufacturing process, and each product is subject to a final test prior to delivery. The NUR Tango printers are manufactured by a third party under an exclusive OEM agreement.

We believe that if increases in sales occur, we can expand our production capabilities or engage subcontractors to carry out certain of the manufacturing or the assembly of our printers. Most of the components used for the assembly of NUR printers are available from several sources; however, the printheads used in each series of printers and certain other components are purchased from single suppliers.

We purchase our printheads from Dimatix, Inc., a wholly owned subsidiary of Fuji Photo Film Co., Ltd. and, although replacement suppliers are not easily available, we expect that this supplier, if required, will be able to meet our changing requirements for printheads. In the event our relationship with any of our other single suppliers terminates, we believe we will be able to procure replacing suppliers, but such process may have an adverse impact on our business results and operation due to possible additional costs and production delays.

To date, we have been able to obtain adequate supplies of the components necessary to produce our printers and have not had any material problems with our subcontractors. If our business grows, however, we will need to purchase greater quantities of components on a timely basis. Any delay in supply could ultimately hurt our business. The prices of our principal components have not materially changed during 2006. NUR is unable to anticipate whether or not the prices of these principal components may become volatile in the future.

We manufacture ink products at our plant in Ashkelon, Israel. The ink for use with the NUR Blueboard is manufactured by a third party, exclusively for NUR and under the NUR brand name. Some of the ink products for use with the NUR Tempo and NUR Expedio also are manufactured for NUR by a third party under the NUR brand name.

Service and Support

Installation, post sale customer support and warranty services of our products are provided by us and our subsidiaries NUR America, NUR Europe, NUR Italy, NUR UK, NUR Asia Pacific, NUR DO Brazil and NUR Japan. In most cases, our warranty to our direct customers and distributors covers defects in NUR printers for a period of six to twelve months after installation. NUR is also committed to maintaining sufficient spare parts and materials necessary for the operation of NUR printers for a certain period after cessation of the manufacturing of such printers.

Research and Development

NURs research and development center, which currently engages over 50 employees, is focused on developing new products, enhancing the quality and performance relative to price of our existing products, reducing manufacturing costs, upgrading and expanding our product line through the development of additional features and improving functionality in response to market demand.

After completion of the transfer of the ink research and development activities from Belgium to Israel, we now have one research and development center located at our headquarters in Lod, Israel.

Total research and development expenses were approximately $8.0 million, $7.1 million, and $5.8 million in the years ended December 31, 2004, 2005 and 2006, respectively.

Research and development expenses are composed principally of salaries for employees, the hiring of subcontractors, prototype material costs and depreciation of printers and capital investment in infrastructure for software and electronic designs.

Between 1997 and 2003, NUR Europe and NUR Media Solutions, our subsidiaries, received three research and development grants in the aggregate amount of approximately $3.2 million from local authorities in Belgium. These grants are subject to certain terms and conditions pursuant to agreements entered into between the subsidiaries and the local authorities in Belgium. Under the terms of the grants, the subsidiaries have an obligation to pay royalties at the higher of a certain minimum annual amount or at rates of 3% 6% on the sales of products developed with funds provided by the local authorities in Belgium, up to an amount equal to the research and development grants received in connection with such products, linked to the Euro. The commencement of the royalty payments to the local authorities in Belgium is contingent upon such subsidiaries generating sales from products developed under these grants. The grants are not repayable in case the subsidiaries decide to cease the research and development activities or the exploitation of the products developed under these grants and all know how and results of the research and development are transferred to the local authorities. In the event that such subsidiaries decide to cease exploitation of the products developed under these grants a notification thereof should be given to the local authorities in Belgium. Total royalties paid by such subsidiaries amounted to $0.235 million, $0.236 million and 0 for the years ended December 31, 2004, 2005 and 2006, respectively. The subsidiaries ceased the research and development activities and the exploitation of certain products for which grants were received. As of December 31, 2006, the aggregate amount of grants received from the Belgium authorities, which were not yet repaid, amounted to $2.339 million. The grant agreements with the local Belgian authorities require the subsidiaries to meet certain conditions. The subsidiaries approached the Belgian local authorities and intend to hold discussions with them regarding certain grants already received and their meeting the conditions of such grants. At this stage, the Company is unable to determine the outcome of such discussions and the negative implications, if any. Accordingly, no provision was recorded in the financial statements set forth in Item 18: Financial Statements regarding these grants.

In the past, NUR received grants from the Government of Israel, through the Office of the Chief Scientist, or the OCS, for the development of our systems and products. The terms of the grants prohibit the manufacture of products developed with government grants outside of Israel or the transfer out of Israel of the technology developed pursuant to these grants without the prior consent of the OCS. These restrictions do not bar exports from Israel of products developed with such technologies. In addition, the know-how from the research and development that is used to produce the product may not be transferred to third parties or out of Israel without the approval of the OCS. The approval of the OCS, if granted, will generally subject us to additional financial obligations. These restrictions do not terminate following repayment of the grants. NUR has not received research and development grants from the OCS since 2001. The OCS awards grants of up to 50% (and in certain circumstances up to 66%) of a projects approved expenditures in return for royalties. Under the terms of previously granted funding, royalties were payable generally at a rate of 2% to 3% on sales of products developed from the funded project and ending when 100% to 150% of the dollar value of the grant is repaid. During 2001, we made royalty payments of $0.2 million in respect of such grants to the OCS. In February 2005, NUR filed suit with the District Court in Jerusalem against the OCS for a declaratory judgment denying an alleged liability for unpaid royalties to the OCS of approximately $0.8 million and for the recovery of approximately $0.3 million that were previously paid to the OCS. In February 2006, the court approved a settlement between NUR and the OCS. Under the terms of the approved settlement, NUR will make aggregate payments of approximately $0.6 to the OCS over a three-year period. The Company also agreed to make payments equal to 5% of its operating income in order to accelerate the repayment of the agreed upon royalties. For additional information regarding the OCS dispute please see Item 8.A: Legal Proceedings.

In addition to the OCS grants described above, we are currently working on a new ink technology project with the Technion The Israel Institute of Technology, which received the approval of the Mini-MAGNET (or Magneton) committee of the OCS. The Magneton is designated to support knowledge transfer relationship between the industry and academic institutions. Under the terms of the Magneton program, the OCS contributes 66% of the programs research budget that the OCS approves. No royalties are payable to the OCS with respect to this funding, however, we will be required to pay royalties to the Technion on the proceeds from sales of products resulting from this project when such sales commence. The terms of the program prohibit both the manufacture of products using technology developed in the context of the program outside of Israel and the transfer of technology developed under the program to any Israeli third party, without the prior written consent of the OCS. We may not cease the project without the prior written consent of the Magneton committee that may require the refund of the grants awarded. We did not yet receive any grants relating to the Magneton project.

Competition

The principal competitive factors affecting the sales of our products are their performance relative to price, productivity and throughput, product features and technology, quality, reliability, cost of operation and consumables, the quality and costs of training, support and service, as well as the flexibility of adapting to customers applications of the products. Other competitive factors include the ability to provide access to product financing, NURs reputation and the customers confidence that NUR will continually develop new products and product accessories that will help them maintain and grow their business.

Our main competitors in the roll fed arena are EFI/VUTEk, Hewlett-Packard/Scitex Vision and Gandi Innovations. These companies have introduced products that directly compete with the NUR Fresco and NUR Expedio printers. In the market for flatbed printers utilizing UV curable ink, the main competitors are Durst Phototechnik, Inca Digital Printers, Hewlett-Packard/Scitex Vision, Leggett & Platt (Spuhl), Gandi Innovations and EFI/VUTEk. These companies have introduced products that compete with the NUR Tempo. We have also witnessed a growing number of manufacturers in the Asia Pacific region (especially China and Korea) that are developing, manufacturing and selling inexpensive printers. Recently, these manufacturers have begun penetrating the international market.

The printing industry is large, and many of our competitors may possess greater management, financial, technical, manufacturing, marketing, sales, distribution and other resources than those of NUR. As a result, there can be no assurance that competitors will not develop and market products utilizing new technology that are competitive in price and performance with NUR printers, and there can be no assurance that we can compete effectively with such products.

Trade Secrets, Patents and Proprietary Rights

We currently rely on a combination of trade secrets, licenses and patents, together with non-disclosure and confidentiality agreements, to establish and protect our proprietary rights in our products and intellectual property. We cannot provide any assurance that NURs existing patents or any future patents registered by NUR will not be challenged, invalidated, or circumvented, or that our competitors will not independently develop or patent technologies that are substantially equivalent or superior to our technology. There can be no assurance that further patent protection will be obtained in Israel, the United States, or elsewhere, for existing or new products or applications, or that such further protection, if obtained, will be effective. In some countries, meaningful patent protection is not available. There can be no assurance that third parties will not assert infringement claims against NUR in the future, and the cost of responding to such assertions, regardless of their validity, could be significant. In addition, such claims may be found to be valid and could result in awards against NUR, which could have a material effect on our business. As a result, the cost to NUR of protecting our patent rights could be substantial.

We believe that our success is less dependent upon the legal protection afforded by patent and other proprietary rights than on the knowledge, ability, experience and technological expertise of our employees and our key suppliers. It is NURs policy to have employees sign confidentiality agreements, to have selected parties, including key suppliers, subcontractors and distributors, sign non-competition agreements, and to have third parties sign non-disclosure agreements. Although NUR takes precautionary measures to maintain its trade secrets, no assurance can be given that others will not acquire equivalent trade secrets or otherwise gain access to or disclose NURs proprietary technology, or that we can meaningfully protect our rights to such proprietary technology not subject to patent protection.

Insurance

We believe that the insurance coverage for our business is in accordance with industry standards and is adequate and appropriate in light of our businesses and the risks to which they are subject.

C. Organizational Structure

NUR operates through wholly owned subsidiaries that conduct sales and marketing activities in pre-defined geographical regions.

The following chart presents, as of June 2007, our corporate structure, the jurisdiction of incorporation of our significant subsidiaries and the percentage of shares that we, directly or indirectly, hold in those subsidiaries.

| Subsidiaries | Percentage | Jurisdiction
of Incorporation |
| --- | --- | --- |
| NUR America, Inc. (NUR America) | 100% | Delaware, United States |
| NUR Asia Pacific Limited
(NUR Asia Pacific) | 100% | Hong Kong, China |
| NUR DO Brazil Ltda. (NUR DO Brazil) | 100% | Sao Paulo, Brazil |
| NUR Europe S.A. (NUR Europe) | 100% | Brussels, Belgium |
| NUR Japan Ltd. (formerly Signtech Japan Ltd.) (NUR Japan) | 100% | Tokyo, Japan |

D. Property, Plants and Equipment

Israel

NURs main facilities of approximately 48,700 square feet (excluding the area leased for parking purposes) are located in the high-tech industrial park in Lod, Israel. We use this facility as our headquarters and for research and development activities. The Lod lease expires in April 2008 and we have an option to extend the lease until October 2010. Approximately 7,500 square feet out of the space leased by us in Lod have been leased to a third party, with our consent. In addition, we sublet to a third party approximately 2,900 square feet out of the space leased by us in Lod. The sublease expires in April 2008.

NUR leases approximately 17,803 square feet in Ashkelon, Israel for use as a manufacturing plant for its ink products. The Ashkelon lease expires in February 2008.

On January 24, 2006, we entered into a lease agreement with Telrad to lease approximately 3,400 square meters (36,597 square feet) in the Telrad Campus in Lod, Israel for the purpose of housing our manufacturing facility. The Telrad lease expires in April 2011 and we have an option to extend the lease until April 2016. Please also see Item 7.B: Related Party Transactions.

United States

NUR America leases office space in Newton, Massachusetts consisting of 26,152 square feet that it had previously used as its headquarters, sales and marketing offices, and demonstration and service center. The Newton lease expires in January 2011. NUR America sublets this space in Newton to a third party. The sublease expires in January 2011.

Our North American headquarters and training center are located in Moonachie, New Jersey. The 11,000 square feet facility replaces NURs former facility in San Antonio, Texas.The new headquarters houses NURs North American sales, marketing, administrative, and support staff and includes a fully equipped training center and demo site. The New Jersey lease expires in October 2008. NUR America leases warehouse space in San Antonio, Texas consisting of 8,500 square feet. The San Antonio lease expires in September 2007.

Europe

NUR Europe leases approximately 18,815 square feet of office space in Louvain-la-Neuve, Belgium for use as the subsidiarys headquarters and sales office, demonstration and service center. The Louvain-la-Neuve lease with respect to 6,124 square feet expires in November 2008 and the lease of the remaining 12,691 square feet expires in March 2012.

Asia Pacific

NUR Asia Pacific leases approximately 3,561 square feet for use as office space and approximately 2,559 square feet for use as a demo center, both in Hong Kong. The leases for the Hong Kong facilities will expire in November 2007 and July 2008, respectively. In addition, in April 2007, NUR Asia Pacific entered into an agreement to lease approximately 150 square feet for use as office space in Singapore, this lease will expire in July 2007.

Japan

NUR Japan leases approximately 2,173 square feet of office space in Tokyo. The lease expires in August 2007.

We believe that our facilities worldwide are fully utilized.

Environmental Matters

We mix the solvent ink used in some of our printers with a methyl ethyl-ketone solvent. Methyl ethyl-ketone solvent is a hazardous substance and is subject to various government regulations relating to its transfer, handling, packaging, use and disposal. We store the ink at warehouses in Europe, the United States, South East Asia and Israel, and a shipping company ships it in accordance with our instructions. We face potential responsibility for problems that may arise when we ship the ink to customers. We believe that we are in material compliance with all applicable environmental laws and regulations. However, in the event we fail to comply with these laws or an accident involving our ink waste or methyl ethyl-ketone solvent occurs, then our business and financial results could be harmed.

In addition, in recent years the operations of all companies have become subject to increasingly stringent legislation and regulation related to occupational safety and health and environmental protection. Such legislation and regulations are complex and constantly changing, and we cannot assure you that future changes in laws or regulations would not require us to install additional controls for certain of our ink products, to undertake changes in our manufacturing processes or to utilize additional measures of care and compliance where such measures are not currently required.

ITEM 4A: Unresolved Staff Comments

Not applicable.

ITEM 5: Operating and Financial Review and Prospects

A. Operating Results

General

Our discussion and analysis of our financial condition and results of operation are based upon our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. Our operating and financial review and prospects should be read in conjunction with our financial statements, accompanying notes thereto and other financial information appearing elsewhere in this annual report.

NUR is a world leader in the market for the sale of wide format and super wide format digital printing systems. NUR develops, manufactures, sells and services digital, inkjet color printing systems for on-demand, production, wide format and super wide format printing. NUR also supplies ink products that are consumable products for the operation of NUR printers.

NURs total revenues declined from $76.7 million in the year ended December 31, 2004 to $71.4 million in the year ended December 31, 2005 and increased to $78.0 million in the year ended December 31, 2006. Our net loss for the years ended December 31, 2004, 2005 and 2006 was $22.0 million, $14.7 million and $1.9 million, respectively.

We believe the increase in total revenues in 2006 was the result of increased demand for our UV based inkjet printers in Europe and America, which was driven by our ability to use environmentally friendly ink and the enhanced quality produced by UV ink. The growth of our install base was also the main driver of the increased revenue from ink products and services.

We expect the future cost of digital printing to decrease and the ability of digital technology to produce shorter runs more economically to improve. However, there currently are limitations on increasing the existing market for digital printed applications by attracting new market participants who are currently using traditional methods, that result from the relatively lower printing speed currently available by digital printing systems for long runs of identical prints, and in some aspects, also from the lower quality produced by digital printing systems.

Our challenge is to introduce innovative solutions to the market by developing wide format and super wide format digital printing systems having significantly higher printing speeds and better visual quality, combined with a lower cost. If we succeed in this mission we anticipate that digital printing will gain a much greater market acceptance and as a result, the market for digital printing applications would be significantly increased.

Our consolidated balance sheets, consolidated statements of operations, changes in shareholders equity (deficiency), consolidated statements of cash flows for the years ended December 31, 2004, 2003 and 2002 and the consolidated balance sheet as of December 31, 2003, including the applicable notes thereto, have been restated from those financial statements previously presented as a result of the implementation of a new revenue recognition policy with respect to 2002 and 2003, deferred tax valuation with respect to 2003 and revised accounting for the $3.5 million credit line commitment of July 2003 from several investors, including NURs former chairman and then largest shareholder, Dan Purjes, with respect to 2003 and 2004. The amendment of our annual report on Form 20-F for the year ended December 31, 2004, which was filed with the SEC on March 13, 2006, included such restatements. The financial data for 2004 contained in this Item is reported on a restated basis.

Our revenues are derived from the sale of our printers and from the sale of ink products, spare parts and related services.

Cost of sales of printers and related materials include materials, labor, overhead, and other direct or allocated costs involved in the manufacture, warehousing, delivery, support, and maintenance of products.

Research and development expenses include mainly labor, materials consumed and expenses by subcontractors, consultants and others. Research and development expenses are carried to the statement of operations as incurred.

The sales and marketing expenses include the costs associated with the staff of the sales and marketing force of NUR and our subsidiaries, advertising and promotion of existing and new products, trade shows, commissions, and other marketing activities. During 2003 and 2004, NUR has invested in the consolidation process of its printers and ink manufacturing operations into two manufacturing plants in Israel and the consolidation of its research and development capabilities into a single facility in Israel.

The printing equipment industry is extremely competitive. For additional information regarding our competitors see Item 4.B: Business Overview.

Certain Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. For additional information regarding our significant accounting policies see Note 2 to NURs consolidated financial statements included as a part of this annual report on Form 20-F. While all the accounting policies impact the financial statements, certain policies may be viewed to be critical. These policies are those that are both most important to the portrayal of our financial condition and results of operations and require our managements most difficult, subjective and complex judgments and estimates. Actual results could differ from those estimates.

These accounting principles require management to make certain estimates, judgments and assumptions based upon information available at the time that they are made, historical experience and various other factors that are believed to be reasonable under the circumstances. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented.

In many cases, the accounting treatment of a particular transaction is specifically dictated by United States generally accepted accounting principles and does not require managements judgment in its application. There are also areas in which managements judgment in selecting among available alternatives would not produce a materially different result. NURs management has reviewed these critical accounting policies and related disclosures with our Audit Committee.

NURs management believes that the significant accounting policies which affect managements more significant judgments and estimates used in the preparation of NURs consolidated financial statements and which are the most critical to aid in fully understanding and evaluating the NURs reported financial results include Revenue Recognition, Allowance for Doubtful Accounts, Inventory Valuation, Deferred Income Taxes, Litigation and Stock-Based Compensation, which are as follows:

Revenue Recognition

We generate revenues from the sale of printers, inks and consumable products and from servicing our products. We generate revenues from the sale of our products directly to end-users and indirectly through independent distributors. Revenues from these independent distributors are deferred until our products are installed in their customers premises, provided that all other revenue recognition criteria are met.

Revenues from printer sales are recognized in accordance with Staff Accounting Bulletin No. 104 Revenue Recognition in Financial Statements upon installation, provided that the collection of the resulting receivable is probable, persuasive evidence of an arrangement exists, no significant obligations in respect of installation remain and the price is fixed or determinable. We do not grant a right of return.

When a sale involves multiple elements, such as sales of printers that include a right to receive specified upgrades, the entire fee from the arrangement is evaluated under Emerging Issues Task Force No. 00-21, Revenue Arrangements with Multiple Deliverables. In such arrangements NUR accounts for the separate elements as different units of accounting, provided that the delivered element has value to the customer on a standalone basis and there is objective and reliable evidence of the fair value of the undelivered element. In cases where there was no objective and reliable evidence of the fair value of the undelivered element, NUR accounts for the total arrangement as one unit of accounting. As such, NUR recognizes revenue for the arrangement only when all revenue recognition criteria are met for the undelivered element.

We consider all arrangements with payment terms extending beyond the standard payment terms not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer, provided that all other revenue recognition criteria have been met.

Revenues from ink and other consumable products are generally recognized upon shipment assuming all other revenue recognition criteria have been met.

Revenues from services are comprised of maintenance and support arrangements. Revenues from maintenance and support arrangements are recognized on a straight-line basis over the term of the arrangement.

In cases we traded-in old printers as part of sales of new printers, the fair value of the old printer is recorded as revenue, provided that such value can be determined. If such value cannot be determined, the old printer is recorded at a zero value. The amount of revenues recognized for the transaction equals the fair value of the old printer plus any monetary consideration received.

We follow very specific and detailed guidelines, several of which are discussed above, in measuring revenue; however, certain judgments affect the application of our revenue recognition policy.

Our revenue recognition policy takes into consideration the creditworthiness and past transaction history of each customer in determining the probability of collection as a criterion of revenue recognition. This determination requires the exercise of judgment, which affects our revenue recognition. If we determine that collection of a fee is not probable, we defer the revenue recognition until the time collection becomes probable, which is generally upon receipt of cash.

Allowance for Doubtful Accounts

NUR maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments, which is included in doubtful accounts expense. NURs management periodically performs an evaluation of its composition of accounts receivable and expected credit trends and establishes an allowance for doubtful accounts with respect to amounts that it has determined the chances of their collection to be doubtful and in accordance with aging key and charge off receivables where the amounts are deemed uncollectible. Past due status of accounts receivable is determined primarily based upon contractual terms. If the financial condition of NURs customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in future periods. NURs customers include commercial printing companies, sign printers, screen printers, billboard and media companies, professional photo labs, and digital printing service providers. Among NURs customers, there are small and medium size businesses, which are sensitive to adverse changes in the market. Such adverse changes include declines in demand for services offered by customers and their inability to obtain financing. The nature of those customers and the market recession, together with NUR incurring significant losses in 2003 and the diminished probability of collecting these past due debts caused NUR to record an increased allowance for doubtful accounts in 2004. As a result of NURs requirement for additional funding in 2005, NUR increased its efforts collecting outstanding doubtful accounts from customers with low collectivity profile. Furthermore, during 2005 NUR completed collection procedures that were previously initiated against a portion of its doubtful accounts and decided to write-off such accounts from the balance sheet. During 2006 NUR continued its efforts to collect older balances and improve the quality of its sales.

Inventory Valuation

At each balance sheet date, we evaluate our inventory balance for excess quantities and obsolescence. This evaluation includes analysis of sales levels by product line and projections of future demand. In addition, we write off inventories that are considered obsolete. Remaining inventory balances are adjusted to the lower of cost or market value. If future demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and would be reflected in cost of sales in the period the revision is made.

Deferred Income Taxes

We record income taxes using the asset and liability approach. Deferred income tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and net operating loss and tax credit carry-forwards. Our financial statements contain reserved tax assets, which have arisen as a result of net operating losses, primarily incurred in 2001, 2002, 2003, 2004 and 2005, as well as other temporary differences between book and tax accounting. Significant management judgment is required in determining our deferred tax assets and any valuation allowance recorded against our net deferred tax assets. We have considered future taxable income, prudent and feasible tax planning strategies and other available evidence in determining the need for a valuation allowance. We evaluate all of these factors to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. As a result of significant net operating losses incurred in 2001, 2002, 2003, 2004 and 2005 and uncertainty as to the extent and timing of profitability in future periods, we have provided valuation allowances for tax assets. The establishment and amount of the valuation allowance requires significant estimates and judgment and can materially affect our results of operations. If the realization of deferred tax assets in the future is considered more likely than not, an adjustment to the deferred tax assets would increase net income in the period such determination is made.

Litigation

Management sets aside liabilities related to litigation brought against us when the amount or a range of the potential loss can be estimated and it is probable that a loss will be incurred. In determining whether liabilities should be recorded for pending litigation claims, NUR assesses the allegations made and the likelihood that it will successfully defend itself. When NUR believes that it is probable that it will not prevail in a particular matter, it then estimates the amount of the liability based in part on advice of legal counsel. As litigation progresses, we continue to assess our potential liability and revise our estimates accordingly. Such revisions in our estimates could materially impact our results of operations and financial position. Estimates of litigation liability affect our other accounts payable and accrued expenses line item in our consolidated balance sheet and our general and administrative expense line item in our statement of operations.

Stock-Based Compensation

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Beginning January 1, 2006, we account for equity-based compensation in accordance with FASB Statement No. 123(R), Share-Based Payment (SFAS 123(R)). Under the fair value recognition provisions of this statement, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service periods. Determining the fair value of share-based awards at the grant date requires the exercise of judgment, including the amount of share-based awards that are expected to be forfeited. If actual results differ from these estimates, equity- based compensation expense and our results of operations could be impacted. Please see further discussion below under the caption Adoption of New Accounting Standards.

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Adoption of New Accounting Standards

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Effective January 1, 2006, we adopted SFAS 123(R) that supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25) and related interpretations, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all equity-based payments to employees to be recognized in the statement of operations based on their fair values. Pro-forma disclosure is no longer an alternative.

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As of December 31, 2006, we had $3.3 million of unrecognized compensation expense related to non-vested stock options. For options granted before January 1, 2006, and which had graded vesting, we recognized compensation expenses, based on the accelerated attribution method over the requisite service period of each of the awards. Forfeitures were accounted for as they occurred, but have been estimated with the adoption of SFAS 123(R) for those awards not yet vested. For options granted after January 1, 2006, we recognize compensation costs using the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures.

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We adopted SFAS 123(R) using the modified prospective method. Under this transition method, compensation costs recognized in 2006 include (a) compensation costs for all stock-based payments granted prior to, but that had not yet vested as of, January 1, 2006, based on the grant date fair value estimated in accordance with the pro-forma provisions of SFAS 123, and (b) compensation costs for the equity-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with SFAS 123(R). Our consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R). We selected the Black-Scholes option pricing model as the most appropriate fair value method for our stock-options awards.

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As a result of adopting SFAS 123(R) on January 1, 2006, our loss before income taxes for 2006 is $1.3 million higher than if we had continued to account for stock-based compensation under APB No. 25. Basic and diluted loss per share for 2006 is $0.03 higher than if we had continued to account for stock-based compensation under APB No. 25.

Recently Issued Accounting Guidance

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48)an interpretation of FASB Statement No. 109, Accounting for Income Taxes. The Interpretation addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognizing, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The provisions of FIN 48 are effective beginning January 1, 2007. The Company is currently assessing the impact FIN 48 will have on its consolidated financial statements.

Geographic Breakdown of Revenues

We sell our products and services throughout the world. Revenues are generally attributed to the location of the sale of the product or service to the end-user. The tables below shows the breakdown of revenues by categories of activities and into geographic markets in the years ended December 31, 2006, 2005 and 2004.

REGION	Year Ended December 31, — 2004	2005	2006
	(In
thousands of U.S. dollars)
Asia	$ 11,451	$ 12,401	$ 8,740
America	26,843	21,246	26,837
Europe, Middle East &
Africa	38,429	37,731	42,391
Total Revenues	$ 76,723	$ 71,378	$ 77,968

CATEGORY	Year Ended December 31, — 2004	2005	2006
	(In
thousands of U.S. dollars)
Printers and Spare Parts	$ 51,198	$ 46,783	$ 50,120
Ink	18,379	19,226	22,456
Substrates and other	1,749	1,063	-
Services	5,397	4,306	5,392
Total Revenues	$ 76,723	$ 71,378	$ 77,968

Results of Operations

The following table sets forth for the periods indicated certain line items from NURs consolidated statements of operations as a percentage of NURs revenues:

| | Year Ended
December 31, — 2004 | | 2005 | | 2006 | |
| --- | --- | --- | --- | --- | --- | --- |
| Revenues: | | | | | | |
| Products | 93.0 | % | 94.0 | % | 93.0 | % |
| Service | 7.0 | | 6.0 | | 7.0 | |
| Total revenues | 100 | % | 100 | % | 100 | % |
| Cost of revenues: | | | | | | |
| Products | 58.1 | | 60.9 | | 55.2 | |
| Inventory write-off | 12.6 | | 3.8 | | 1.0 | |
| | 70.7 | | 64.7 | | 56.2 | |
| Services | 8.2 | | 8.1 | | 9.5 | |
| Total cost of revenues | 78.9 | | 72.8 | | 65.7 | |
| Gross profit | 21.1 | | 27.2 | | 34.3 | |
| Research and development, net | 10.4 | | 9.9 | | 7.5 | |
| Selling and marketing | 12.4 | | 15.2 | | 15.1 | |
| General and administrative expenses | 14.1 | | 17.1 | | 12.6 | |
| Doubtful accounts expenses (income) | 8.2 | | (1.6 | ) | (0.4 | ) |
| Amortization and impairment of technology and other
intangible assets | 1.1 | | 0.2 | | 0.2 | |
| Operating loss | (25.1 | ) | (13.7 | ) | (0.7 | ) |
| Financial expenses, net | 3.4 | | 4.8 | | 1.7 | |
| Fair value of warrants issued to former Director | - | | 2.0 | | - | |
| Taxes on income | - | | 0.1 | | 0.1 | |
| Net loss | (28.5 | ) | (20.6 | ) | (2.5 | ) |

The above table presents the financial data for NUR together with our subsidiaries NUR Media Solutions, NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers, NUR Hungary Trading and Software Licensing Limited Liability Company, NUR DO Brazil, Encre Consumables B.V., NUR Japan, NUR Italy, NUR UK and Excite Ink. Financial data for NUR Pro Engineering is included only with respect to 2004.

Certain amounts from prior years have been reclassified to conform to the current year presentation.

Year Ended December 31, 2006 Compared with Year Ended December 31, 2005

Revenues. Revenues from product sales and services were approximately $78.0 million in the year ended December 31, 2006, compared to approximately $71.4 million in the year ended December 31, 2005.

The increase in revenues of $6.6 million was primarily due to the increased sales of NURs UV based Roll to Roll and Flat Bed printers, their ink and the support services provided for these printers. The growth was driven by increased demand in Europe and America for environmentally friendly solutions provided by UV ink based printers, as well as the enhanced quality these printers provide.

Revenues-products. Revenues from sales of products were approximately $72.6 million (or 93% of total revenues) in the year ended December 31, 2006, compared to approximately $67.1 million (or 94.0% of total revenues) in the year ended December 31, 2005.

The increase in revenues from products of approximately $5.5 million was mainly attributable to an increase of $3.2 million in sales of ink products. This increase was driven by the growth of the base number of installed UV printers.

Revenues-services. Revenues from services rendered were approximately $5.4 million (or 7% of total revenues) in the year ended December 31, 2006, compared to approximately $4.3 million (or 6.0% of total revenues) in the year ended December 31, 2005.

The increase in revenues from services of approximately $1.1 million was mainly attributable to the increase in NURs installed printers base.

Cost of revenues. The cost of revenues was approximately $51.2 million (or 65.7% of total revenues) in the year ended December 31, 2006, compared to $52.0 million (or 72.8% of total revenues) in the year ended December 31, 2005.

The decrease in the cost of revenue of approximately $0.8 million and the decrease in the percentage of revenues it represents was mainly attributable to a cost reduction plan NUR began implementing during 2006 that included purchasing and engineering activities, as well as the redesigning of some of our printers. We also increased the capacity of our ink manufacturing facility and reduced the quantities purchased from third parties, thus reducing our cost. In addition, we wrote off $0.8 million of inventory in 2006 compared with $2.7 million in 2005.

Cost of Revenues-products. Total cost of revenues-products was approximately $43.9 million (or 56.2% of total revenues) in the year ended December 31, 2006, compared to $46.2 million (or 64.7% of total revenues) in the year ended December 31, 2005. The cost of revenue included $0.8 million of inventory write off compared to $2.7 million in 2005. The decrease in inventory write off was mainly attributable to improvement in our management of parts and focus on selling newer printer models. In addition, NUR increased the quantities of UV inks it manufactured in its plant and reduced the quantities purchased from third parties, thereby reducing the overall cost per liter.

Cost of revenues-services. Cost of revenues-services was approximately $7.4 million (or 9.5% of total revenues) in the year ended December 31, 2006, compared to $5.8 million (or 8.1% of total revenues) in the year ended December 31, 2005. The increase in the cost of services was mainly attributable to the introduction of new NUR printers to the market that have higher maintenance costs compared to the maintenance cost of the more mature products sold during 2005.

Gross Profit. The gross profit was approximately $26.7 million in the year ended December 31, 2006, compared to $19.4 million in the year ended December 31, 2005. The gross profit as a percentage of revenues has increased from 27.2% in the year ended December 31, 2005 to 34.3% in the year ended December 31, 2006.

The improvement in the gross profit as a percentage of revenue is mainly attributable to the better management of our spare parts inventory that resulted in a significant decrease of inventory write off and the improvement of our margins on ink revenue as the percentage of ink manufactured by us increased compared to ink purchased from third parties.

Expenses. Research and development costs were approximately $5.8 million in the year ended December 31, 2006, compared to $7.1 million in the year ended December 31, 2005. The decrease in research and development costs was mainly attributable to reduction in the use of facilities and IT costs in research and development operations.

Selling and marketing expenses were approximately $11.8 million in the year ended December 31, 2006, compared to approximately $10.9 million in the year ended December 31, 2005. The increase in sales and marketing expenses is mostly attributable to marketing expenses related to additional trade shows we attended in 2006 and customer events held in Mexico, Europe and Asia Pacific that were designed to reinvigorate the image of NUR as a leading developer of digital wide and super-wide format printers and introduce our new and innovative models.

General and administrative expenses were approximately $9.8 million for the year ended December 31, 2006, compared to approximately $12.2 million in the year ended December 31, 2005. The decrease in general and administrative expenses was attributable to a decrease in audit and legal fees as there were no extraordinary activities during 2006 and due to change in legal contingencies accrual, which was offset by an increase in stock based compensation expense as a result of the adoption of SFAS 123(R).

Doubtful accounts income was $0.3 million for the year ended December 31, 2006, compared to an income of $1.1 million for the year ended December 31, 2005. This outcome was mainly attributable to our continued efforts to collect older balances.

Amortization of technology and other intangible assets was $0.2 million for the years ended December 31, 2006 and 2005.

Financial expenses decreased to $1.3 million in the year ended December 31, 2006, compared to $3.4 million in the year ended December 31, 2005. This decrease was primarily due to the fact that our interest payments in the amount of $1.3 million were recorded as a reduction of the carrying amount of the debt (accrued interest) instead of interest expenses in the statement of operations in accordance with the provisions of SFAS No. 15 Accounting by Debtors and Creditors for Troubled Debt Restructuring (see Note 8 to the financial statements).

Taxes. Taxes on income were $0.1 million in the year ended December 31, 2006, as compared to taxes on income of $0.04 million in the year ended December 31, 2005.

Year Ended December 31, 2005 Compared with Year Ended December 31, 2004

Revenues. Revenues from product sales and services were approximately $71.4 million in the year ended December 31, 2005, compared to approximately $76.7 million in the year ended December 31, 2004.

The decrease in revenues of $5.3 million was primarily due to a decrease in sales in North and South America and partly due to a decline in sales in Europe. This decrease in revenues is primarily due to NURs unstable financial situation in the second half of 2005.

Revenues-products. Revenues from sales of products were approximately $67.1 million (or 94.0% of total revenues) in the year ended December 31, 2005, compared to approximately $71.3 million (or 93.0% of total revenues) in the year ended December 31, 2004.

The decrease of approximately $4.2 million was primarily due to NURs unstable financial situation and managements focus on securing additional funding for ongoing operations.

Revenues-services. Revenues from services rendered were approximately $4.3 million (or 6.0% of total revenues) in the year ended December 31, 2005, compared to $5.4 million (or 7.0% of total revenues) in the year ended December 31, 2004.

The decrease of approximately $1.1 million was primarily due to increased competition and a lower level of customer demand for maintenance services.

Cost of revenues. The cost of revenues was approximately $52.0 million (or 72.8% of total revenues) in the year ended December 31, 2005, compared to $60.5 million (or 78.9% of total revenues) in the year ended December 31, 2004. NUR adopted SFAS No. 151 in 2005, prior to its mandatory effective date, and recognized $1.1 million as current period charges related to indirect costs which were not allocated to printers that were manufactured during that period. Allocation of productions indirect costs was based on the normal capacity of our production facilities.

Cost of Revenues-products. Total cost of revenues-products was approximately $46.2 million (or 64.7% of total revenues) in the year ended December 31, 2005, compared to $54.3 million (or 70.7% of total revenues) in the year ended December 31, 2004. Cost of revenues-products, before the inventory write-off, was approximately $43.5 million (or 60.9% of total revenues) in the year ended December 31, 2005, compared to $44.6 million (or 58.1% of total revenues) in the year ended December 31, 2004.

The inventory write-off reported in 2005 is primarily associated with scrapped spare parts that have no alternative use and that NUR does not expect to use in the future. The inventory charge consists of $2.7 million in raw materials, which will become obsolete as a result of slow usage.

Cost of revenues-services. Cost of revenues-services was approximately $5.8 million (or 8.1% of total revenues) in the year ended December 31, 2005, compared to $6.3 million (or 8.2% of total revenues) in the year ended December 31, 2004.

Gross Profit. The gross profit was approximately $19.4 million in the year ended December 31, 2005, compared to $16.2 million in the year ended December 31, 2004. The gross profit as a percentage of revenues has increased from 21.1% in the year ended December 31, 2004 to 27.2% in the year ended December 31, 2005.

The increase in gross profit as a percentage of revenues is primarily due to the higher inventory write-off of $9.7 million in the year ended December 31, 2004 compared to the inventory write-off of $2.7 million in the year ended December 31, 2005. In 2005, the effect of the decrease in inventory write-off was offset by the high overhead charges that resulted from lower production activities during the second half of 2005, decrease in revenues-services and the impact of fixed cost components in the form of labor and labor related expenses.

Expenses. Research and development costs were approximately $7.1 million in the year ended December 31, 2005, compared to $8.0 million in the year ended December 31, 2004. The decrease in research and development costs was attributed to NURs decision to reduce its research and development activities and withhold certain development projects as a result of its concentration on securing additional funds during the second half of 2005. Repayment of government grants in 2005 and 2004 were $0.236 million and $0.235 million, respectively.

Selling and marketing expenses were approximately $10.9 million in the year ended December 31, 2005, compared to approximately $9.5 million in the year ended December 31, 2004. The majority of sales and marketing expenses were incurred by our subsidiaries, NUR Europe (43.1% of the aggregate amount, or $4.7 million), NUR America (26.6% of the aggregate amount, or $2.9 million) and NUR Asia Pacific (11.0% of the aggregate amount, or $1.2 million). The balance of sales and marketing expenses of 19.3% (or $2.1 million) were incurred by our corporate marketing department. The increase in selling and marketing expenses is primarily due to the increase in the sales and marketing force during the first half of 2005.

General and administrative expenses increased to approximately $12.2 million for the year ended December 31, 2005, from $10.8 million for the year ended December 31, 2004. This increase is primarily due to audit and legal expenses incurred in connection with the restatement of our financial statements for prior periods, appealing the decision of Nasdaq to delist our ordinary shares from trade on the Nasdaq Capital Market and accrual for legal claims against us.

Doubtful accounts income was $1.1 million for the year ended December 31, 2005, compared to an expense of $6.3 million for the year ended December 31, 2004. The decrease is primarily due to our focus on collection during 2005 as a result of our unstable financial situation. Due to the increased attention we were able to collect a large sum from accounts that were previously provided for.

Amortization and impairment of technology and other intangible assets was $0.2 million for the year ended December 31, 2005, compared to $0.9 million for the year ended December 31, 2004. The decrease is primarily due to impairment of acquired technology and customer list in the amount of $0.7 million in the year ended December 31, 2004. Amortization expenses during the years ended December 31, 2005 and 2004, were $0.2 and $0.1, respectively.

Financial expenses increased to $3.4 million in the year ended December 31, 2005, compared to $2.6 million in the year ended December 31, 2004. This was primarily due to an increase of $0.2 million in interest payments for short-term and long-term loans that resulted from an increase in the LIBOR interest rate, and an increase of $0.7 million in expenses related to foreign currency translation primarily in Euro and New Israeli Shekel.

Other expenses in the amount of $1.4 million were recorded in 2005 based on the fair value of warrants granted to Dan Purjes, a former chairman and controlling shareholder of NUR, in connection with a voting trust agreement. For more information see Item 10.C: Material Contracts.

Taxes. Taxes on income were $0.04 million in the year ended December 31, 2005, as compared to taxes on income of $0.02 in the year ended December 31, 2004.

Impact of Inflation, Devaluation and Fluctuation of Currencies

Most of NURs sales are in U.S. dollars and in Euro. In addition, a substantial portion of costs are incurred outside Israel in U.S. dollars or paid in U.S. dollars, Euro or in New Israeli Shekel linked to the exchange rate of the U.S. dollar. Costs not effectively denominated in U.S. dollars are translated to U.S. dollars, when recorded, at prevailing exchange rates for the purposes of NURs consolidated financial statements, and will increase if the rate of inflation in Israel exceeds the devaluation of the Israeli currency against the U.S. dollar or if the timing of such devaluations were to lag considerably behind inflation. Consequently, NUR is and will be affected by changes in the prevailing NIS/U.S. dollar exchange rate.

NUR may also be affected by the U.S. dollar exchange rate to the Euro. Our sales of products and service in Europe, as well as purchases of components, are dominated by the Euro. The existence of a balance of Euro based assets which are mostly derived from sale of products and service over Euro based liabilities which are mostly related to purchase of components, exposes us to financial losses deriving from a potential devaluation of the U.S. dollar against the Euro. In order to reduce such exposure to the Euro, we offset balances of Euro based assets by taking loans in Euro. The Euro was evaluated against the U.S. dollar by approximately 7.9% in 2004, devaluated by approximately 13.3% in 2005 and evaluated by approximately 11.3% in 2006. NUR cannot predict whether these conditions will have a material adverse effect on it.

The annual rate of inflation in Israel was 1.2% in the year ended December 31, 2004, increased to 2.38% in the year ended December 31, 2005 and decreased to (0.1)% in the year ended December 31, 2006. The New Israeli Shekel was evaluated against the U.S. dollar by approximately 1.6% in 2004, devaluated by approximately 6.8% in 2005 and evaluated by approximately 8.2% in 2006. NUR cannot predict whether the rate of devaluation of the New Israeli Shekel against the U.S. dollar will continue to exceed the rate of inflation in the future and whether these conditions will have a material adverse effect on NUR.

The representative dollar exchange rate for converting the New Israeli Shekel to U.S. dollars, as reported by the Bank of Israel, was NIS 4.225 for one-dollar U.S. on December 31, 2006. The representative dollar exchange rate was NIS 4.603 on December 31, 2005 and NIS 4.308 on December 31, 2004.

Certain transactions and balances of NUR and certain subsidiaries are denominated by U.S. dollars and presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars in accordance with Statement of Financial Accounting Standards No. 52, Foreign Currency Translation. All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations as financial income or expenses, as appropriate. For those subsidiaries whose functional currency has been determined to be their local currency, assets and liabilities are translated at year-end exchange rates and statement of operations items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive loss in shareholders deficiency. The average exchange rates during the years ended December 31, 2004, 2005 and 2006 were 4.482, 4.487 and 4.456 NIS for one U.S. dollar, respectively. The exchange rate as of June 15, 2007 was NIS 4.175 for one U.S. dollar.

B. Liquidity and Capital Resources

NUR has incurred operating losses during the last five years. NUR may need additional funds if it seeks to expand its operations or if it does not meet its expected revenues in future quarters. If NUR is unable to raise funds through public or private financing of debt or equity, it will be unable to fund expenditures on research and development or the production and marketing of its products that could ultimately improve its financial results. We cannot assure you that additional financing will be available on commercially reasonable terms or at all. We currently have no commitments for additional financing. If we succeed in achieving our revenue and expense goals, we believe we will generate sufficient cash from operations to fund our operations and working capital needs for the next year.

NURs capital requirements and level of expenses depend upon numerous factors, including the scope and success of our marketing and customer service efforts, and of our research and development activities, as well as the demand for NURs products and services.

We have historically funded our operations primarily through the private sale of our equity securities and commercial bank loans. We invest our excess cash in cash and cash equivalents that are highly liquid. At December 31, 2006 we had approximately $4.9 million of cash and cash equivalents compared with $9.3 million at December 31, 2005 and $8.7 million at December 31, 2004.

As of December 31, 2006, NUR does not have material commitments for capital expenditures.

Operating activities

In the year ended December 31, 2006, NUR had a net loss of $1.9 million. Net cash used in operating activities was approximately $6.5 million. The main changes in NURs working capital were: (i) an increase of approximately $2.4 million in trade accounts receivable; (ii) a decrease of approximately $2.6 million in deferred revenues; and (iii) an increase of approximately $4.4 million in inventories.

In the year ended December 31, 2005, NUR had a net loss of $14.7 million. Net cash used in operating activities was approximately $4.1 million. The main changes in NURs working capital were: (i) a decrease of approximately $2.5 million in trade accounts receivable and long-term trade accounts receivable; (ii) a decrease of approximately $5.7 million in trade payables; and (iii) a decrease of approximately $3.6 million in inventories.

In the year ended December 31, 2004, NUR had a net loss of $22.0 million. Net cash used in operating activities was approximately $1.5 million. The main changes in NURs working capital were: (i) a decrease of approximately $5.2 million in trade accounts receivable and long-term trade accounts receivables; (ii) an increase of approximately $8.4 million in trade payables; and (iii) an increase of approximately $8.4 million in inventories.

Investing activities

Net cash used in investing activities was approximately $1.6 million in the year ended December 31, 2006, primarily due to investment in leasehold improvements and the purchase of property and equipment in the amount of $1.6.

Net cash used in investing activities was approximately $0.1 million in the year ended December 31, 2005, which is primarily due to purchase of office furniture and equipment in the amount of $0.8 million, which was offset by a release of restricted cash in the amount of $0.5 million.

Net cash used in investing activities was approximately $2.0 million in the year ended December 31, 2004, consisting mainly of $2.1 million that were attributed to the purchase of property and equipment.

Financing activities

Net cash provided by financing activities in the year ended December 31, 2006 was approximately $3.6 million, deriving primarily from the issuance of shares and warrants in the aggregate net amount of $7.0 million, a decrease in short-term bank credit and short-term bank loans in the amount of $1.8 million and payment of long-term debt, including interest on restructured debt in the amount of $1.6 million.

Net cash provided by financing activities in the year ended December 31, 2005 was approximately $4.4 million, deriving primarily from the issuance of shares and warrants in the aggregate net amount of $4.9 million, an increase in short-term bank credit and short-term bank loans in the amount of $1.5 million and a principal repayment of long-term loans in the amount of $2.1 million.

Net cash provided by financing activities in the year ended December 31, 2004 was approximately $1.4 million, deriving primarily from the issuance of shares, warrants and exercising of stock options in the aggregate amount of $4.5 million, and decrease in short and long-term bank loans and credit of $3.0 million.

In April 2004, we closed a private placement of approximately $3.0 million through the issuance of 2,586,140 of our ordinary shares to several investors at a price of $1.16 per share. The investors also received warrants to purchase additional 646,542 ordinary shares at an exercise price of $1.54 per warrant share, exercisable until March 2009. We also issued warrants to the placement agent to purchase an aggregate of up to 129,310 ordinary shares at an exercise price of $1.16 per share, exercisable until March 2009 and paid the placement agent, Duncan Capital Group, LLC, a cash fee of $142,798. Dan Purjes, our former chairman and former controlling shareholder, is the chairman of one of the investors, X Securities Ltd. that purchased 81,897 ordinary shares for $95,000 and received warrants to purchase 20,474 ordinary shares.

In October 2005, we raised $12 million through the private placement of 34,285,714 of our ordinary shares to a group of investors led by Fortissimo at a price of $0.35 per share. The Fortissimo investors also received warrants to purchase up to 25,714,286 ordinary shares at an exercise price of $0.40 per warrant share, exercisable until October 2010. For more information see Item 10.C: Material Contracts.

NUR maintained long and short-term credit facilities, excluding accrued interest on restructured debt and note from a related party, in an aggregate amount of approximately $23.9 million and $22.0 million as of December 31, 2005 and December 31, 2006, respectively. As of December 31, 2006, NUR has an unutilized short-term credit in the amount of $0.2 million. During 2005 and 2006, NUR repaid principal of approximately $2.1 million and $0 million on its long-term loans, respectively. As of December 31, 2006, NURs long-term loans which are linked primarily to the U.S. dollar, bear interest at rates of LIBOR plus 0.75%-2.5% per annum. As of December 31, 2006, debt to leasing companies carries interest at a rate ranging between 4.95% and 6.3% per annum.

The following table shows the outstanding amounts owed to Bank Hapoalim, Bank Leumi and Discount Bank as of June 15, 2007:

	Outstanding Debt (in thousands of U.S. dollars) — Credit Lines and short term loans (1)	Long-term loans (2)	Total
Bank Hapoalim	$ 5,161	$ 5,880	$ 11,041
Bank Leumi	$ 3,733	$ 4,034	$ 7,767
Discount Bank	$ -	$ 2,028	$ 2,028
Total	$ 8,894	$ 11,942	$ 20,836

| (1) | The
short-term loans from Bank Hapoalim, Bank Leumi and Bank Discount bear an
interest rate of LIBOR plus 0.25 - 0.75%. |
| --- | --- |
| (2) | The
long-term loans from Bank Hapoalim and Bank Leumi bear an interest rate of
LIBOR plus 0.75 - 2.50%. |

In June 2005, we amended the financial covenants governing the loan agreements with our lender banks for the second, third and fourth quarters of 2005. In addition, the banks agreed in writing to waive the non-performance by NUR of certain financial covenants for prior periods ended on March 31, 2005.

On September 12, 2005, we entered into a debt restructuring agreement with Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel Discount Bank Ltd. (the Lender Banks), which calls for the conversion of $14.5 million of outstanding debt into 8,000,000 warrants to purchase ordinary shares and a subordinated debt, and rescheduling the repayment of the remaining balance of its outstanding debt.

Under the new agreements the Lender Banks converted $5 million of the then outstanding bank debt into a three-year, non-interest bearing subordinated notes, which will be payable upon certain liquidation events only after the Lender Banks received $15 million as repayment of their outstanding bank debt. Under the terms of an agreement entered into between Fortissimo and the Lender Banks on September 12, 2005, the subordinated notes were assigned by the Lender Banks to Fortissimo. See Item 7.B: Related Party Transactions.

Under the new agreements, NUR also agreed to extend the expiration period of 1,340,000 warrants that were previously issued to the Lender Banks. The value of the 8,000,000 warrants issued to the Lender Banks in connection with the debt restructuring, together with the value of the extension of expiration of the previously issued warrants, amounted to $4 million, which is recorded as an increase in NURs additional paid-in capital. Under Statement of Financial Accounting Standard No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructuring, the balance between (a) the $14.5 million converted into 8,000,000 warrants, and (b) the sum of the additional paid-in capital related to the Lender Banks warrants, is attributed to NURs long-term bank debt and is deemed to be accrued interest on the restructured bank debt. Future interest on the restructured debt will be recorded as a reduction to accrued interest and not as an interest expense. As of December 31, 2006, this accrued interest aggregates to $9.0 million.

Under the terms of the new agreements, NUR has agreed to maintain certain financial ratios. The first measurement of the financial covenants will take place following the end of the third quarter of 2008 based on NURs financial results during the first three quarters of 2008, and will be measured on a quarterly basis thereafter, which measurement will take into account the previous four calendar quarters. If NUR does not meet the financial covenants mentioned above, it may remedy such default by paying to the Lender Banks, in a single payment upon the determination of the occurrence of such default principal that would have been paid quarterly during the twelve consecutive calendar months that immediately follow such default. The debt restructuring was consummated in December 2005. For more information regarding the debt restructuring agreement see Item 10.C: Material Contracts.

NURs loans are secured by a floating lien on all assets of NUR, a negative pledge of the assets of its subsidiaries, NUR America, NUR Europe, NUR Media Solutions, NUR Asia Pacific and NUR Shanghai and unlimited guarantees by those subsidiaries. The long-term and short-term loans also contain customary events of default, including the failure to pay interest or principal, breach of any obligation, representation or warranty made under the loan agreements, bankruptcy, or a change in control event relating to NUR. The loans are governed by the laws of the State of Israel.

We believe that the new agreements of September 2005 will allow a better alignment between the debts magnitude and NURs current business plan. Our failure to observe covenants when due or satisfy conditions under the loan agreements may result in the banks accelerating our obligations, which would obligate us to immediately repay all loans made by the banks plus penalties, and the banks would be entitled to exercise the remedies available to them under the credit facility, including enforcement of their lien against all our assets, which may result in a material adverse effect on our business and financial results. The long-term loans are repayable in annual installments beginning as of 2008 and until 2015.

As of December 31, 2006, total current assets of NUR amounted to approximately $34.0 million, out of which $4.9 million was in cash and cash equivalents, compared with total current liabilities of approximately $33.6 million. The decrease in cash was used to finance the increase in accounts receivable and inventory driven by the growth of our business and to repay a short-term loan.

As of December 31, 2005, total current assets of NUR amounted to approximately $33.7 million, out of which $9.3 million was in cash and cash equivalents, compared with total current liabilities of approximately $37.1 million. The decrease in current assets is attributable primarily to decrease in inventory and account receivables.

As of December 31, 2004, total current assets of NUR amounted to approximately $45.2 million, out of which $8.7 million was in cash and cash equivalents, compared with total current liabilities of approximately $72.9 million.

We have granted several security interests in our assets to various banks and leasing companies to secure bank credit lines and lease facilities.

Outstanding Warrants

As of June 15, 2007, NUR had outstanding warrants to purchase a total of 43,782,756 ordinary shares, out of which warrants to purchase 43,707,756 ordinary shares are exercisable within 60 days. Of such warrants (i) 70,000 were issued to Bank Hapoalim as part of the rescheduling of NURs long-term debt, (ii) 50,000 were issued to Bank Leumi as part of the rescheduling of NURs long-term debt (iii) 140,000 were issued to Bank Hapoalim as part of the amendments of the covenants governing the rescheduling of NURs long-term debt, (iv) 100,000 were issued to Bank Leumi as part of the amendments of the covenants governing the rescheduling of NURs long-term debt, (v) 505,000 were issued to Bank Hapoalim as part of the amendments of the covenants governing NURs debt, (vi) 350,000 were issued to Bank Leumi as part of the amendments of the covenants governing NURs debt, (vii) 27,000 were issued to Bank Discount as part of the amendments of the covenants governing NURs debt, (viii) 98,000 were granted to Bank Discount as part of the agreement regarding the covenants governing NURs debt, (ix) 951,922 were granted to the investors participating in NURs credit line commitment in October 2003, (x) 67,308 were granted to the placement agent in connection with NURs credit line commitment in October 2003, (xi) 112,903 were granted to the placement agent in connection with NURs credit line commitment in October 2003, (xii) 646,542 were granted to the investors participating in NURs private placement in March 2004, (xiii) 129,310 were issued to Duncan Capital Group, LLC as placement agent in connection with NURs private placement of March 2004, (xiv) 3,000,000 were granted to Dan Purjes in connection with a voting trust agreement and voting agreement discussed in Item 10.C: Material Contracts; (xv) 25,714,286 were granted to investors participating in NURs private placement in August 2005 discussed in Item 10.C: Material Contracts; (xvi) 8,000,000 were issued to Bank Hapoalim, Bank Leumi and Discount Bank in September 2005 in connection with a debt restructuring agreement discussed in Item 10.C: Material Contracts; (xvii) 300,000 were granted to the former president and chief executive officer in connection with the termination of his engagement; and (xviii) 3,520,485 were granted to the investors participating in NURs private placement in January and February 2007. The Bank Hapoalim and Bank Leumi warrants are exercisable at $5.00 per share no later than August 2007. The additional Bank Hapoalim and Bank Leumi warrants are exercisable at $0.34 per share no later than September 2008. The first Bank Discount warrant is exercisable at $0.72 per share no later than December 2008. The second Bank Discount warrant, the third Bank Hapoalim and Bank Leumi warrants are exercisable at $0.62 per share no later than January 2009. The credit line commitment warrants and the first credit line commitment placement agent warrants are exercisable at $0.52 per share no later than October 2008. The second credit line commitment placement agent warrants are exercisable at $0.62 per share no later than March 2009. The private placement warrants are exercisable at $1.54 per share no later than March 2009. The Duncan Capital warrants are exercisable at $1.16 per share no later than March 2009. The Dan Purjes warrants are exercisable at $0.75 per share no later than April 2010. The 2005 private placement warrants are exercisable at $0.40 per share no later than October 2010. The 2005 bank debt restructuring warrants are exercisable at $0.35 per share no later than December 2010. The former president and chief executive officer warrants are exercisable at $0.51 per share no later than December 2007. The 2007 private placement warrants are exercisable at $0.65 per share no later than January 2012.

C. Research and Development, Patents and Licenses

NURs research and development center, which currently engages 55 employees, is focused on developing new products, enhancing the quality and performance relative to price of our existing products, reducing manufacturing costs, upgrading and expanding our product line through the development of additional features and improving functionality in response to market demand.

All of our research and development activities are conducted at our headquarters facility in Lod, Israel.

Total research and development expenses were approximately $8.0 million, $7.1 million and $5.8 million in the years ended December 31, 2004, 2005 and 2006, respectively. We did not receive royalty bearing grants in 2004, 2005 and 2006.

D. Trend Information

Losses

Operating losses during the years ended December 31, 2004, 2005 and 2006 were $19.3 million, $9.8 million and $0.5 million, respectively. The decrease in our operating losses over the last three years is mainly attributable to the improvement in gross margins and the reduction of operating expenses.

Printers Sales

Revenues from sales of NUR printers and spare parts, which comprised 64.3% of NURs total revenues in 2006, increased by $3.3 million in 2006 compared to 2005. This increase is primarily attributable to the increased demand for our UV ink based printers.

We can offer no assurance that NUR will be able to maintain the increase in its market share in the wide and super wide format market or to increase the revenues from sales of its printers.

Consumables Sales

During the past few years, NUR has refocused its recurring revenues strategy for consumables. NUR ceased selling substrates in 2003 and has concentrated its efforts in selling and marketing consumables only to ink products. Revenues from ink products were increased by 16.8% in 2006 compared to 2005 driven by the growth of our UV ink based printers install base. NUR is constantly working on development of new products intended to maintain a differentiation between our ink products and those of our competitors.

There can be no assurance that NUR will succeed in maintaining its market share in the consumables market, increase its revenues from sales of its consumables or succeed in developing and successfully marketing new ink products.

Gross Margins

The increase in gross margins in 2006 was primarily due to the improvement in the margins of our ink sales and the significant reduction in inventory write-offs.

Industry

With the cost of digital printing expected to decrease and the ability of digital technology expected to produce shorter runs more economically, we believe that the use of wide format and super wide format printing, such as that produced by NUR printers, should grow over time, and that the portion of the market serviced by digital printing should continue to increase. The ability to produce wide format and super wide format images digitally has also opened new media opportunities for advertisers, such as mural printing, carpet printing, new forms of fleet graphics printing. The growth in demand for wide format digital printers is fueled both by the replacement of conventional print methods and the development of new printing applications.

Although we expect the above trends to continue worldwide, the digital printing penetration rate to new markets may differ geographically.

E. Off-Balance Sheet Arrangements

We are not a party to any material off-balance sheet arrangements. In addition we have no unconsolidated special purpose financing or partnership entities that are likely to create material contingent obligations.

F. Contractual obligations

The following table of our material contractual obligations as of December 31, 2006, summarizes the aggregate effect that these obligations are expected to have on our cash flows in the periods indicated:

| Contractual
Obligations | Payments due by period (in thousands of U.S. dollars) — Total | Less than 1 year | 1 3
years | 3 5
years | more than 5 years |
| --- | --- | --- | --- | --- | --- |
| Long-Term Rent
Obligations(1) | 3,405 | 1,181 | 2,100 | 124 | - |
| Capital (Finance) Lease
obligations(2) | 1,083 | 174 | 524 | 385 | - |
| Operating Lease
Obligations(3) | 1,741 | 869 | 872 | - | - |
| Accrued severance pay(4) | 1,408 | - | - | - | 1,408 |
| Long term debt obligations
(5) | 17,345 | 908 | 4,508 | 6,585 | 5,344 |
| Total | 24,982 | 3,132 | 8,004 | 7,094 | 6,752 |

| (1) | We operate from leased
premises in Lod and Ashkelon in Israel. We also lease premises for our
subsidiaries activities in the United States, Hong Kong and Japan. |
| --- | --- |
| (2) | NUR Europe conducts its
activities in Belgium from premises leased by it. Upon completion of
payments, NUR Europe will own the premises. |
| (3) | Operating lease
obligations relate to leases of motor vehicles. |
| (4) | Accrued severance pay
relates to obligations to our Israeli employees as required under Israeli
labor law. These obligations are payable, among others, upon termination,
retirement or death of the respective employee. Of this amount, only $348 is
unfunded. |
| (5) | Certain of our debt
contains variable interest components. The data included in the table is
based on the indexed rate in effect on the balance sheet date. Any
perspective changes as a result of such variability are excluded. $5 million of note from a related party is
excluded as the Company assumes the note will expire on December 8, 2008. |

ITEM 6: Directors, Senior Management and Employees

A. Directors and Senior Management

During 2006 and until June 15, 2007 one of our directors, one of our external directors and certain members of our senior management were replaced. The directors and senior managers who left NUR during 2006 and until June 15, 2007 are as follows:

| Name | Age | Former
position with NUR |
| --- | --- | --- |
| Marc Lesnick | 40 | Director |
| Koby Shtaierman | 52 | Director |
| Kobi Markovitz | 54 | Chief Technology Officer |
| Roni Zomber | 51 | Vice President of
Operations |
| Nachum Korman | 45 | President, NUR America,
Inc. |
| Amir Kleinstern | 46 | Managing Director, NUR
Asia Pacific Limited |
| Marco Baio | 44 | Managing Director, NUR
Europe S.A. |

The current directors and senior management of NUR are as follows:

| Name | Age | Position
with NUR |
| --- | --- | --- |
| Yuval Cohen (1) | 44 | Chairman of the Board of
Directors |
| Eli Blatt(1) | 44 | Director |
| Shmoulik Barashi | 44 | Director |
| Hemi Raphael(2) | 55 | Director |
| Oded Akselrod(3) | 61 | Director |
| Lauri A. Hanover (1)(3)(4) | 47 | Director |
| Alon Lumbroso(3)(4) | 50 | Director |
| David Reis | 46 | President and Chief
Executive Officer |
| Yosef Zylberberg | 46 | Chief Operating Officer
and Chief Financial Officer |
| Assaf Eyal | 46 | Executive Vice President |
| Shuky Garibi | 49 | Vice President of Research
and Development |
| Itzik Arbesfeld | 40 | Vice President of Human
Resources |
| Eran Cohen | 48 | Vice President of
Operation |
| Menashe Ben Chaim | 44 | Vice President of
Consumables |
| Igal Zeitoun | 37 | Vice President of Customer
Support |
| Mark Packman | 52 | President, NUR America,
Inc. |
| Jean Marc Blum | 41 | Managing Director, Middle
East and Africa |
| Andrew Middleton | 44 | Managing Director, NUR
Europe S.A. |
| Roni Klein | 46 | Managing Director, NUR
Asia Pacific Limited |

| (1) | Member of
NURs Stock Option and Compensation Committee. |
| --- | --- |
| (2) | Elected
pursuant to a shareholders agreement between Fortissimo (on behalf of the
several partnerships with respect to which it serves as general partner) and
Kanir, dated October 31, 2005. |
| (3) | Member of
NURs Audit Committee. |
| (4) | External
Director. |

The address of each of our senior managers and directors is c/o NUR Macroprinters Ltd., 12 Abba Hillel Silver Street, P.O. Box 1281, Lod 71111, Israel.

Yuval Cohen has served as a director of NUR since October 2005. Mr. Cohen is the Founding and Managing Partner of Fortissimo Capital Fund, which was established in January 2003. From February 2002 through January 2003, Mr. Cohen worked on the formation of Fortissimo and served on the boards of directors of several technology companies in Israel. From September 1997 through February 2002, Mr. Cohen was a General Partner at Jerusalem Venture Partners (JVP), an international venture capital firm with over $650 million under management. As a General Partner of JVP, Mr. Cohen co-led fundraising efforts, and was involved in all investment decisions and the management of various JVP portfolio companies. Mr. Cohen led the investment and served on the board of several JVP portfolio companies, including the following: Precise Software Solutions, Inc. (Nasdaq: PRSE, later sold to Veritas Nasdaq:VRTS), T.sqware, Inc. (sold to Globespan, Inc., Nasdaq: GSPN), PowerDsine Ltd. (Nasdaq: PDSN), Sheer Networks (sold to Cisco, Nasdaq: CSCO) and XmPie (sold to Xerox, NYSE: XRX). From June 1996 through August 1997, Mr. Cohen was the Vice President of Marketing at VDOnet Corporation, a provider of software solutions for video over the Internet. From May 1995 through June 1996, Mr. Cohen served as the Vice President of Business Development at DSP Group, Inc. (Nasdaq: DSPG), a provider of DSP software and hardware solutions for communications and computer markets. From December 1991 through May 1995, Mr. Cohen served as the Manager of Business Development at Intel Capital at Intel Corporation (Nasdaq: INTC). Mr. Cohen is the Chairman of the board of directors of Telrad Networks Ltd. (Telrad), a telecommunication equipment provider, of Soda Club Enterprises N.V. (Soda Club), a manufacturer of home carbonation systems, and of Fortissimo Acquisition Corp., a special purpose acquisition corporation formed by Fortissimo, and is a director of Hadasit Bio-Holdings Ltd., a holding company of medical and biotech startup companies controlled by Hadassah Hospital in Israel and publicly traded on the Tel Aviv Stock Exchange. Mr. Cohen received an MBA from the Harvard Business School and a B.Sc. in Industrial Engineering from Tel Aviv University.

Eli Blatt has served as a director of NUR since October 2005. Mr. Blatt joined Fortissimo as a partner in January 2005. Prior to joining Fortissimo, from March 1999 through December 2004, Mr. Blatt was the Chief Financial Officer and Vice President operations of Noosh, Inc., a supplier of cross-enterprise e-business software solutions. At Noosh, Mr. Blatt was responsible for the general management of Nooshs Finance and Operations activities including the companys M&A strategy and initiatives. From September 1997 through February 1999, Mr. Blatt was the Director of Operations at CheckPoint Software Technologies Inc., an Internet security company, where he was responsible for OEM operations, product licensing and customer service. From February 1995 through August 1997, Mr. Blatt served as the Operations Controller at Madge Networks (sold to Lucent). From September 1993 through January 1995, Mr. Blatt held Finance and Operations positions at Intel Corporation. Mr. Blatt serves on the boards of directors of Telrad, Fortissimo Acquisition Corp, Soda Club and RadView Software Ltd. (RadView; OTC BB:RDVWF), a provider of application testing software and services. Mr. Blatt received an MBA degree from Indiana University and a B.Sc. degree in Industrial Engineering from Tel Aviv University. Mr. Blatt also served as a fighter pilot in the Israeli air force.

Shmoulik Barashi has served as a director of NUR since October 2005. Mr. Barashi joined Fortissimo as a partner in May 2005. From January 2001 through May 2005, Mr. Barashi served as a senior partner in BDO Ziv Haft, one of the five largest accounting firms in Israel. Ziv Haft is the Israeli representative office of the international accounting firm of BDO. At BDO, Mr. Barashi specialized in corporate finance, IPOs, deal structuring, business consultancy, auditing and tax. From March 1993 through December 2000, Mr. Barashi managed his own accounting firm, which he later merged into BDO Ziv Haft. Mr. Barashi serves on the board of directors of Fortissimo Acquisition Corp and Soda Club. Mr. Barashi received an MBA from Hebrew University (specialty finance) and an LLM from Bar Ilan University. Mr. Barashi is a certified public accountant in Israel.

Hemi Raphael has served as a director of NUR since June 2006. Mr. Raphael is an entrepreneur and a businessman involved in various real estate and financial investments. Mr. Raphael also serves as a director of Cargal Ltd. since May 2004. Prior thereto, from 1984 to 1994, Mr. Raphael was a partner at the law firm of Goldberg Raphael & Co. Mr. Raphael holds an LLB degree from the School of Law at the Hebrew University of Jerusalem and he is a member of the Israeli Bar Association and the California Bar Association.

Oded Akselrod has served as a director of NUR since February 2002. Mr. Akselrod was the general manager of the Investment Corp. of United Mizrahi Bank Ltd., a wholly owned subsidiary of United Mizrahi Bank Ltd. that was merged into United Mizrahi Bank Ltd. on October 2004. Prior to joining the Investment Corp. of United Mizrahi Bank, from 1994 to 1997, Mr. Akselrod held the position of general manager of Apex-Leumi Partners Ltd. as well as Investment Advisor of Israel Growth Fund. Prior thereto, from 1991 to 1994, Mr. Akselrod served as general manager of Leumi & Co. Investment Bankers Ltd. Mr. Akselrod began his career in various managerial positions in the Bank Leumi Group including member of the management team of Bank Leumi, deputy head of the international division, head of the commercial lending department of the banking division, member of all credit committees at the Bank, assistant to Bank Leumis CEO and head of international lending division of Bank Leumi Trust Company of New York. Mr. Akselrod holds a Bachelors degree in Agriculture Economics from Hebrew University, Jerusalem and an MBA degree from Tel Aviv University. Mr. Akselrod is also a director of Gadish Global Ltd., Gadish Investments in Provident Funds Ltd. and Gadish Global Financial Services (2007) Ltd.

Lauri A. Hanover has served as an external director of NUR since November 2003. Ms. Hanover is the senior vice president and chief financial officer of Lumenis Ltd. since August 2004. Prior to that she served as the corporate vice president and chief financial officer of NICE Systems Ltd. from 2000 to 2004. She previously served as executive vice president and chief financial officer of Sapiens International Corporation N.V., from 1997 to 2000. From 1984 to 1997, Ms. Hanover served in a variety of financial management positions, including corporate controller at Scitex Corporation Ltd. and from 1981 to 1984 as financial analyst at Philip Morris Inc. (Altria). Ms. Hanover holds Bachelors degrees from the Wharton School of Business and from the College of Arts and Sciences, both of the University of Pennsylvania. Ms. Hanover also holds a Masters degree in business administration from New York University. Ms. Hanover qualifies as an external director according to the Companies Law.

Alon Lumbroso has served as an external director of NUR since November 2006. Mr. Lumbroso serves as the Chief Executive Officer of Larotec Ltd. since the end of 2005. Mr. Lumbroso previously served as Chief Executive Officer of Mindguard Ltd., from 2003 to 2004. From 2000 to 2003, Mr. Lumbroso served as the managing director of the European subsidiary of Creo, Inc. Prior to that, Mr. Lumbroso served in a various executive positions, including VP Operations, VP Marketing and managing director of the Asian Pacific subsidiary of Scitex Corporation. In his positions with Scitex Corporation and Creo, Mr. Lumbroso was responsible for sales, marketing and service of prepress and digital printing equipment, including wide format digital printers. Mr. Lumbroso serves as the Chairman of Bioexplorers Ltd. and as a director of Larotec Ltd. Mr. Lumbroso holds an MBA from Bar Ilan University and a B.Sc. in Industrial Engineering from Tel-Aviv University. Mr. Lumbroso qualifies as an external director according to the Companies Law.

David Reis has served as president and chief executive officer since February 2006. Mr. Reis has extensive previous experience in the wide-format inkjet production printing industry. Prior to joining NUR, Mr. Reis served as president and CEO of ImageID, a venture backed technology startup. Prior thereto, from 1996 to 2002 he was the president and CEO of Scitex Vision Ltd. (formerly Idanit), a manufacturer of wide-format digital printers that was acquired by Scitex Corporation in 1998. Mr. Reis holds a B.A. in Economics and Business Administration and an MBA from Denver University.

Yosef Zylberberg has served as chief operating officer and chief financial officer since February 2006. Prior to joining NUR, Mr. Zylberberg served as chief financial officer and chief operating officer of several private and public companies. In his most recent position, Mr. Zylberberg served as chief operating officer of Kodak Versamark, a wholly owned subsidiary of Eastman Kodak Company (formerly Scitex Digital Printing). Previously, Mr. Zylberberg served in various senior positions in Scitex Corporation Ltd., a corporation traded on both Nasdaq and the Tel Aviv Stock Exchange, including as chief operating officer of Scitex Digital Printing, Inc., as corporate vice president and chief financial officer of Scitex Corporation Ltd., and as CFO and VP operations at Scitex America, Inc. Mr. Zylberberg holds a B.A. in Accounting and Economics and an MBA from Tel Aviv University.

Assaf Eyal has served as an executive vice president responsible for sales, marketing, business development, ink and service since June 2006. Prior to joining NUR, Mr. Eyal served in Orbotech Ltd., a leading multi-national manufacturer of inspection tools serving the electronics and the Flat Panel Display industries for over 17 years in various management positions in the United States, Hong Kong and in the corporate world wide headquarters located in Israel. From 2001 to 2006, Mr. Eyal was the president of the Display Division of Orbotech. From 1998 to 2001, Mr. Eyal built the Orbotechs FPD organization in the Asia-Pacific region including technical support, sales, marketing and applications. Mr. Eyal holds an M.Sc in Management from Lesley College, Cambridge, Massachusetts and a B.Sc in Material Engineering from the Ben Gurion University.

Shuky Garibi has served as vice president of research and development since March 2006. Prior to joining NUR, Mr. Garibi served in various senior positions in Scitex Corporation, later Creo and recently Kodak. In his most recent position Mr. Garibi served as Managing Director of Creos Scanner Division (now a wholly owned subsidiary of Kodak), and Scanner Products Line Manager. Prior to that, Mr. Garibi served for over 15 years in various research and development positions in Scitex Corporation. Mr. Garibi holds a B.Sc. in Electrical Engineering from Ben-Gurion University and an Executive MBA from Tel Aviv University.

Itzik Arbesfeld has served as vice president of human resources since November 2005. Prior to joining NUR, Mr. Arbesfeld headed the human resources department of Soda-Club Ltd., a worlds leading producer of in-home carbonation systems. Prior to that, from 1998 to 2004, Mr. Arbesfeld served in various HR positions, in Israel and in the UK, in Amdocs, reaching the position of HR Director for Amdocs European Operation. Prior thereto, Mr. Arbesfeld served as a Human Resources Manager in Teva Pharmaceutical Industries. Mr. Arbesfeld holds a B.A. in Political Science and Sociology and M.A. in Labor Studies from Tel-Aviv University.

Eran Cohen has served as vice president of operations since April 2006. Prior to joining NUR, Mr. Cohen served as vice president of finance and operations of Orbotech Japan, a subsidiary of Orbotech Ltd., a leading multi-national manufacturer of inspection tools serving the electronics and the Flat Panel Display industries. Prior thereto, from 1999 to 2002, Mr. Cohen was the director of corporate logistic of Orbotech Ltd. Prior to joining Orbotech, Mr. Cohen was chairman and managing director of Agada, a kibbutzs holding company. Mr. Cohen holds a B.Sc. in Economics and Management from the Technion and an EMBA from Tel-Aviv University.

Menashe Ben Chaim has served as vice president of consumables since September 2006. Prior to that, Mr. Ben Chaim led the ink operations and Ink R&D at NUR during 2003 to 2006. Prior to joining NUR, Mr. Ben Chaim served as Vice President of Operations at Electric Fuel Corporation, a world leading producer of Zinc Air batteries. Prior thereto, Mr. Ben Chaim served as President and Vice President of Operations at Chaman, one of the biggest paper converting enterprise at Israel. Mr. Ben Chaim holds a B.Sc in Mechanical engineering from Tel Aviv University and Diploma in Business Administration from Haifa University.

Igal Zeitoun has served as vice president of customer Support since April 2007. Prior to that Mr. Zeitoun served as a senior project manager at NURs research and development department since 2005. Prior to joining NUR, Mr. Zeitoun served in various R&D positions at Objet Geometries Ltd., a company who specializes in Ink-jet 3D modeling. From 1996 to 1998 Mr. Zeitoun served as a product leader at Medtronic-InStent Ltd., an Israeli company who specialized in medical devices. Mr. Zeitoun holds a Master of Science in Mechanical Engineering and a Bachelor of Science in Mechanical Engineering from the Technion Institute of Technology in Haifa, Israel.

Mark Packman has served as president of NUR America, Inc. since November 2006. Prior to joining NUR, Mr. Packman served as National Leasing Manager for Neopost, an international leader in the mailing industry from 2005 to 2006. Mr. Packman also had extensive work in the financial community from 2003 to 2005. Prior to that, from 2001-2002, Mr. Packman served as president of Object Geometrics, a private Israeli start-up company. Mr. Packnam also served as director of sales of Scitex and of Creo Inc. (now a wholly owned subsidiary of Eastman Kodak Co. (NYSE: EK)) from 1995 to 2000. Mr. Packman holds a Bachelor of Science degree in Business Administration from The University of Phoenix.

Jean Marc Blum has served as managing director of NUR Middle East & Africa since October 2006. Prior to joining NUR, from 2005 to 2006, Mr. Blum was the Vice President of Sales & Marketing at Printar Ltd., a company developing digital solutions for the PCB market. From 1996 to 2004, Mr. Blum held different positions, including Director of Business Development and VP Marketing, at Scitex Vision Ltd. Mr. Blum holds a BSc Degree in Electrical Engineering and a Diploma in Business Administration from the Technion in Haifa, Israel.

Andrew Middleton has served as managing director of NUR Europe since February 2007. In his most recent position, from 2004 to 2007, Mr. Middleton served as vice president sales EMEA at HP Indigo Press. Before that, from 2000 to 2004, Mr. Middleton served as general manager worldwide distribution channels at HP Digital Press and, from 1994 to 2000, held various positions at Indigo (currently HP Indigo). Prior to his thirteen years at HP Indigo, Mr. Middleton held several positions at Dainippon Screen. Mr. Middleton holds a degree from Cauldon College in the United Kingdom.

Roni Klein has served as Managing Director of NUR Asia Pacific Limited since April 2006. Prior to joining NUR, from 2001 to 2006 Mr. Klein served as director and manager of South East Asian Branch of Orbotech Asia Pacific, a wholly-owned subsidiary of Orbotech Ltd. (Nasdaq: ORBK), a world market leader in Automated Optical Inspection solutions for the PCB, PCBA and FPD markets. Prior thereto, from 1996 to 2001, Mr. Klein served as regional manager for Orbotech Inc., a wholly-owned subsidiary of Orbotech Ltd.

Directors and members of senior management that also served during 2006 and until June 15, 2007:

Marc Lesnick has served as a director of NUR until June 2006. Mr. Lesnick joined Fortissimo as a partner in May 2003. From October 2001 through May 2003, Mr. Lesnick served as an independent consultant to high tech companies and institutional investors. From September 1997 through June 1999, Mr. Lesnick served as the Managing Director at Jerusalem Global, a boutique investment bank that specialized in raising capital for Israeli based technology startup companies. Mr. Lesnick managed a team of 10 professionals and was instrumental in raising in excess of $250 million for 35 companies, several of which later went public or were acquired. Prior to moving to Israel and joining Jerusalem Global, Mr. Lesnick served as a senior corporate attorney at the New York offices of Weil, Gotshal & Manges from September 1992 through September 1997. Mr. Lesnick serves on the board of directors of Telrad, Fortissimo Acquisition Corp. and Soda Club. Mr. Lesnick received a JD from the University of Pennsylvania and a BA from Yeshiva University.

Koby Shtaierman served as an external director of NUR until November 2006. Mr. Shtaierman currently serves as vice president marketing and sales of Advanced Vision Technology Ltd. From 1996 to 1998, Mr. Shtaierman served as vice president of corporate marketing for Tecnomatix Technologies Ltd. From 1985 to 1995, Mr. Shtaierman served as marketing director of the input system division of Scitex Corporation. Prior thereto Mr. Shtaierman held various positions at Israel Aircraft Industries. Mr. Shtaierman holds a B.Sc. and M.Sc. degrees in Electronics and Computer Engineering from the Technion, Haifa. Mr. Shtaierman qualifies as an external director according to the Companies Law.

Kobi Markovitz served as chief technology officer until March 2007. Prior to his appointment as chief technology officer Mr. Markovitz served as NURs vice president of technologies since September 1998. Prior to joining NUR, Mr. Markowitz was founder and CEO of Meital, a private start-up company specializing in characterizing printing technologies that developed, designed, and manufactured wide-format, drop-on-demand based digital printers. Meitals assets were purchased by NUR in 1998 and its technology was integrated into NUR. From 1994, Mr. Markowitz and Meitals research and development team were strategic partners in designing the worlds first wide format, drop-on-demand based digital printer at Idanit.

Roni Zomber has served as vice president of operations until April 2006. Prior to this Mr. Zomber served as a VP of operations and a member of the management of M-Systems Flash Disk Pioneers Ltd. (Nasdaq: FLSH). Previously, Mr. Zomber spent 8 years as an executive VP and a member of the management of Nice Systems Ltd. (Nasdaq: NICE) and prior to this Mr. Zomber spent 9 years at Scitex as a planning and control manager. Mr. Zomber holds a practical engineer diploma and a B.A. in Business administration from New England College, Henniker, New Hampshire.

Nachum Korman served as president of NUR America, Inc. until November 2006. Mr. Korman joined NUR in 1999 heading up its NURs business in the Middle East and Africa, and became vice president of NUR Europe S.A. in July 2000. Mr. Korman was president of NUR Europe from January 2001 and until June 2003. Prior to joining NUR Mr. Korman served as operations director and sales director for the Middle East and Africa at Scitex Corporation. Previously, Mr. Korman held a sales logistics management role at Scitex Europe S.A. following his earlier career at Elbit and Optrotec Belgium.

Amir Kleinstern has served as managing director of NUR Asia Pacific until May 2006. Previously, Mr. Kleinstern had provided consulting services to NUR. Prior to this, Mr. Kleinstern held the position of vice president of research and development at Paspartoo Ltd., a company specializing in virtual-to-print technology. Previously, Mr. Kleinstern spent 12 years with Scitex Corporation, both in Israel and in the U.S., in a variety of management, marketing and technical positions. Mr. Kleinstern holds a B.Sc. and a M.Sc. in Mathematics and Computer Sciences from the Ben Gurion University.

Marco Baio served as managing director of NUR Europe until February 2007. Prior to this Mr. Baio served as president of Objet Geometries Europe, a company specializing in the development and marketing of rapid prototyping systems. Previously, Mr. Baio spent 9 years at Scitex Corporation where he served, at different periods, as managing director of Scitex Italy and Scitex Germany.

B. Compensation

Salaries, fees, commissions and bonuses paid with respect to all of our directors and senior management as a group (including the directors and members of our senior management who left during 2006 and until June 15, 2007) in the fiscal year ended December 31, 2006 was $2.6 million, out of which an amount of $0.1 million was related to pension, retirement and other similar benefits.

Our senior management is entitled to receive part of its compensation under our Management by Objectives (MBO) Compensation Plan. The MBO sets annual goals to be achieved by the executive officers throughout the year. The percentage of achievement determines the percent of the MBO bonus paid to each member of our senior management. The MBO plan for the benefit of NURs chief executive officer is administered by the Stock Option and Compensation Committee. The MBO plan for the benefit of the other executive and senior officers is administered by the chief executive officer. A portion of the bonus amounts are paid in cash in the year for which they are awarded and the balance is paid in cash in the year following the financial year for which they are awarded. In 2006, some of our senior management members received payments with respect to their achievements in 2005 and 2006 while others are entitled to receive compensation for their achievements in 2006 only in 2007.

In addition, a total of 4,571,667 options to purchase ordinary shares were granted in 2006 to members of our senior management and directors (including the directors and members of our senior management who left during 2006 and until June 15, 2007). The 4,571,667 options granted had a weighted average exercise price of approximately $0.60 per share and have expiration dates in 2016. As of June 15, 2007, directors and senior management of NUR hold options to purchase an aggregate of 8,388,334 ordinary shares issuable pursuant to exercise of such securities. The options were granted pursuant to the plans and arrangements described under Item 6.E: Share Ownership.

NUR and Fortissimo entered into a management agreement. In consideration of the performance of the management services and the board services under the terms of the management agreement NUR agreed to pay to Fortissimo an aggregate annual management services fee in the amount of $250,000 plus value added tax pursuant to applicable law. For more information regarding the management agreement see Item 10.C: Material Contracts.

We pay our non-employee directors (other than Yuval Cohen, Eli Blatt, Shmoulik Barashi and Hemi Raphael (the Fortissimo Group Directors)) remuneration for their services as directors. This remuneration includes an annual payment of $8,000 and additional payments of $500 per meeting and $250 per committee meeting. The chairman of the Board and chairman of any committee, except for the Fortissimo Group Directors, are also entitled to receive an additional annual fee of $5,000. Each non-employee director, except for the Fortissimo Group Directors, also receives an annual grant of options to purchase 10,000 ordinary shares under the terms and conditions set forth in NURs 1998 Non-Employee Director Share Option Plan. The directors do not receive any additional remuneration upon termination of their services as directors.

In 1998, NUR adopted the 1998 Non-Employee Director Share Option Plan to provide for grants of options to purchase ordinary shares to non-employee directors of NUR. The 1998 Plan, as amended, is administered, subject to Board approval, by the Non-Employee Director Share Option Committee. An aggregate amount of not more than 750,000 ordinary shares is reserved for grants under the 1998 Plan. The 1998 Plan will expire on December 8, 2008 (10 years after adoption), unless earlier terminated by the Board.

Under the 1998 Non-Employee Director Share Option Plan, each non-employee director that served on the 1998 Grant Date, as defined below, automatically received an option to purchase 10,000 ordinary shares on such Grant Date and will receive an option to purchase an additional 10,000 ordinary shares on each subsequent Grant Date thereafter, provided that he or she is a non-employee director on the Grant Date and has remained a non-employee director for the entire period since the previous Grant Date. The Grant Date means, with respect to 1998, October 26, 1998, and with respect to each subsequent year, August 1. Directors first elected or appointed after the 1998 Grant Date, will automatically receive on such directors first day as a director an option to purchase up to 10,000 ordinary shares prorated based on the number of full months of service between the prior Grant Date and the next Grant Date. Each such non-employee director would also automatically receive, as of each subsequent Grant Date, an option to purchase 10,000 ordinary shares provided that he or she is a non-employee director on the Grant Date and has served as a non-employee director for the entire period since the previous Grant Date.

The exercise price of the option shares under the 1998 Plan is 100% of the fair market of such ordinary shares at the applicable Grant Date. The fair market value means, as of any date, the average closing bid and sale prices of the ordinary shares for the date in question as furnished by the National Association of Securities Dealers, Inc. through Nasdaq or any similar organization if Nasdaq is no longer reporting such information, or such other market on which the ordinary shares are then traded, or if not then traded, as determined in good faith (using customary valuation methods) by resolution of the members of the Board of Directors of NUR, based on the best information available to it. The exercise price is required to be paid in cash.

The term of each option granted under the 1998 Non-Employee Director Share Option Plan is 10 years from the applicable date of grant. All options granted vest immediately upon the date of grant.

The options granted would be subject to restrictions on transfer, sale or hypothecation. All options and ordinary shares issuable upon the exercise of options granted to the non-employee directors of NUR could be withheld until the payment of taxes due with respect to the grant and exercise (if any) of such options.

C. Board Practices

According to the provisions of NURs Amended and Restated Articles of Association (the Articles) and the Companies Law, the board of directors convenes in accordance with the Companys requirements, and is required to convene at least once every three months. Furthermore, the Companies Law provides that the board of directors may also pass resolutions without actually convening, provided that all the directors entitled to participate in the discussion and vote on a matter that is brought for resolution agree not to convene for discussion of the matter.

Officers serve at the discretion of the Board or until their successors are appointed.

Terms of Directors

The Board currently consists of seven members, including two external directors. Unless otherwise prescribed by resolution adopted at a General Meeting of shareholders, the Board shall consist of not less than four (4) nor more than twelve (12) directors (including the external directors). The members of the Board are elected annually at NURs annual shareholders meeting and remain in office until the next annual shareholders meeting, unless the director has previously resigned, vacated his office, or was removed in accordance with the Articles. The previous annual meeting was held on November 26, 2006. In addition, the Board may elect additional members to the Board, to serve until the next shareholders meeting, so long as the number of directors on the Board does not exceed the maximum number established according to the Articles. The members of the Board do not receive any additional remuneration upon termination of their services as directors.

External Directors

We are subject to the provisions of the Companies Law, which requires that we have at least two external directors.

The Companies Law requires that at least one of the external directors have Accounting and Financial Expertise and the other external directors have Professional Competence. Under recently enacted regulations, a director having accounting and financial expertise is a person who, due to his or her education, experience and talents is highly skilled in respect of, and understands, business-accounting matters and financial reports in a manner that enables him or her to understand in depth the Companys financial statements and to stimulate discussion regarding the manner in which the financial data is presented. Under the regulations, a director having professional competence is a person who has an academic degree in either economics, business administration, accounting, law or public administration or an academic degree in an area relevant to the Companys business, or has at least five years experience in a senior position in the business management of a corporation with a substantial scope of business, in a senior position in the public service or a senior position in the field of the Companys main business. NURs board of directors determined that Lauri A. Hanover is an accounting and financial expert and that Alon Lumbroso has processional competence.

The board of directors further determined that at least two directors out of the whole board shall be required to have accounting and financial expertise pursuant to the requirements of the Companies Law. Accordingly, the board of directors determined that Shmoulik Barashi shall be designated as the additional accounting and financial expert.

Under the Companies Law, a person may not be appointed as an external director if he or his relative, partner, employer or any entity under his control has or had during the two years preceding the date of appointment any affiliation with the company, any entity controlling the company or any entity controlled by the company or by this controlling entity. The term affiliation includes: an employment relationship, a business or professional relationship maintained on a regular basis, control, and service as an office holder. No person can serve as an external director if the persons position or other business creates, or may create, conflicts of interest with the persons responsibilities as an external director, or if the person is an employee of the Israel Securities Authority or of an Israeli stock exchange. Until the lapse of two years from termination of office, a company may not engage an external director to serve as an office holder and cannot employ or receive services from that person, either directly or indirectly, including through a corporation controlled by that person. Regulations promulgated under Israeli law set the minimum and maximum compensation that may be paid to statutory external directors.

Under the Companies Law, external directors must be elected by a majority vote at a shareholders meeting, provided that either: (1) the majority of shares voted at the meeting, including at least one-third of the shares of non-controlling shareholders voted at the meeting, vote in favor of the election; or (2) the total number of shares voted against the election of the external director does not exceed one percent of the aggregate voting rights in the company. The initial term of an external director is three years, which term may be extended for an additional three-year period. Each committee of a companys board of directors must include at least one external director, and all external directors must serve on the audit committee. NURs external directors are currently Lauri A. Hanover and Alon Lumbroso.

Under the Companies Law an external director cannot be dismissed from office unless: (i) the board of directors determines that the external director no longer meets the statutory requirements for holding the office, or that the external director is in breach of the external directors fiduciary duties and the shareholders vote, by the same majority required for the appointment, to remove the external director after the external director has been given the opportunity to present his or her position; (ii) a court determines, upon a request of a director or a shareholder, that the external director no longer meets the statutory requirements of an external director or that the external director is in breach of his or her fiduciary duties to the company; or (iii) a court determines, upon a request of the company or a director, shareholder or creditor of the company, that the external director is unable to fulfill his or her duty or has been convicted of specified crimes.

Alternate Directors

The Articles provide that, subject to the Boards approval, a director may appoint an individual, by written notice to NUR, to serve as an alternate director. The following persons may not be appointed nor serve as an alternate director: (i) a person not qualified to be appointed as a director, (ii) an actual director, or (iii) another alternate director. Any alternate director shall have all of the rights and obligations of the director appointing him or her, except the power to appoint an alternate (unless the instrument appointing him or her expressly provides otherwise). The alternate director may not act at any meeting at which the director appointing him or her is present. Unless the appointing director limits the time period or scope of any such appointment, such appointment is effective for all purposes and for an indefinite time, but will expire upon the expiration of the appointing directors term. There are currently no alternate directors.

Approval of Certain Transactions Under the Israeli Companies Law

The Israeli Companies Law, 1999 codifies the duty of care and fiduciary duties that an Office Holder has to NUR. An Office Holder is defined under the Companies Law as a director, general manager, chief business manager, vice general manager, other manager directly subordinate to the general manager and any other person assuming the responsibilities of any of the foregoing positions without regard to such persons title. The duty of care requires an office holder to act at a level of care that a reasonable office holder in the same position would employ under the same circumstances. This includes the duty to utilize reasonable means to obtain (i) information regarding the appropriateness of a given action brought for his or her approval or performed by the Office Holder by virtue of his or her position and (ii) all other information of importance pertaining to the foregoing actions. The duty of loyalty includes avoiding any conflict of interest between the Office Holders position in the company and his or her personal affairs or other positions, avoiding any competition with the company, avoiding exploiting any business opportunity of the company in order to receive personal gain for himself or herself or for others, and disclosing to the company any information or documents relating to the companys affairs which the Office Holder has received due to his or her position as such. Each person identified as a director or member of our senior management in the first table in the section, other than employees of our subsidiaries, is an Office Holder.

The Companies Law requires that an Office Holder of a company promptly disclose to the companys Board of Directors any personal interest that he or she may have, and all related material information known to him in connection with any existing or proposed transaction by the company. This disclosure must be made by the Office Holder, whether orally or in writing, no later than the first meeting of the Companys Board of Directors which discusses the particular transaction. An Office Holder is deemed to have a personal interest if he, certain members of his family, or a corporation in which he or any one of those family members is a 5% or greater shareholder or exercises or has the right to exercise control, has an interest in a transaction with the company. An Extraordinary Transaction is defined as a transaction - other than in the ordinary course of business, not on market terms, or that is likely to have a material impact on the companys profitability, assets or liabilities.

In the case of a transaction that is not an Extraordinary Transaction, after the office holder complies with the above disclosure requirements, only board approval is required. The transaction must not be adverse to the companys interests. In the case of an Extraordinary Transaction, the companys Audit Committee and the Board of Directors, and, under certain circumstances, the shareholders of the company must approve the transaction, in addition to any approval stipulated by the articles of association. An Office Holder who has a personal interest in a matter that is considered at a meeting of the Board of Directors or the Audit Committee may not be present at this meeting or vote on this matter, unless a majority of the members of the Board of Directors or Audit Committee, respectively, have a personal interest in the matter, in which case they may all be present and vote, after which the matter must be approved by the shareholders of the Company.

Committees of the Board of Directors

Audit Committee

Under the Companies Law, the Audit Committee must be comprised of at least three members of the Board, including the external directors. Audit Committee members may not be employees or regular service providers of NUR, or controlling shareholders and their relatives.

NURs Audit Committee, acting pursuant to a written charter, currently consists of Lauri A. Hanover, Alon Lumbroso and Oded Akselrod. Approval by the Audit Committee and thereafter by the Board is required for (i) proposed extraordinary transactions to which NUR intends to be a party in which an Office Holder has a direct or indirect personal interest, (ii) actions or arrangements which may otherwise be deemed to constitute a breach of fiduciary duty or of the duty of care of an Office Holder to NUR, (iii) arrangements with directors as to their terms of office, compensation, compensation for other positions held with the company, including the provision of indemnification or an undertaking to indemnify and the procurement of insurance, (iv) indemnification and insurance of Office Holders, other than directors, (v) an extraordinary transaction of the company in which a controlling shareholder, that is, a shareholder holding the ability to direct the actions of the company, other than by virtue of being a director or holding a position with the company, including a shareholder holding twenty five percent or more of the voting rights of the company if there is no other shareholder holding over fifty percent of the voting rights of the company, has a personal interest, (vi) an arrangement with a controlling shareholder or its relative (if such a relative is also an Office Holder) concerning the terms of his or her employment with the company, (vii) certain private placements of the companys shares and (viii) compensation and scope of work of the independent auditor. Arrangements with directors as to the terms of their service or compensation also require shareholder approval. All arrangements as to compensation of Office Holders who are not directors require approval of the Board. In certain circumstances, some of the matters referred to above may also require shareholder approval.

The Audit Committee may not approve an action or transaction with a controlling shareholder or with an Office Holder unless at the time of approval two external directors are serving as members of the Audit Committee and at least one participated in the meeting at which the action or transaction was approved.

The Audit Committee provides assistance to the Board of Directors in fulfilling its legal and fiduciary obligations in matters involving our accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. Under the Sarbanes-Oxley Act of 2002, the Audit Committee is also responsible for the appointment, compensation, retention and oversight of our independent accountants and takes those actions as it deems necessary to satisfy itself that the accountants are independent of management. Under the Companies Law, the appointment of independent auditors requires the approval of the shareholders of the Company, accordingly, the appointment of the independent auditors is approved and recommended to the shareholders by the Audit Committee and ratified by the shareholders. Furthermore, pursuant to the Articles, the shareholders have the authority to determine the compensation of the independent auditors (or empower the Board to establish their remuneration), the compensation is approved following a recommendation of the Audit Committee. Under the Companies Law, the Audit Committee also is required to monitor deficiencies in the administration of a company, including by consulting with the internal auditor or independent accountants and suggesting methods of correction of such deficiencies to the Board, and to review and approve related party transactions.

The Audit Committee has discussed with the independent registered public accounting firm the matters covered by Statement on Auditing Standards No. 61, as well as their independence, and was satisfied as to the independent registered public accounting firms compliance with said standards.

Stock Option and Compensation Committee

Under the Companies Law, the Board may appoint committees and delegate certain duties to such committees. At lease one of the members of such committees is required to be one of the external directors of the company.

In March 1998, NUR established a Stock Option and Compensation Committee to administer NURs stock option plans, other than the 1998 Non-Employee Director Share Option Plan. The Stock Option and Compensation Committee is charged with administering and overseeing the allocation and distribution of stock options under the approved stock option plans of NUR and approval of NURs executive officers annual compensation. The Companies Law provides that the Board is entitled to delegate to Board committees its power, among other things, to allocate shares or securities convertible into shares of NUR relating to employees incentive plans, and employment or salary agreements between NUR and its employees, provided, that any such grant is subject to a detailed plan approved by the Board. The Board is also entitled to delegate to the general manager or person recommended by the general manager the Boards authority to issue ordinary shares issuable upon exercise or conversion of NURs securities. The Stock Option and Compensation Committee is presently composed of three members: Yuval Cohen, Eli Blatt and Lauri A. Hanover.

Non-Employee Director Share Option Plan Committee

In February 1999, NUR established a committee to administer the NURs 1998 Non-Employee Director Share Option Plan (the NEDSOP Committee). The NEDSOP Committee is charged with administering and overseeing the allocation and distribution of stock options under the 1998 Non-Employee Director Share Option Plan. The Companies Law provides that the Board is not entitled to delegate to Board committees its power, among other things, to allocate shares or securities convertible into shares of NUR, except for allocation of shares or securities convertible into shares of NUR relating to employees incentive plans, and employment or salary agreements between NUR and its employees. Additionally, pursuant to the Companies Law, the terms of service (including the grant of options) of all directors also require shareholder approval. Accordingly, the NEDSOP Committee recommendations are subject to the approval of the Board and the shareholders.

Indemnification and Exculpation of Executive Officers and Directors

Consistent with the provisions of the Companies Law, NURs Articles include provisions permitting NUR to procure insurance coverage for our directors and officers, exempt them from certain liabilities and indemnify them, to the maximum extent permitted by law.

Indemnification

The Companies Law provides that a company may indemnify an office holder against: (a) a financial liability imposed on him in favor of another person by any judgment concerning an act preformed in his capacity as an office holder; (b) reasonable litigation expenses, including attorneys fees, expended by the office holder or charged to him by a court relating to an act preformed in his capacity as an office holder in connection with: (i) proceedings the company institutes against him or instituted on its behalf or by another person; (ii) a criminal charge from which he was acquitted; (iii) a criminal charge in which he was convicted for a criminal offence that does not require proof of criminal intent; and (iv) an investigation or a proceeding instituted against him by an authority competent to administrate such an investigation or proceeding that ended without the filing of an indictment against the office holder and, either without any financial obligation imposed on the office holder in lieu of criminal proceedings; or with financial obligation imposed on him in lieu of criminal proceedings, in a crime which does not require proof of criminal intent. The Companies Law also authorizes a company to undertake in advance to indemnify an office holder with respect to events specified above, provided that, with respect to indemnification under sub-section (a) above, the undertaking: (i) is limited to events which the board of directors determines can be anticipated, based on the activity of the company at the time the undertaking is given; (ii) is limited in amount or criteria determined by the board of directors to be reasonable for the circumstances; and (iii) specifies the abovementioned events, amounts or criteria.

At the annual shareholders meeting held on October 27, 2005, NURs shareholders authorized it to enter into indemnification agreements with each of its current and future directors and officers. NUR shall, subject to the provisions of the indemnification agreement, indemnify each director and officer for future obligations or expenses imposed on them in consequence of an act done in their capacity as directors or officers of NUR or of its subsidiaries, as follows:

| § | monetary
liabilities imposed on, or incurred by, the director or officer for the
benefit of another person pursuant to a judgment, including a judgment given
in settlement or a court approved settlement of an arbitrators award; |
| --- | --- |
| § | reasonable
legal fees, including attorneys fees, incurred by a director or officer in
consequence of an investigation or proceeding filed against a director or
officer by an authority that is authorized to conduct such investigation or
proceeding, and that has ended without filing an indictment against, or
imposing of a financial obligation in lieu of a criminal proceeding on, such
director or officer, or that resulted without filing an indictment against
such director or officer but with imposing a financial obligation on such
director or officer as an alternative to a criminal proceeding in respect of
an offense that does not require the proof of criminal intent; and |
| § | reasonable
litigation expenses, including attorneys fees, incurred by a director or
officer or which a director or officer is ordered to pay by a court, in a
proceedings filed against such director or officer by NUR or on its behalf or
by another person, or in a criminal charge of which he or she is acquitted,
or in a criminal charge of which such director or officer is convicted of an
offence that does not require proof of criminal intent. |

The indemnification undertaking is limited to certain categories of events and the aggregate indemnification amount that NUR shall pay shall not exceed an amount equal to fifty percent (50%) of the net equity of NUR or to one time annual revenue of NUR in the year prior to the date of the claim with regard to judgment liability (the higher amount of the two), and $3.0 million with regard to litigation expenses.

We have entered into indemnification agreements with directors and some officers providing for indemnification under certain circumstances for acts and omissions which may not be covered (or not be covered in full) by any directors and officers liability insurance. Such indemnification agreement appears in our current report on Form 6-K as filed with the SEC on October 14, 2005.

Exemption

Under the Companies Law, an Israeli company may not exempt an office holder from liability for a breach of his duty of loyalty, but may exculpate in advance an office holder from his liability to the company, in whole or in part, for a breach of his duty of care, provided that in no event shall the office holder be exempt from any liability for damages caused as a result of a breach of his duty of care to the company in the event of a distribution (as defined in the Companies Law). Our Articles authorize us to exculpate any director or officer from liability to NUR to the extent permitted by law.

The Companies Law provides that a company may not exculpate or indemnify an office holder nor enter into an insurance contract which would provide coverage for liability incurred as a result of any of the following: (a) a breach by the office holder of his or her duty of loyalty (however, a company may insure against such breach if the office holder acted in good faith and had a reasonable basis to assume that the act would not harm the company); (b) a breach by the office holder of his or her duty of care if the breach was done intentionally or recklessly, unless made in negligence only; (c) any act of omission done with the intent to derive an illegal personal benefit; or (d) any fine or monetary penalty levied against the office holder.

At the annual shareholders meeting held on October 27, 2004, NURs shareholders authorized the Company to exculpate its directors and officers in advance from liability to NUR, in whole or in part, for a breach of the duty of care.

Insurance

Under the Companies Law, a company may obtain insurance for any of its office holders for: (a) a breach of his duty of care to the company or to another person; (b) a breach of his duty of loyalty to the company provided that the office holder acted in good faith and had reasonable cause to assume that his act would not prejudice the companys interests; or (c) a financial liability imposed upon him in favor of another person concerning an act preformed by him or her in his/her capacity as an office holder.

We have obtained directors and officers liability insurance covering our directors and officers.

D. Employees

As of December 31, 2006, we had 312 employees and independent contractors compared to 304 employees and independent contractors as of December 31, 2005 and 328 as of December 31, 2004. Out of NURs 312 employees and independent contractors, as of December 31, 2006, 48 were in sales and marketing, 45 were in research and development, 164 were in customer support, operations and production, and 55 were in management, finance and administration. As of December 31, 2006, we had 189 employees located in Israel, 55 employees located in Belgium, 35 employees located in the U.S., 8 employees located in Central and Latin America and 25 employees located in Asia Pacific.

All of NURs employees who have access to confidential information are required to sign a non-disclosure agreement covering all of our confidential information that they might possess or to which they might have access.

We believe our relations with employees are satisfactory. We have never experienced a strike or work stoppage. We believe our future success will depend, in part, on our ability to continue to attract, retain, motivate and develop highly qualified technical, marketing and sales as well as management personnel.

Israeli law generally requires the payment of severance pay equal to one months salary for each year of employment upon the termination of employment by NUR.

NURs liability for future severance pay obligations is fully provided for by payments equal to 8.33% of an employees salary each month made to various managers insurance policies or similar financial instruments and by accrual. The employees of NUR are usually provided with an additional contribution toward their retirement that amounts to 10% of wages, of which the employee and the employer each contribute half. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the United States Social Security Administration, and additional sums towards compulsory health insurance.

E. Share Ownership

Beneficial Ownership of Executive Officers and Directors

The following table sets forth certain information regarding the beneficial ownership of NURs ordinary shares as of June 15, 2007, of (i) each director of NUR and (ii) each member of senior management of NUR. All of the information with respect to beneficial ownership of the ordinary shares is given to the best of NURs knowledge and has been furnished in part by the respective directors and executive officers.

Name of Beneficial Owner	Number of Shares Beneficially Held(1)	Percent of Class
Yuval Cohen(2)	-	-
Eli Blatt(2)	-	-
Shmoulik Barashi(2)	-	-
Hemi Raphael(3)	-	-
Lauri A. Hanover	*	*
Alon Lumbroso	*	*
Oded Akselrod	*	*
David Reis(4)	1,203,125	1.64 %
Yosef Zylberberg	*	*
Assaf Eyal	*	*
Shuky Garibi	*	*
Itzik Arbesfeld	*	*
Eran Cohen	*	*
Menashe Ben Chaim	*	*
Igal Zeitoun	*	*
Mark Packman	-	-
Jean Marc Blum	-	-
Andrew Middleton	-	-
Roni Klein	*	*

| * Less than
one percent of the outstanding ordinary shares. | |
| --- | --- |
| (1) | As used in
this table, beneficial ownership means the sole or shared power to vote or
direct the voting or to dispose or direct the disposition of any security.
For purposes of this table, a person is deemed to be the beneficial owner of
securities that can be acquired within 60 days from June 15, 2007 through the
exercise of any option or warrant. Ordinary shares subject to options or
warrants that are currently exercisable or exercisable within 60 days are
deemed outstanding for computing the ownership percentage of the person
holding such options or warrants, but are not deemed outstanding for
computing the ownership percentage of any other person. The amounts and
percentages are based upon 72,325,502 ordinary shares outstanding as of June
15, 2007. |

| (2) | By virtue of
their positions as partners in Fortissimo, each of Yuval Cohen, Eli Blatt and
Shmoulik Barashi may be deemed to beneficially own the ordinary shares and
ordinary shares underlying warrants of NUR held by Fortissimo. Each of Yuval
Cohen, Eli Blatt and Shmoulik Barashi disclaims beneficial ownership of such
shares, except to the extent of their pecuniary interest therein. |
| --- | --- |
| (3) | By virtue of
his position as a shareholder and director of the general partner in Kanir,
and a limited partner in Kanir, Hemi Raphael may be deemed to beneficially own
the ordinary shares and ordinary shares underlying warrants of NUR held by
Kanir. Hemi Raphael disclaims beneficial ownership of such shares, except to
the extent of his pecuniary interest therein. |
| (4) | Consists of
options to purchase 1,203,125 ordinary shares that are currently exercisable
or exercisable within 60 days. The exercise price of such options is $0.40
and the options expire on November 30, 2015. |

The directors and senior management of NUR hold, in the aggregate, options and warrants exercisable into 8,388,334 ordinary shares. The 8,388,334 options have a weighted average exercise price of approximately $0.51 per share and have expiration dates until 2016. Under the 1998 Share Option Plan for Non-Employee Directors (the 1998 Plan), Oded Akselrod, a director of NUR, was granted options to purchase 10,000 ordinary shares on December 30, 2004 and August 1, 2005. Lauri A. Hanover, an external director of NUR as of November 18, 2003, was granted 6,667 options on November 18, 2003 and was also granted options to purchase 10,000 ordinary shares on December 30, 2004, August 1, 2005 and August 1, 2006. Alon Lumbroso, an external director of Nur as of November 26, 2006, was granted 6,667 options on November 27, 2006. The exercise price for the underlying shares of such options is the Fair Market Value (as defined in the 1998 Plan) of the ordinary shares of NUR at the date of grant.

Outstanding Options

As of June 15, 2007, NUR had outstanding options under NURs stock option plans to purchase a total of 11,429,560 of its ordinary shares. Of such options, 17,300 have been issued under the 1995 Israel Stock Plan, 196,900 have been issued under the 1997 Stock Option Plan, 116,668 have been issued under the 1998 Non-Employee Director Share Option Plan and 11,098,692 have been issued under the 2000 Stock Option Plan. The options granted under the 1995 Plan, the 1997 and the 2000 Plan are subject to various vesting requirements and have been issued at exercise prices ranging from $0.32 to $7.50 per share with various expiration dates. The options granted under the 1998 Plan are not subject to vesting requirements and have an exercise price ranging from $0.31 to $0.92 per share, with various expiration dates. See Note 13 to NURs consolidated financial statements included as a part of this annual report on Form 20-F for more details.

1995 Israel Stock Option Plan

In 1995, NUR adopted the 1995 Israel Stock Option Plan (the 1995 Plan), which provides for grants of stock options to employees and consultants of NUR. Options to purchase an aggregate of 500,000 ordinary shares were originally available for grant under the 1995 Plan, as amended, including service options for future services, options for performance, and options to consultants for service or performance.

At the annual shareholders meeting held on November 18, 2003, our shareholders approved the Boards resolution to terminate the 1995 Plan and to increase the number of ordinary shares authorized for issuance under NURs 2000 Stock Option Plan (as amended) in the aggregate amount that was outstanding for grant under the 1995 Plan as of July 15, 2003, thereby increasing the number of ordinary shares authorized for issuance under NURs 2000 Stock Option Plan by 33,261. At the annual shareholders meeting held on October 27, 2005, our shareholders approved an increase in the number of ordinary shares authorized for issuance under the 2000 Stock Option Plan by the number of ordinary shares underlying options cancelled under the 1995 Plan.

1997 Stock Option Plan

In 1997, NUR adopted the 1997 Stock Option Plan (the 1997 Plan), which provides for grants of stock options to employees, directors of NUR and consultants to NUR. Options to purchase an aggregate of 2,200,000 ordinary shares were originally available for grant under the 1997 Stock Option Plan, as amended.

At the annual shareholders meeting held on November 18, 2003, our shareholders approved the Boards resolution to terminate the 1997 Plan and to increase the number of ordinary shares authorized for issuance under NURs 2000 Stock Option Plan in the aggregate amount that was outstanding for grant under the 1997 Plan as of July 15, 2003, thereby increasing the number of ordinary shares authorized for issuance under NURs 2000 Stock Option Plan by 464,329. At the annual shareholders meeting held on October 27, 2005, our shareholders approved an increase in the number of ordinary shares authorized for issuance under the 2000 Stock Option Plan by the number of ordinary shares underlying options cancelled under the 1997 Plan.

1998 Non-Employee Director Share Option Plan

For discussion of the 1998 Non-Employee Director Share Option Plan see Item 6.B: Compensation.

2000 Stock Option Plan

In 2000, NUR adopted the 2000 Stock Option Plan (the 2000 Plan) to provide for grants of service and non-employee options to purchase ordinary shares to officers, employees, directors and consultants of NUR. The 2000 Plan provides that it may be administered by the Board, or by a committee appointed by the Board, and is currently administered by the Stock Option and Compensation Committee subject to Board approval.

At the annual shareholders meetings held on November 18, 2003 and October 27, 2004, our shareholders approved increases in the number of ordinary shares authorized for issuance under the 2000 Plan (as amended) to 2,997,590. At the annual shareholders meeting held on October 27, 2005, our shareholders approved an additional increase in the number of ordinary shares authorized for issuance under the 2000 Plan (as amended) by 14,500,000, from 2,997,590 to 17,497,590 and by the number of ordinary shares underlying options surrendered (except in the case of surrender for the exercise into shares) or which cease to be exercisable under the 1995 Plan and the 1997 Plan. As of June 15, 2007, the additional number of ordinary shares underlying options cancelled under the 1995 Plan and the 1997 Plan increased the number of ordinary shares authorized for issuance under the 2000 Plan by 164,300 from 17,497,590 to 17,661,890. The 2000 Plan will expire on August 31, 2008, unless previously terminated or extended by the Board.

The Board has broad discretion to determine the persons entitled to receive options under the 2000 Plan, the terms and conditions on which options are granted, and the number of ordinary shares subject thereto. The Board delegated to NURs management its authority to issue ordinary shares issuable upon exercise of options under the 2000 Plan. The exercise price of the option shares under the 2000 Plan is determined by the Stock Option and Compensation Committee, provided, however, that the exercise price of any option granted shall not be less than eighty percent (80%) of the stock value at the date of grant of such options. The stock value at any time is equal to the then current fair market value of NURs ordinary shares. For purposes of the 2000 Plan (as amended), the fair market value means, as of any date, the last reported closing price of the ordinary shares on such principal securities exchange on the most recent prior date on which a sale of the ordinary shares took place.

The Committee determines the term of each option granted under the 2000 Plan, including the vesting period; provided, however, that the term of an option shall not be for more than 10 years. Upon termination of employment, all unvested options lapse.

The options granted are subject to restrictions on transfer, sale or hypothecation. Options and ordinary shares issuable upon the exercise of options granted to Israeli employees of NUR are held in a trust until the payment of all taxes due with respect to the grant and exercise (if any) of such options.

NUR has elected the benefits available under the capital gains alternative of Section 102 of the Israeli Tax Ordinance. Pursuant to the election made by NUR, capital gains derived by employees arising from the sale of shares acquired as a result of the exercise of options granted to them under Section 102, will be subject to a flat capital gains tax rate of 25% (instead of the gains being taxed as salary income at the employees marginal tax rate). However, as a result of this election, NUR will no longer be allowed to claim as an expense for tax purposes the amounts credited to such employees as a benefit when the related capital gains tax is payable by them, as NUR was previously entitled to do. NUR may change its election from time to time, as permitted by the Tax Ordinance. There are various conditions that must be met in order to qualify for these benefits, including registration of the options in the name of a trustee (the Trustee) for each of the employees who is granted options. Each option, and any ordinary shares acquired upon the exercise of the option, must be held by the Trustee for a period commencing on the date of grant and ending no earlier than 24 months after the date of grant.

As of December 31, 2006, there were outstanding options to purchase 11,852,064 ordinary shares of NUR, out of which 2,980,878 options were vested.

ITEM 7: Major Shareholders and Related Party Transactions

A. Major Shareholders

The following table sets forth information regarding the beneficial ownership of NURs ordinary shares as of June 15, 2007, by each person known by NUR to be the beneficial owner of more than 5% of our ordinary shares. Each of our shareholders has identical voting rights with respect to its shares. All of the information with respect to beneficial ownership of the ordinary shares is given to the best of NURs knowledge.

	Ordinary Shares Beneficially Owned(1)	Percentage of Ordinary Shares Beneficially Owned
Fortissimo Entities (2)	44,999,999	49.12 %
Kanir Joint Investments (2005) Limited Partnership
(3)	15,000,001	19.05 %
Dan and Edna Purjes (4)(5)	9,483,279	12.51 %
Old LaneLuxemburg Master Fund S.a.r.l (6)	4,814,815	6.56 %
Bank Hapoalim B.M (7)	4,978,396	6.44 %
Meitav Entities (8)	4,647,441	6.34 %

| (1) | As used in
this table, beneficial ownership means the sole or shared power to vote or
direct the voting or to dispose or direct the disposition of any security.
For purposes of this table, a person is deemed to be the beneficial owner of
securities that can be acquired within 60 days from June 15, 2007 through the
exercise of any option or warrant. Ordinary shares subject to options or
warrants that are currently exercisable or exercisable within 60 days are
deemed outstanding for computing the ownership percentage of the person
holding such options or warrants, but are not deemed outstanding for
computing the ownership percentage of any other person. The amounts and
percentages are based on a total of 72,325,502 ordinary shares outstanding as
of June 15, 2007. |
| --- | --- |
| (2) | According to
information provided by the holders, the Fortissimo Entities consist of
Fortissimo Capital Fund GP, LP (FFC-GP), Fortissimo Capital Fund (Israel),
LP (FFC-Israel); Fortissimo Capital Fund (Israel-DP), LP (FFC-Israel-DP);
and Fortissimo Capital Fund, LP (FFC Cayman). FFC-GP and FFC Cayman are
limited partnerships incorporated in the Cayman Islands. FFC-Israel and
FFC-Israel-DP are limited partnerships incorporated in Israel. FFC-Israel,
FFC-Israel-DP and FFC Cayman invest together, in the framework of parallel
private equity funds, which are managed by FFC GP. The holdings of the
Fortissimo Entities consist of 40,237,488 ordinary shares (including
17,244,638 ordinary shares issuable upon exercise of warrants) beneficially
held by FFC-Israel, 3,586,229 ordinary shares (including 1,536,955 ordinary
shares issuable upon exercise of warrants) beneficially held by FFC-Israel-DP
and 1,176,282 ordinary shares (including 504,121 ordinary shares issuable
upon exercise of warrants) beneficially held by FFC Cayman. In October 2005,
the Fortissimo Entities and Kanir entered into a shareholders agreement
described in Item 10.C: Material Contracts. Pursuant to Rule 13d-5(b)(1) of
the Exchange Act the Fortissimo Entities may, together with Kanir be deemed
to be members of a Group as such term is defined under the Exchange Act and
the Fortissimo Entities may be deemed to beneficially own the ordinary shares
beneficially owned by Kanir, or 60,000,000 in the aggregate. Each of the
Fortissimo Entities disclaims beneficial ownership of the shares owned by
Kanir. |
| (3) | According to
information provided by the holder, Kanir is an Israeli limited partnership.
The holdings of Kanir include 6,428,572 ordinary shares issuable upon
exercise of warrants. In October 2005, the Fortissimo Entities and Kanir
entered into a shareholders agreement described in Item 10.C: Material
Contracts. Pursuant to Rule 13d-5(b)(1) of the Exchange Act Kanir may, together
with the Fortissimo Entities be deemed to be members of a Group as such
term is defined under the Exchange Act and Kanir may be deemed to
beneficially own the ordinary shares beneficially owned by the Fortissimo
Entities, or 60,000,000, in the aggregate. Kanir disclaims beneficial
ownership of the shares owned by the Fortissimo Entities. |

| (4) | According to
information provided by the holders, Dan and Edna Purjes beneficially own
9,483,279 ordinary shares. The holding of Dan and Edna Purjes consists of
9,174,041 ordinary shares (including 3,331,731 ordinary shares issuable upon
exercise of warrants) beneficially owned by Dan and Edna Purjes, 95,068
ordinary shares (including 14,423 ordinary shares issuable upon exercise of
warrants) beneficially owned by Y Securities Limited and 214,170 ordinary
shares (including 132,273 ordinary shares issuable upon exercise of warrants)
beneficially owned by X Securities Limited. Pursuant to Rule 13d-5(b)(1) of
the Exchange Act Dan and Edna Purjes may, together with the Purjes
Foundation, First Purjes Descendants, LP and the Second Purjes Descendants,
LP, be deemed to be members of a Group as such term is defined under the
Exchange Act and Dan and Edna Purjes may be deemed to beneficially own the
ordinary shares beneficially owned by such entities, or 9,768,483, in the
aggregate. Dan and Edna Purjes disclaim beneficial ownership of the shares
owned by the Purjes Foundation, First Purjes Descendants, LP and the Second
Purjes Descendants, LP. |
| --- | --- |
| (5) | According to
a Voting Agreement between NUR and Dan Purjes dated January 23, 2005 (the
Voting Agreement) Dan Purjes and certain of his affiliates granted to our
Board or a nominee appointed by it voting control over the ordinary shares
beneficially owned by them, coupled with an irrevocable proxy, and the Board
or the nominee appointed by it will vote the shares in any meeting or actions
of the shareholders and with respect to any matter submitted to shareholder
with the majority of votes of the other shareholders of NUR. For additional
information regarding the Voting Agreement see Item 10.C: Material
Contracts. |
| (6) | According to
information provided by the holder, Old Lane Luxemburg Master Fund S.a.r.l
(Old Lane) is a private company registered in Luxemburg. The 4,814,815
ordinary shares held by Old Lane are held for the benefit of its shareholders
as follows: (i) 2,207,408 ordinary shares and 662,222 ordinary shares
underlying a warrant held for the benefit of Old Lane Cayman Master Fund
L.P., a limited partnership registered in the Cayman Islands (Old Lane
Cayman), (ii) 625,926 ordinary shares and 187,778 ordinary shares underlying
a warrant held in for the benefit of Old Lane HMA Master Fund, L.P., a
limited partnership registered in the Cayman Islands (Old Lane HMA) and
(iii) 870,370 ordinary shares and 261,111 ordinary shares underlying a
warrant held in for the benefit of Old Lane U.S. Master Fund L.P., a limited
partnership registered in Delaware, USA (Old Lane US and, together with Old
Lane Cayman and Old Lane HMA, the Old Lane Entities). All of these shares
and warrants were acquired in connection with the 2007 private placement and
the warrants are five-year warrants with an exercise price of $0.65 per
ordinary share and all warrants are exercisable within 60 days. Old Lane
disclaims beneficial ownership of the shares held for the benefit of the Old
Lane Entities. |
| (7) | According to
information provided by the holder, Bank Hapoalim is an Israeli publicly
traded company. The holdings of Bank Hapoalim consist of warrants to purchase
4,978,396 ordinary shares exercisable within 60 days. |
| (8) | According to
information provided by the holders, the Meitav Entities consist of Meitav
Investment House Ltd. (Meitav Investment), Meitav Investment Management
Ltd. (Meitav Management) and Meitav Gemel Ltd. (Meitav Gemel), all of
which are Israeli companies, and of Michal and Avner Stepak. The 4,647,441
ordinary shares beneficially owned by the Meitav Entities consist of: (i)
845,000 ordinary shares (including 195,000 ordinary shares issuable upon
exercise of warrants) held by Meitav Investment, (ii) 1,154,250 ordinary
shares (including 146,250 ordinary shares issuable upon exercise of warrants)
held by Meitav Management, (iii) 2,407,431 ordinary shares (including 555,561
ordinary shares issuable upon exercise of warrants) held by Meitav Gemel for
the benefit of beneficiaries of various provident, severance and education
funds it manages and (iv) 240,760 ordinary shares (including 55,560 ordinary
shares issuable upon conversion of warrants) held by Michal and Avner Stepak.
Meitav Gemel and Meitav Management are wholly owned subsidiaries of Meitav
Investment. Avner Stepak is the son of Zvi Stepak, a controlling shareholder
of Meitav Investment, and the vice president of business development of
Meitav Investment. Pursuant to Rule 13d-5(b)(1) of the Exchange Act, the
Meitav Entities may be deemed to be members of a Group as such term is
defined under the Exchange Act. The ordinary shares held by Meitav Gemel are
held for the benefit of the beneficiaries of such funds and the Meitav
Entities disclaim beneficial ownership of such shares. Each of the Meitav
Entities disclaims beneficial ownership of the ordinary shares held by the
other Meitav Entities, except to the extent of their pecuniary interest
therein. |

Significant Changes in the Ownership of Major Shareholders

On October 31, 2005, we closed a private placement with a group of investors led by Fortissimo. As of June 15, 2007, the Fortissimo Entities are the beneficial owners of 44,999,999 (including 19,285,714 ordinary shares issuable upon exercise of warrants), or 49.12%, of our ordinary shares and Kanir is the beneficial owner of 15,000,001 (including 6,428,572 ordinary shares issuable upon exercise of warrants), or 19.05%, of our ordinary shares. On December 8, 2005, we consummated the debt restructuring agreement. As of June 3, 2007, Bank Hapoalim B.M. is the beneficial owner of 4,978,396 ordinary shares (consisting of shares issuable upon exercise of warrants), or 6.44% of our ordinary shares. As of May 31, 2007, Dan and Edna Purjes were the beneficial owners of 9,483,279 (including 3,478,427 ordinary shares issuable upon exercise of warrants), or 12.51%, of our ordinary shares. The Purjess ownership interest increased from 28.5% as of December 31, 2002 to 31.15% as of December 31, 2003 and decreased to 30% as of December 31, 2004. The Purjess ownership interest increased to 36.54% in April 17, 2005 and was decreased to 16.51% in October 2005 and further decreased to 12.51% as of May 2007. In the beginning of 2007 we completed a private placement with a group of investors. On January and February 2007, we closed a private placement with certain investors. As of June 4, 2007, Old Lane Luxemburg and the Meitav Entities, who participated in a private placement, are the beneficial holders of 4,814,815 ordinary shares (including 1,111,111 ordinary shares issuable upon exercise of warrants), or 6.56% and 4,647,441 ordinary shares (including 952,371 ordinary shares issuable upon exercise of warrants), or 6.34%, respectively. As a result of the private placement in the beginning of 2007, Bank Leumi Le Israel B.M. ceased to be a major shareholder of NUR. See Item 10.B: Memorandum of Association and Amended and Restated Articles of Association for a description of the shareholders agreement among the Fortissimo Entities and Kanir.

Record Holders

Based on a review of the information provided to us by our transfer agent, as of June 15, 2007, there were 100 * record holders of ordinary shares, of which 39 represented United States * record holders holding approximately 31.86% of the outstanding ordinary shares of NUR.

| * | Including
the Depository Trust Company. |
| --- | --- |
| B. | Related Party Transactions |

On January 24, 2006 , we entered into a lease agreement with Telrad to lease approximately 3,400 square meters (36,597 square feet) in the Telrad Campus in Lod, Israel for the purpose of housing our manufacturing facility. The lease agreement has a term of 60 months beginning on June 2006. We have the option to extend the lease period by one additional term of 60 months. In the event we exercise our option to extend the lease, Telrad has the right to increase the monthly lease payment by up to 5%. We may terminate the lease after 30 months on three-month prior notice. We expect that the new manufacturing facility in the Telrad Campus will be sufficient for our current and future requirements. The Fortissimo Entities, which are deemed a major shareholder of Telrad, beneficially own approximately 49.12% of our ordinary shares and have appointed, together with Kanir, 4 members to our Board. In February 2006, the Audit Committee and the Board approved the execution and delivery of the Telrad lease agreement.

Pursuant to NURs undertaking in connection with the Fortissimo private placement, on May 16, 2006, NUR and Fortissimo entered into a Second Ranking Floating Charge Agreement. The second ranking floating charge created under this agreement secures a subordinated debt in the amount of $5 million that was assigned by Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel Discount Bank Ltd. to the Fortissimo Entities as part of the debt restructuring described in Item 10.C: Material Contracts. The Fortissimos second ranking floating charge was registered over NURs assets and is subordinate to all securities and guarantees of the lender banks.

For a further discussion of the transactions and balances with related parties see Item 10.C: Material Contracts and Note 12 to NURs consolidated financial statements, which are included as a part of this annual report.

C.
Not
Applicable.

ITEM 8: Financial Information

A. Consolidated Statements and Other Financial Information.

Consolidated Statements

For our audited consolidated financial statements for the year ended December 31, 2006, please see pages F-2 to F-47 of this report.

Export Sales

See Item 5: Operating and Financial Review and Prospects under the caption Geographic Breakdown of Revenues for certain details of export sales for the last three fiscal years.

Legal Proceedings

We are a party to various legal proceedings incident to our business. Except as noted below, there are no material legal proceedings pending or, to our knowledge, threatened against us or our subsidiaries, and we are not involved in any legal proceedings that our management believes, individually or in the aggregate, would have a material adverse effect on our business, financial condition or operating results.

In August 2001, Printable B.V., a client of NUR Europe, filed a suit against NUR Europe in the Commercial Court of Brussels. The client claims that the contract between Printable and NUR Europe for the sale of two machines is null and void, and it further seeks damages amounting to approximately 1.57 million (or $2.07 million). NUR Europe filed a counter claim for the collection of outstanding amounts. In April 2004, the Commercial Court of Brussels denied Printables claims and ordered Printable to pay NUR Europe an amount of approximately 0.15 million (or $0.2 million). Printable appealed that judgment. We believe that the clients appeal is without merit and NUR Europe is defending itself vigorously against the claim.

In October 2001, Distrade SL, a client of NUR Europe, filed a suit against NUR Europe in the Commercial Court of Brussels, alleging technical defaults in a machine purchased by it. Distrade is seeking reimbursement of the purchase price it paid amounting to approximately $0.18 million, as well as damages of approximately 0.23 million (or $0.30 million). NUR Europe filed a counterclaim of $0.216 million in respect of unpaid invoices. The Commercial Court of Brussels appointed an expert in order to hear the parties claims, to examine the machine and provide an opinion regarding the damages suffered by Distrade from the machines use. NUR Europe is defending itself vigorously against the claim.

In March 2002, a former employee filed a lawsuit against a subsidiary in the amount of 0.25 million (or $0.33 million) plus certain indemnities and interest. In September 2003, the Work Tribunal of Nivelles rendered a judgment instructing the subsidiary to pay the former employee 0.25 million plus interest accruing thereon. In January 2004, the subsidiary filed an appeal. In October 2005, the court of appeal rendered a judgment instructing the subsidiary to indemnify the former employee in the amount of 0.12 million (or $0.16 million) plus the interest accrued thereon. During 2006 the court of appeal ruled in favor of the former employee regarding, among other things, certain indemnities sought by the former employee. As of December 31, 2006, the outstanding balance still owed to the former employee was $0.132 million.

During 2002, two end-users, Jiaxing Dapeng Advertising Limited Company and Guangzhou Junhao Printing Limited Company, filed separate lawsuits in China against subsidiaries of the Company alleging bad quality of products and seeking reimbursement in aggregate amount of $0.472 million. Based on the managements estimate and the opinion of NURs legal counsel, it is less than likely that the subsidiaries will be required to pay the amount claimed.

During 2003, Julius Heywinkel GmbH, a former supplier and manufacturer of NUR Media Solutions filed suit against NUR Media Solutions in the Court of Osnabrück, Germany, claiming that NUR Media Solutions owed penalties as a result of NUR Media Solutionss alleged failure to purchase certain minimum quantities prescribed under an agreement between NUR Media Solutions and Heywinkel. Heywinkel was seeking damages in approximately the amount of 0.93 million (or $1.245 million). In February 2006, the Court of Osnabrück has ordered NUR Media Solutions to pay Heywinkel an aggregate amount of 1.2 million (or $1.64 million) representing penalties and accrued interest. NUR Media Solutions filed an appeal, which was rejected by the High Regional Court in Oldenburg, Germany in July 2006.

In September 2003, NUR filed a suit in the Magistrate Court of Tel Aviv, Israel against R.R. Graphics Ltd., a former distributor of NUR in Israel, for the collection of unpaid invoices in approximately the amount of $0.42 million. In February 2004, R.R. Graphics filed a statement of defense denying NURs claims and it also filed a counter-claim for alleged damages caused to it by NUR in approximately the amount of $0.18 million. We believe that the counter-claim that was filed by R.R. Graphics is without merit and NUR is both pursuing its own suit and defending itself vigorously against the counter-claim.

In December 2003, Imagens Digitais Ltda., a client of NUR DO Brazil Ltda., filed a suit against NUR DO Brazil Ltda. and NUR America in Brazil, alleging that a machine purchased by it failed to perform. Imagens is seeking reimbursement of the purchase price paid by it in the amount of approximately $0.29 million. We believe that the claim is without merit and both NUR DO Brazil and NUR America are defending themselves vigorously against the claim.

In November 2004, Citicorp Vendor Finance, Inc. (CVF), a corporation that extended equipment lease financing to a client, filed a complaint against NUR America in the Superior Court of New Jersey alleging that NUR America is in default under remarketing agreement related to the sale of equipment to Print Systems, Inc. (PSI) in 2001. In August 2005, the parties reached an out of court settlement, under which NUR America agreed to pay CVF the amount of $0.25 million in several installments. As of December 31, 2006, the Company paid this amount in full.

In February 2005, the OCS initiated administrative proceedings for the confiscation of certain assets of NUR to secure NURs alleged liability to the OCS of approximately $0.8 million in unpaid royalties related to the sale of equipment. On February 21, 2005, NUR filed a suit with the District Court in Jerusalem against the OCS requesting a declaratory judgment denying the OCS claim for royalties and for the recovery of approximately $0.27 million that was previously paid to the OCS. NUR also filed a motion requesting the court to direct the OCS to cease and cancel the confiscations procedures. In February 2006, the court has approved a settlement between NUR and the OCS. Under the terms of the approved settlement, NUR will make aggregate payments of approximately $0.6 million to the OCS over a three-year period.

In July 2005, the tribunal of the first instance of Nivelles confirmed a motion filed against NUR Europe by a former employee for the seizure of that subsidiarys tangible assets in the amount of 0.5 million (or $0.66 million). In January 2006, the tribunal of the first instance of Nivelles reduced the seizure for an amount of 0.12 million (or $0.16 million). NUR Europe filed an appeal of that decision. In October 2005, the former employee filed a lawsuit against NUR Europe in the amount of 0.48 million (or $0.64 million) plus certain indemnities and interest thereon. In May 2007, the court ruled in favor of NUR Europe and dismissed the claim.

In October 2005, Dan Purjes, NURs former chairman and beneficial owner of approximately 16.51% of NURs ordinary shares, filed a complaint against NUR in the Supreme Court, New York County seeking to recover the right to vote his ordinary shares. The right to vote Mr. Purjess ordinary shares had been transferred to NUR pursuant to a voting agreement dated January 23, 2005 by and between Mr. Purjes and NUR. The complaint filed by Mr. Purjes seeks to have the voting agreement declared unenforceable. During 2006, part of the case was dismissed by the court and the rest of the case was dismissed with leave to refile.

We may from time to time become a party to various legal proceedings in the ordinary course of our business.

Dividends

NUR does not anticipate that it will pay any cash dividend on its ordinary shares in the foreseeable future. Dividends, if any, will be paid in New Israeli Shekel. Dividends paid to shareholders outside Israel will be converted to U.S. dollars, on the basis of the exchange rate prevailing at the date of payment.

B. Significant Changes

Except as otherwise disclosed in this annual report, no significant change has occurred since December 31, 2006.

ITEM 9: The Offer and Listing

A. Offer and Listing Details

Not applicable other than Item 9.A.4.

Stock Price History

The prices set forth below are high and low closing market prices for the ordinary shares of NUR as reported by Nasdaq National Market, the Nasdaq Capital Market or the Pink Sheets, as applicable, for the fiscal year ended December 31 of each year indicated below, for each fiscal quarter indicated below, and for each month for the six-month period ending May 31, 2007. Such quotations reflect inter-dealer prices, without retail markup, markdown, or commission and may not necessarily represent actual transactions. Our ordinary shares are currently quoted in the over-the-counter market in the Pink Sheets under the symbol NURMF.PK.

Year	High (US)	Low (US)
2002	$ 3.61	$ 0.50
2003	2.44	0.25
2004	2.14	0.66
2005	0.83	0.18
2006	0.84	0.50
2005
First Quarter	$ 0.83	$ 0.50
Second Quarter	0.78	0.18
Third Quarter	0.62	0.25
Fourth Quarter	0.60	0.39
2006
First Quarter	$ 0.84	$ 0.51
Second Quarter	0.82	0.63
Third Quarter	0.80	0.65
Fourth Quarter	0.68	0.50
2007
First Quarter	$ 0.65	$ 0.43
Second Quarter	0.56	0.46
Most Recent Six Months
May 2007	$ 0.55	$ 0.49
April 2007	0.56	0.46
March 2007	0.57	0.46
February 2007	0.65	0.49
January 2007	0.60	0.43
December 2006	0.66	0.52

B. Plan of Distribution

Not Applicable.

C. Markets

Markets

Our ordinary shares are currently quoted in the over-the-counter market in the Pink Sheets under the symbol NURMF.PK.

Our ordinary shares were traded on the Nasdaq National Market between October 1995 and July 2003. Our ordinary shares were traded on the Nasdaq Capital Market between July 2003 and May 2005.

D. Dilution

Not Applicable.

E. Expenses of the Issue

Not Applicable.

ITEM 10: Additional Information

A. Share Capital

Not applicable.

B. Memorandum of Association and Amended and Restated Articles of Association

Set forth below is a brief description of certain provisions contained in the Memorandum of Association, the Amended and Restated Articles of Association as well as certain statutory provisions of Israeli law. The Memorandum of Association and the Articles are incorporated by reference herein. The description of certain provisions does not purport to be a complete summary of these provisions and is qualified in its entirety by reference to such exhibits.

Authorized Share Capital

The authorized share capital of NUR is one hundred seventy million (170,000,000) New Israeli Shekels, divided into one hundred and seventy million ordinary shares, NIS 1.00 par value per share.

Purpose and Objective

We are a public company registered under the Companies Law as NUR Macroprinters Ltd., registration number 52-003986-8. Pursuant to Section 3.1 of NURs Articles, our objective is to undertake any lawful activity, including any objective set forth in our Memorandum of Association. Pursuant to Section 3.2 of our Articles, our purpose is to operate in accordance with commercial considerations with the intentions of generating profits.

Board of Directors

Under the Companies Law, the Board is authorized to set NURs strategy and supervise the performance of the duties and actions of NURs chief executive officer. The Board may not delegate to a committee of the Board or the chief executive officer the right to decide on certain of the authorities vested with it, including determination of NURs strategy, distributions, certain issuances of securities and approval of financial reports. The powers conferred upon the Board are vested in the Board as a collective body and not in each one or more of the directors individually. Unless otherwise set forth in a resolution of the shareholders, the Board shall consist of not less than four (4) nor more than twelve (12) directors (including any external directors whose appointment is mandated under the Companies Law).

The directors are elected annually at a general meeting of shareholders and remain in office until the next annual meeting at which time they retire, unless their office is previously vacated as provided in the Articles. A retiring director may be reelected. If no directors are elected at the annual meeting, all of the retiring directors remain in office pending their replacement at a general meeting. Holders of the ordinary shares do not have cumulative voting rights in the election of directors. Consequently, the holders of ordinary shares in the aggregate conferring more than 50% of the voting power, represented in person or by proxy, will have the power to elect all the directors. Pursuant to the Companies Law, publicly traded companies must appoint at least two external directors to serve on their Board of Directors and Audit Committee. For further information concerning external directors see Item 6.C: Board Practices.

The Companies Law codifies the fiduciary duties that an Office Holder has to the Company. An Office Holders fiduciary duties consist of a Duty of Loyalty and a Duty of Care. For more information concerning these duties, the approval process of certain transactions and other board practices see Item 6.C: Board Practices.

Under the Companies Law, all arrangements with regard to the compensation of Office Holders who are not Directors require the approval of the Board of Directors. Arrangements regarding the compensation of Directors require Audit Committee, Board and Shareholder approval. Borrowing powers exercisable by the directors are not specifically outlined in the Companys Articles.

No person shall be disqualified to serve as a director by reason of his not holding shares in NUR. Additionally, there is no age limit for the retirement of directors.

Rights of Shareholders

No preemptive rights are granted to holders of ordinary shares under the Articles or the Companies Law. Each ordinary share is entitled to one vote on all matters to be voted on by shareholders, including the election of directors. Non-residents of Israel may freely hold and trade the ordinary shares pursuant to general and specific permits issued under Israels Currency Control Law, 1978. Neither the Memorandum of Association nor the Articles make any distinction between residents and non-residents of Israel with respect to the ownership of ordinary shares. The Memorandum of Association, the Articles and Israeli law do not make any distinction between residents and non-residents of Israel with respect to the voting rights related thereto.

An annual meeting of shareholders must be held once in every calendar year at such time (within a period of not more than fifteen months after the last preceding annual meeting) and at such place as may be determined by the Board. The Board may, at any time, convene Extraordinary General Meetings of shareholders, and shall be obligated to do so upon receipt of a requisition in writing of (i) two directors or one quarter of the directors holding office; and/or (ii) one or more shareholders holding at least 5% of the issued capital and at least 1% of the voting rights in the Company; and/or (iii) one or more shareholders holding at least 5% of the voting rights in the Company. A requisition must detail the objects for which the meeting must be convened and shall be signed by the persons requisitioning it and sent to the Companys registered office. Where the Board of Directors is required to convene a special meeting, it shall do so within 21 days of the requisition being submitted. Prior to any general meeting a written notice thereof shall be delivered to all registered holders and to all other persons entitled to attend, and shall be otherwise made public as required by Israeli law.

Two or more members present in person or by proxy and holding shares conferring in the aggregate more than 33 1/3% of the total voting power attached to our shares shall constitute a quorum at general meetings. If a meeting is adjourned due to the lack of a quorum (and provided that it was not convened due to the requisition of certain shareholders), one or more shareholders, holding not less than 33 1/3% of all the outstanding voting power attached to the ordinary shares, present in person or by proxy at the subsequent adjourned meeting, will constitute a quorum. Unless provided otherwise by the terms of issue of the shares, no member shall be entitled to be present or vote at a general meeting (or to be counted as part of the quorum) unless all amounts due as of the date designated for same general meeting with respect to his shares were paid. A resolution shall be deemed adopted if the requisite quorum is present and the resolution is supported by members present, in person or by proxy, vested with more than fifty percent (50%) of the total voting power attached to the shares whose holders were present, in person or by proxy, at such meeting and voted thereon, or such other percentage required by law or set forth in the Articles from time to time.

On October 31, 2005, following the purchase of 34,285,714 ordinary shares of NUR and of warrants exercisable for 25,714,286 ordinary shares of NUR by the Fortissimo investors, a shareholders agreement was signed between Fortissimo, on behalf of the Fortissimo Entities and Kanir. Under the agreement, Kanir agreed to vote in accordance with the Fortissimo Entities, except with respect to related party transactions and matters that adversely and disproportionately affect Kanirs rights and entitlements, as compared to those of the Fortissimo Entities. In addition, this agreement contains certain provisions with respect to co-sale rights, rights of first refusal and other rights that may affect the disposition of ordinary shares.

Changing Rights Attached to Shares

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

According to our Articles, in order to change the rights attached to any class of shares, unless otherwise provided by the terms of the class, such change must be adopted by a general meeting of the shareholders and by a separate general meeting of the holders of the affected class with a majority of the voting power participating in such meeting. The provisions of the Articles relating to General Meetings of NURs shareholders shall apply, mutatis mutandis, to any separate General Meeting of the holders of the shares of a specific class; provided, however, that the requisite quorum at any such separate General Meeting shall be one or more members present in person or by proxy and holding not less than thirty three and one third percent (33 1 / 3 %) of the issued shares of such class.

The above-mentioned conditions are not more onerous than is required by law.

Dividends and Profits

The Board may from time to time, subject to the provisions of Companies Law, declare and order the payment of a dividend from NURs accrued profits at the rate it may deem, provided that there is no reasonable concern that payment of such dividend may prevent NUR from meeting its current and expected liabilities when they become due. Upon recommendation by the Board, dividends may be paid, in whole or in part, by the distribution of specific assets of NUR and/or by the distribution of shares and/or debentures of NUR and/or of any other company, or in any combination of such manners. Subject, if any, to special or restricted rights conferred upon the holders of shares as to dividends, the dividends shall be distributed in accordance with the paid-up capital of NUR attributable to the shares for which the dividend has been declared. Our obligation to pay dividends or any other amount in respect of shares may be set-off against any indebtedness, however arising, liquidated or non-liquidated, of the person entitled to receive the dividend. Any dividend unclaimed within the period of seven years from the date stipulated for their payment, shall be forfeited and returned to us, unless otherwise directed by the Board. In the event of the winding up of NUR, then, subject to provisions of any applicable law and to any special or restricted rights attached to a share, our assets in excess of our liabilities will be distributed among the shareholders in proportion to the paid-up capital attributable to the shares in respect of which the distribution is being made.

Redemption Provisions

NUR may, subject to any applicable law, issue redeemable securities and then redeem them.

Certain Transactions with Controlling Persons

No provision in the Articles discriminates against an existing or prospective holder of securities, as a result of such shareholder owning a substantial amount of shares. However, the Companies Law also provides that some transactions between a public company and a controlling shareholder, or transactions in which a controlling shareholder of the company has a personal interest but which are between a public company and another entity, require the approval of the board of directors and of the shareholders. The Companies Law defines a controlling shareholder as a person who holds 25% or more of the voting rights at the companys general meeting, provided there is no other person that holds more than 50% of the voting rights in the company; for purposes of holding, two or more persons who hold voting rights in the company and each of whom has a personal interest in the approval of the same transaction up for approval by the company shall be deemed one holder. Moreover, an extraordinary transaction with a controlling shareholder or the terms of compensation of a controlling shareholder, or an extraordinary transaction with another person in whom the controlling shareholder has a personal interest must be approved by the audit committee, the board of directors and shareholders. The shareholder approval for an extraordinary transaction must include at least one-third of the shareholders who have no personal interest in the transaction who voted on the matter. The transaction can be approved by shareholders without this one-third approval, if the total shareholdings of those shareholders who have no personal interest and voted against the transaction do not represent more than one percent of the voting rights in the company.

Anti-takeover Provisions; Mergers and Acquisitions under Israeli Law

The Companies Law permits merger transactions with the approval of each partys board of directors and generally requires shareholder approval, as well. Under a recent amendment to the Companies Law, a merger with a wholly owned subsidiary does not require approval of the surviving companys shareholders. A merger does not require approval of the surviving companys shareholders if (i) the merger does not require amending the surviving companys memorandum of association or articles of association and (ii) the surviving company does not issue more than 20% of its voting power in connection with the merger and pursuant to the issuance no shareholder would become a controlling shareholder. Shareholder approval of the surviving company would nevertheless be required if the other party to the merger, or a person holding more than 25% of the outstanding voting shares or means of appointing the board of directors of the other party to the merger, holds any shares of the surviving company. In accordance with the Companies Law, our Articles provide that a merger may be approved at a shareholders meeting by a majority of the voting power represented at the meeting, in person or by proxy, and voting on that resolution. The Companies Law provides that in determining whether the required majority has approved the merger, shares held by the other party to the merger, any person holding at least 25% of the outstanding voting shares or means of appointing the board of directors of the other party to the merger, or the relatives or companies controlled by these persons, are excluded from the vote.

Under the Companies Law, a merging company must inform its creditors of the proposed merger. Any creditor of a party to the merger may seek a court order blocking the merger, if there is a reasonable concern that the surviving company will not be able to satisfy all of the obligations of the parties to the merger. Moreover, a merger may not be completed until at least 50 days have passed from the time that a merger proposal was filed with the Israeli Registrar of Companies and 30 days have passed from the shareholder approval of the merger in each merging company.

The Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would become a 25% or greater shareholder of the company. This rule does not apply if there is already another 25% or greater shareholder of the company. Similarly, the Companies Law provides that an acquisition of shares in a public company must be made by means of a tender offer if as a result of the acquisition the purchaser would hold greater than a 45% interest in the company, unless there is another shareholder holding more than a 45% interest in the company. These requirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greater shareholder of the company which resulted in the acquiror becoming a 25% or greater shareholder of the company, or (3) was from a shareholder holding more than a 45% interest in the company which resulted in the acquiror becoming a holder of more than a 45% interest in the company.

If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a companys outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares. If less than 5% of the outstanding shares are not tendered in the tender offer, all the shares that the acquirer offered to purchase will be transferred to the acquirer. The Companies Law provides for appraisal rights if any shareholder files a request in court within three months following the consummation of a full tender offer. If more than 5% of the outstanding shares are not tendered in the tender offer, then the acquiror may not acquire shares in the tender offer that will cause his shareholding to exceed 90% of the outstanding shares.

Regulations under the Companies Law provide that the Companies Laws tender offer rules do not apply to a company whose shares are publicly traded outside of Israel, if pursuant to the applicable foreign securities laws and stock exchange rules there is a restriction on the acquisition of any level of control of the company, or if the acquisition of any level of control of the company requires the purchaser to make a tender offer to the public shareholders.

Duties of Shareholders

Under the Companies Law, a shareholder has a duty to act in good faith towards the company and other shareholders and to refrain from abusing his or her power in the company including, among other things, when voting in a general meeting of shareholders or in a class meeting on the following matters:

| | any
amendment to the articles of association; |
| --- | --- |
| | an increase
in the companys authorized share capital; |
| | a merger; or |
| | approval of
related party transactions that require shareholder approval. |

A shareholder has a general duty to refrain from depriving any other shareholder of their rights as a shareholder. In addition, any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder who has the power to appoint or prevent the appointment of an office holder in the company is under a duty to act with fairness towards the company. The Companies Law does not describe the substance of this duty of loyalty.

C. Material Contracts

Fortissimo Private Placement

In October 2005, NUR consummated a private placement of ordinary shares to a group of investors led by Fortissimo (the Fortissimo Investors). The Fortissimo investment was approved by the Board and by NURs annual and special shareholders meeting held on October 27, 2005. NUR raised $12 million through the private placement of 34,285,714 ordinary shares (the Fortissimo Shares) to the Fortissimo Investors at a price per share of $0.35. The Fortissimo Investors also received five-year warrants to purchase up to 25,714,286 ordinary shares at an exercise price of $0.40 per share (the Fortissimo Warrants).

Under the terms of the investment agreement, the purchase price of $12 million was to be paid in three installments. The first two installments, $5 million each, were paid at the closing and in January 2006. The remaining installment, in the amount of $2 million, was due to be paid on October 2006. In August 2006 NUR and the Fortissimo Investors reached an agreement to accelerate the payment of $1.2 million and such payment was made on September 2006. The remaining $0.8 million were paid on October 2006. See Note 1b to NURs consolidated financial statements included as a part of this annual report on Form 20-F for more details.

Under a registration rights agreement entered into among NUR, the Fortissimo Investors and the Lender Banks, NUR may be required by the Fortissimo Investors to register for resale, on a best efforts basis, the Fortissimo Shares and the ordinary shares underlying the Fortissimo Warrants.

At the annual and special shareholders meeting held on October 27, 2005, NURs shareholders approved the terms of a management agreement entered into between NUR and Fortissimo on behalf of the Fortissimo Entities. The management agreement provides that Fortissimo, through its employees, officers and directors, will provide management services and advise and provide assistance to NURs management concerning NURs affairs and business. The management agreement also provides that the Fortissimo Entities will be entitled to elect a majority of the Board, including the chairman of the Board. In consideration of the performance of the management services and the Board services pursuant to the management agreement, NUR has agreed to pay to Fortissimo an aggregate annual management services fee in the amount $250,000 plus value added tax pursuant to applicable law. The management agreement will remain in effect for so long as a Fortissimo director occupies the seat of the chairman of the Board and one additional seat of the Board. Upon Fortissimo dropping below the above threshold the Board may reevaluate the management agreement and any revision or amendment of the terms suggested by the Board will require the corporate approvals under applicable law and NURs charter documents.

Debt Restructuring Agreement

In July 2000, NUR entered into long-term loan agreements with Bank Hapoalim B.M. and Bank Leumi Le-Israel B.M., as subsequently amended. The loan agreements provided for a three-year long-term credit line of up to $20.0 million and $15.0 million from Bank Hapoalim and Bank Leumi, respectively.

In July 2003 and February 2004, we amended the loan agreement. Such amendments provided for a twelve-month grace period regarding the quarterly payments of the principal and a balloon payment of the remainder of the long-term loans in the first quarter of 2006. In addition, NUR undertook to maintain certain financial ratios.

During 2004, NUR failed to meet certain of the financial covenants governing its long-term and short-term loans.

In June 2005, we amended the financial covenants governing the loan agreements with the Lender Banks for the second, third and fourth quarters of 2005. In addition, the Lender Banks agreed in writing to waive the non-performance by NUR of certain financial covenants for prior periods ended on March 31, 2005.

The Lender Banks also agreed that, unless NUR breaches its obligations under the loan agreements, it shall not be obligated to repay to the Lender Banks any amounts on account of principal that are due and payable under the loan agreements until January 1, 2006.

On September 12, 2005, NUR entered into the debt restructuring agreement. Under the terms of the debt restructuring agreement the Lender Banks received warrants to purchase up to 8,000,000 ordinary shares for an exercise price of $0.35 per share (the Bank Warrants) in lieu of the right to receive repayment of $14.5 million of indebtedness. The Lender Banks also converted $5 million of the then outstanding bank debt into a three-year, non-interest bearing subordinated notes (the Subordinated Debt), which were assigned to the Fortissimo Entities. The Subordinated Debt will be payable upon liquidation of NUR only after the Lender Banks received $15 million as repayment of their outstanding bank debt. Events of liquidation are defined as:

| § | a
bankruptcy, insolvency or reorganization proceeding under any bankruptcy or
insolvency or similar law, whether voluntary or involuntary, which is
properly commenced by or against NUR, which proceedings are not lifted or
stayed within ninety days thereafter; |
| --- | --- |
| § | a receiver
or liquidator is appointed to all, or substantially all, of NURs assets
which appointment is not lifted or stayed within ninety days thereafter; or |
| § | NUR enters
into a stay of proceedings pursuant to Section 350 of the Israeli Companies
Law, which proceedings are not lifted within 90 days (such period of time
shall not apply if it prejudices the rights of the Lender Banks). |

Under the terms of an agreement entered into between Fortissimo and the Lender Banks on September 12, 2005, the Subordinated Debt was assigned by the Lender Banks to Fortissimo. See Item 7.B: Related Party Transactions.

In addition, under the terms of the debt restructuring agreement NUR agreed to direct the $2 million third installment of the Fortissimo investment to repay $2 million of NURs bank debt on the first anniversary of the closing of the debt restructuring agreement. This $2 million repayment of bank debt consisted of $1.9 million of principal and $0.1 million of fixed interest.

The repayment of NURs remaining $22 million of outstanding bank debt (the Remaining Debt) was rescheduled for repayment under a new credit facility. The credit facility is divided into a revolving short-term credit line in the amount of approximately $11 million, and a ten-year long-term loan in the amount of $11 million. The revolving credit line is renewable on a yearly basis at the request of NUR for up to six years unless NUR has defaulted on the terms of the credit facility or the Lender Banks otherwise have the right to demand repayment of the amounts outstanding under the revolving credit line. NUR is required to pay interest on the revolving credit line quarterly. NUR will not be required to make any annual principal payments, payable in four quarterly installments, under the new long-term loan for a period of two years and thereafter is required to make the following principal payments:

Year	Principal Payment Amount
2008	$ 500,000
2009	$ 500,000
2010	$ 1,000,000
2011	$ 1,000,000
2012	$ 1,500,000
2013	$ 1,500,000
2014	$ 2,500,000
2015	$ 2,500,000

NUR will have the option to repay the aggregate remaining principal under the long-term loan after six years from the inception date of the new credit facility. The revolving credit line and the long term loan under the new credit facility will be subject to immediate repayment upon the occurrence of certain events including default under the terms of the credit facility or other agreements with the Lender Banks, the creation of certain liens on the NURs assets, the filing for voluntary liquidation by NUR, a change of control of NUR or certain other events.

NUR also has agreed to maintain the following ratios of (1) the total amounts owed to the Lender Banks plus available credit under the new revolving credit facility plus debts of subsidiaries to outside lenders incurred above an aggregate of 2.035 million (or $2.69 million) to (2) EBITDA (as defined in the debt restructuring agreement)

| Time
Period | Ratio of
Debt to EBITDA |
| --- | --- |
| Fiscal year
ended December 31, 2007 | No
compliance required. |
| Fiscal year
ended December 31, 2008 | 13 : 1 |
| Fiscal year
ended December 31, 2009 | 10 : 1 |
| Fiscal year
ended December 31, 2010 | 8 : 1 |
| Fiscal year
ended December 31, 2011 and thereafter | 6 : 1 |

The first measurement of the financial covenants will take place following the end of the third quarter of 2008 based on NURs financial results during the first three quarters of 2008, and will be measured on a quarterly basis thereafter, which measurement will take into account the previous four calendar quarters. If NUR does not meet the financial covenants mentioned above, it may remedy such default by paying to the Lender Banks, in a single payment upon the determination of the occurrence of such default principal that would have been paid quarterly during the twelve consecutive calendar months that immediately follow such default.

NUR also has agreed to extend the exercise period of existing warrants to purchase up to 1,340,000 ordinary shares which were previously granted to the Lender Banks by eighteen months. The exercise prices of these warrants range from $0.34 to $5.00 per share. The weighted average exercise price of these warrants is $0.96 per share.

Under a registration rights agreement entered into among NUR, the Fortissimo Investors and the Lender Banks, NUR may be required by the Lender Banks to register for resale, on a best efforts basis, the shares underlying the Bank Warrants.

We believe that the new agreements with the Lender Banks of September 2005 will allow a better alignment between the debts magnitude, as well as the financial covenants and NURs current business plan. Our failure to observe covenants when due or satisfy conditions under the loan agreements may result in the banks accelerating our obligations, which would obligate us to immediately repay all loans made by the banks plus penalties, and the banks would be entitled to exercise the remedies available to them under the credit facility, including enforcement of their lien against all our assets, which may result in a material adverse effect on our business and financial results. The loans are repayable in annual installments as of 2008 and until 2015.

2007 Private Placement

Under the subscription agreement entered into between NUR and each of the investors, NUR is required, on a best efforts basis, to file a registration statement registering the ordinary shares and ordinary shares underlying warrants for resale within six months following the private placement. The investors in the private placement were provided with the same registration rights provided to the Fortissimo Investors and were also provided with the right to receive partial liquidated damages in the event the company does not meet certain target dates set forth in the agreement in connection with the registration of the shares. The partial liquidated damages are in an amount equal to 1.0% of the aggregate purchase price paid by each investor per month.

Dan Purjes Voting Agreement and Voting Trust Agreement

On January 23, 2005, NUR entered into a Voting Agreement coupled with an irrevocable proxy, with Dan Purjes. Key features of the Voting Agreement are as follows:

Mr. Purjes granted to our Board or a nominee appointed by it voting control over 7,706,683 ordinary shares beneficially owned by him, coupled with an irrevocable proxy (the Proxy), and the Board or the nominee appointed by it will vote the shares in any meeting or actions of the shareholders and with respect to any matter submitted to shareholder with the majority of votes of the other shareholders of NUR.

| | The Proxy
became effective on January 23, 2005, the date of the Voting Agreement, and
will terminate when Mr. Purjes is no longer the record holder or beneficial
owner of ordinary shares or securities exercisable for or convertible into
ordinary shares (the Term). |
| --- | --- |
| | During the
Term, Mr. Purjes may not dispose of any of the ordinary shares and securities
exercisable for or convertible into ordinary shares which are subject to the
Proxy, other than: |

| | § | any number
of shares in the open market through a stock broker or dealer for the sole
purpose of effecting an immediate sale of such shares; |
| --- | --- | --- |
| | § | to a person
or entity that is not affiliated, directly or indirectly, with Mr. Purjes
through a private transaction. During the period ending on the earlier of
January 23, 2006 or immediately following NURs general meeting of
shareholders which would be convened for electing directors appointed or
recommended by a new investor to NURs board of directors (the Restricted
Period), the transferee will grant to NURs Board or a nominee appointed by
it a proxy with respect to the transferred shares, which proxy will be
effective until the end of the Restricted Period; |
| | § | to a certain
unaffiliated third party through a private transaction; |
| | § | pledging,
hypothecating, creating a security interest in or lien on, or commit to do
any of the foregoing with respect to the subject securities, provided, that
such securities will continue to be subject to the Proxy; and |
| | § | Transfers of
securities covered by the Proxy to Mr. Purjes family and affiliates. The
transferee will be bound by the terms of the Voting Agreement and the
securities so transferred will continue to be subject to the Proxy. |
| | NUR agreed
to indemnify Mr. Purjes for claims, demands and actions, and liabilities,
damages, or expenses resulting therefrom, resulting from the Proxy given to
NUR or its representative or them voting such shares. | |

In accordance with conversations between representatives of NUR and Nasdaq, NUR and Mr. Purjes entered into a Voting Trust Agreement, dated as of March 7, 2005 (the Voting Trust Agreement), that amended, superseded and suspended the Voting Agreement.

Under the Voting Trust Agreement with Dan Purjes and an independent trustee, New York Private Bank & Trust (the Trustee), Mr. Purjes agreed to place all the ordinary shares and securities exercisable for or convertible into ordinary shares of NUR owned by him and by his family and affiliates (hereinafter referred as the subject securities) into a voting trust. As a result, voting control of all subject securities are controlled by the Trustee who was to vote those securities proportionally according to the votes cast by NURs other shareholders on any matter submitted to a shareholder vote. However, as a result of the delisting of our ordinary shares from the Nasdaq Capital Market, the Voting Trust Agreement was automatically terminated and converted into the Voting Agreement.

In exchange for the voting control of Mr. Purjes, NUR granted to Mr. Purjes a five-year warrant to purchase 3,000,000 ordinary shares at a purchase price per share of $0.75 (the Purjes Warrant).

NUR agreed to include in any registration statement filed by NUR all or part of the Purjes Warrant and the ordinary shares underlying the Purjes Warrant, as well as other securities held by Mr. Purjes only to the extent they are not registered for public sale under the applicable securities laws.

In October 2005, Dan Purjes, filed a complaint against NUR seeking the reinstatement of his voting rights, the control of which had been transferred to NUR pursuant to the Voting Agreement. NUR has filed a motion to dismiss this complaint. For additional information see Item 8.A: Legal Proceedings.

Our Audit Committee, Board of Directors and shareholders have approved the Voting Agreement.

D. Exchange Controls

Israeli law places limitations on foreign currency transactions and transactions between Israeli and non-Israeli residents, including payment of dividends. The Controller of Foreign Exchange at the Bank of Israel, through general and special permits, may regulate or waive these limitations. In May 1998, the Bank of Israel liberalized its foreign currency regulations by issuing a new general permit providing that foreign currency transactions are generally permitted, although certain restrictions still apply. Restricted transactions include foreign currency transactions by institutional investors, including futures contracts by foreign residents for periods of more than one month, and investments outside of Israel by pension funds and insurers. Under the new general permit, all foreign currency transactions must be reported to the Bank of Israel and a foreign resident must report to his financial mediator about any contract for which Israeli currency is being deposited in, or withdrawn from, his account.

The State of Israel does not restrict in any way the ownership or voting of ordinary shares of Israeli entities by non-residents of Israel, except with respect to subjects of countries that are in a state of war with Israel.

E. Taxation

Israeli Taxation and Investment Programs

The following is a summary of the material Israeli tax consequences, Israeli foreign exchange regulations and certain Israeli government programs as they relate to NUR and its shareholders. To the extent that the discussion is based on new tax or other legislation that has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in the discussion will be accepted by the tax or other authorities in question. The discussion is not intended, and should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.

General Corporate Tax Structure

Israeli companies are generally subject to company tax on their taxable income. The applicable rate is 31% in 2006, and is scheduled to decline to 29% in 2007, 27% in 2008, 26% in 2009, and 25% in 2010 and thereafter. However, the effective tax rate payable by a company which derives income from an approved enterprise may be considerably less, as further discussed below.

Special Provisions Relating to Taxation under Inflationary Conditions

The Income Tax Law (Inflationary Adjustments), 5745-1985, or the Inflationary Adjustments Law, represents an attempt to overcome the problems presented to a traditional tax system by an economy undergoing rapid inflation. The Inflationary Adjustments Law is highly complex. Its features, which are material to us, can be described as follows:

| | there is a
special tax adjustment for the preservation of equity which classifies corporate
assets into fixed assets and non-fixed assets. Where a companys equity, as
defined in the law, exceeds the depreciated cost of fixed assets, a deduction
from taxable income that takes into account the effect of the applicable
annual rate of inflation on the excess is allowed up to a ceiling of 70% of
taxable income in any single tax year, with the unused portion permitted to
be carried forward on a linked basis. If the depreciated cost of fixed assets
exceeds a companys equity, then the excess multiplied by the applicable
annual rate of inflation is added to taxable income; |
| --- | --- |
| | subject to
specified limitations, depreciation deductions on fixed assets and losses
carried forward are adjusted for inflation based on the increase in the
consumer price index; and |
| | in specified
circumstances, gains on traded securities, which might otherwise be eligible
for reduced rates of tax, will be liable to company tax rates, as mentioned
above. |

Law for the Encouragement of Industry (Taxes), 5729-1969

The Law for the Encouragement of Industry (Taxes), 5729-1969, or the Industry Encouragement Law, provides several tax benefits for industrial companies. An industrial company is defined as a company resident in Israel, at least 90% of the income of which in a given tax year (determined in Israeli currency, exclusive of income from specified government loans, capital gains, interest and dividends) is derived from an industrial enterprise owned by it. An industrial enterprise is defined as an enterprise whose major activity in a given tax year is industrial production activity.

Under the Industry Encouragement Law, industrial companies are entitled to a number of corporate tax benefits, including:

| | deduction of
purchase of know-how and patents over an eight-year period for tax purposes;
and |
| --- | --- |
| | the right to
elect, under specified conditions, to file a consolidated tax return with
additional related Israeli industrial companies and an industrial holding
company. |

Under some tax laws and regulations, an industrial enterprise may be eligible for special depreciation rates for machinery, equipment and buildings. These rates differ based on various factors, including the date the operations begin and the number of work shifts. An industrial company owning an approved enterprise may choose between these special depreciation rates and the depreciation rates available to the approved enterprise.

Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.

We believe that we currently qualify as an industrial company within the definition of the Industry Encouragement Law. We cannot assure you that the Israeli tax authorities will agree that we qualify, or, if we qualify, that we will continue to qualify as an industrial company or that the benefits described above will be available to us in the future.

Law for the Encouragement of Capital Investments, 5719-1959

The Law for the Encouragement of Capital Investments, 5719-1959, as amended, or the Investment Law, provides certain tax and financial benefits to a capital investment in production facilities (or other eligible facilities) designated as an approved enterprise. Each certificate of approval for an approved enterprise relates to a specific capital investment program delineated both by its financial scope, including its capital sources, and its physical characteristics, such as the equipment to be purchased and utilized pursuant to the program. The tax benefits under the Investment Law are not available for income derived from products manufactured outside of Israel.

A company owning an approved enterprise may elect to receive either governmental grants or an alternative package of tax benefits. Certain of the NURs production facilities have been granted the status of Approved Enterprise under the law, for three separate investment plans. According to the provisions of this law, NUR elected to enjoy alternative benefits which provide tax benefits in exchange for waiver of grants. Accordingly, NURs income from the Approved Enterprise will be tax-exempt for a period of 2, 4 and 4 years, for the first, second and third plan, respectively, commencing with the year it first earns taxable income. The period of tax benefits detailed above is subject to limits of 12 years from the commencement of production, or 14 years from receiving the approval, whichever is earlier. Given the abovementioned conditions, the period of benefits for the first and second plans commenced in 1994 and 1999, respectively. The first plan was terminated in 2001 and the second plan was terminated in 2004. The period of benefits for the third plan has not yet commenced. The reduced corporate tax rate, to which NURs approved enterprise program will be subject, is dependent on the level of foreign investment in NUR. A Foreign Investors Company, or FIC, as defined in the Investment Law, may enjoy benefits for an extended period of up to ten years. A FIC is a company of which more than 25% of its shareholders are non-Israeli residents.

In the event a company operates under more than one approval or only part of its capital investments are approved, its effective corporate tax rate is the result of a weighted combination of the various applicable rates. Notwithstanding our approved enterprise status in Israel, we may be required to pay income or withholding taxes in other countries.

All dividends are considered to be attributable to the entire enterprise and their effective tax rate is the result of a weighted combination of the applicable tax rates. A company that has elected the alternative package of tax benefits and pays a dividend out of income derived from the approved enterprise during the exemption period will be subject to tax on the amount distributed, at the rate that would have been applicable had it not elected the alternative package of benefits (generally, 10%-25% depending on the extent of foreign investment in the company). Dividends from approved enterprises are generally taxed at a rate of 15% (which is withheld and paid by the company paying the dividend) if such dividend is distributed during the benefits period or within twelve 12 years thereafter. The twelve-year limitation does not apply to a FIC.

The Investment Law also provides that a company with an approved enterprise is entitled to accelerated depreciation on its property and equipment included in an approved investment program.

The benefits available to an approved enterprise are conditional upon the fulfillment of certain conditions stipulated in the Investment Law and related regulations and the criteria set forth in the specific certificate of approval, as described above. In the event that these conditions are violated, in whole or in part, NUR will be subject to corporate tax at the rate then in effect under Israeli law for such tax year.

On April 1, 2005, an amendment to the Investment Law came into effect. The amendment revised the criteria for investments qualified to receive tax benefits. An eligible investment program under the amendment will qualify for benefits as a Privileged Enterprise (rather than the previous terminology of Approved Enterprise). Among other things, the amendment provides tax benefits to both local and foreign investors and simplifies the approval process. The period of tax benefits for a new Privileged Enterprise commences in the Year of Commencement. This year is the later of: (1) the year in which taxable income is first generated by a company, or (2) a year selected by the company for commencement, on the condition that the company meets certain provisions provided by the Investment Law (Year of Election). The amendment does not apply to investment programs approved prior to December 31, 2004. The new tax regime will apply to new investment programs only. Therefore, our three existing Approved Enterprises will not be subject to the provisions of the amendment.

If a company requested the alternative package of benefits for an Approved Enterprise under the old law before the 2005 amendment, it is precluded from filing a Year of Election notice for a Privileged Enterprise for three years after the year in which the Approved Enterprise was activated.

As a result of the amendment, tax-exempt income generated under the provisions of the amended law, will subject us to taxes upon dividend distribution or complete liquidation. As of December 31, 2006, none of our income was generated under the provision of the amendment.

NUR has decided to permanently reinvest the tax exempt profits resulting from the Approved Enterprise status and not to distribute such profits as dividends. We intend to reinvest our tax-exempt income and not to distribute such income as a dividend. Accordingly, no deferred income taxes have been provided on income attributable to our Approved Enterprise programs as the undistributed tax exempt income is essentially permanent in duration.

Capital Gains Tax on Sales of Our Ordinary Shares

Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of assets located in Israel, including shares in Israeli companies, by both residents and non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholders country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain, which is equivalent to the increase of the relevant assets purchase price, which is attributable to the increase in the Israeli consumer price index between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.

Taxation of Israeli Residents

As of January 1, 2006, the tax rate applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 20% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 25%. Additionally, if such shareholder is considered a significant shareholder at any time during the 12-month period preceding such sale (i.e., such shareholder holds directly or indirectly, including jointly with others, at least 10% of any means of control in the company) the tax rate will be 25%. Israeli companies are subject to the corporate tax rate on capital gains derived from the sale of shares, unless such companies were not subject to the Adjustments Law (or certain regulations) at the time of publication of the aforementioned amendment to the Tax Ordinance, in which case the applicable tax rate is 25%. However, different tax rates may apply to dealers in securities and shareholders who acquired their shares prior to an initial public offering.

Taxation of Non-Israeli Residents

Non-Israeli residents are generally exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on a recognized stock market outside of Israel, provided such shareholders did not acquire their shares prior to the issuers initial public offering and that the gains did not derive from a permanent establishment of such shareholders in Israel and that such shareholders are not subject to the Inflationary Adjustments Law. However, non-Israeli corporations will not be entitled to such exemption if an Israeli resident (i) has a controlling interest of 25% or more in such non-Israeli corporation, or (ii) is the beneficiary or is entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.

In addition, the sale, exchange or disposition of our ordinary shares by a shareholder who is a U.S. resident (for purposes of the U.S.-Israel Tax Treaty) holding ordinary shares as a capital asset is also exempt from Israeli capital gains tax under the U.S.-Israel Tax Treaty unless either (i) the shareholder holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale or (ii) the capital gains arising from such sale are attributable to a permanent establishment of the shareholder located in Israel. If the above conditions are not met, the U.S. resident would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Tax Treaty, the gain would be treated as foreign source income for United States foreign tax credit purposes and such U.S. resident would be permitted to claim a credit for such taxes against the United States income tax imposed on such sale, exchange or disposition, subject to the limitations under the United States federal income tax laws applicable to foreign tax credits.

Tax Benefits for Research and Development

Israeli tax law allows under certain conditions a tax deduction in the year incurred for expenditures in scientific research and development projects, if the expenditures are approved by the relevant Israeli Government Ministry (determined by the field of research) and the research and development is for the promotion of the enterprise. Expenditures not so approved are deductible over a threeyear period. However, expenditures made out of the proceeds of government grants are not deductible, i.e. assuming taxable income to NUR, it would be able to deduct the unfunded portion of the research and development expenditures and not the gross amount.

U.S. Tax Considerations Regarding Ordinary Shares

The following is a general summary of the material United States federal income tax consequences relating to the acquisition, ownership and disposition of our ordinary shares by an investor that holds those shares as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the Code). The summary is based on the tax laws of the United States, and existing final, temporary and proposed Treasury Regulations, Revenue Rulings and judicial decisions, as in effect on the date hereof, all of which are subject to prospective and retroactive changes, and to differing interpretations. The summary does not purport to address all federal income tax consequences that may be relevant to particular investors, and does not take into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks and financial institutions, insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, investors liable for alternative minimum tax, investors that own or are treated as owning 10% or more of our voting stock, investors that hold ordinary shares as part of a straddle, hedge, conversion transaction or other integrated transaction and investors whose functional currency is not the U.S. dollar) may be subject to special tax rules. ACCORDINGLY, PERSONS CONSIDERING THE PURCHASE OF ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS.

For purposes of this discussion, a U.S. Holder is any beneficial owner of shares of our ordinary shares that, for U.S. federal income tax purposes, is:

| (1) | an
individual citizen or resident of the United States, |
| --- | --- |
| (2) | a
corporation or other entity taxable as a corporation for U.S. federal income
tax purposes organized in or under the laws of the United States or any
political subdivision thereof, |
| (3) | an estate
the income of which is subject to U.S. federal income tax without regard to
its source, or |
| (4) | a trust, if
such trust validly elects to be treated as a U.S. person for U.S. federal
income tax purposes, or if (a) a court within the U.S. can exercise primary
supervision over its administration and (b) one or more U.S. persons have the
authority to control all of the substantial decisions of such trust. |

If a partnership (including for this purpose any entity treated as a partnership for U.S. tax purposes) is a beneficial owner of shares of our ordinary shares, the U.S. tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A holder of shares of our ordinary shares that is a partnership and partners in such partnership should consult their individual tax advisors about the U.S. federal income tax consequences of holding and disposing of shares of our ordinary shares.

A Non-U.S. Holder is any beneficial owner of shares of our ordinary shares that is not a U.S. Holder.

Taxation of U.S. Holders

Distributions on Ordinary Shares. Subject to the discussion in Passive Foreign Investment Companies below, distributions made by us with respect to ordinary shares generally will constitute dividends for federal income tax purposes and will be taxable to a U.S. Holder as dividend income to the extent of our undistributed current or accumulated earnings and profits (as determined for United States federal income tax purposes). Distributions in excess of our current or accumulated earnings and profits will be treated first as a nontaxable return of capital reducing the U.S. Holders tax basis in the ordinary shares, thus increasing the amount of any gain (or reducing the amount of any loss) which might be realized by such Holder upon the sale or exchange of such ordinary shares. Any such distributions in excess of the U.S. Holders tax basis in the ordinary shares will be treated as capital gain to the U.S. Holder and will be either long term or short term capital gain depending upon the U.S. Holders federal income tax holding period for the ordinary shares. Dividends paid by us generally will not be eligible for the dividends received deduction available to certain United States corporate shareholders under Code Sections 243 and 245. If you are a noncorporate U.S. Holder, dividends paid to you in taxable years beginning before January 1, 2011, that constitute qualified dividend income will be taxable to you at a maximum rate of 15% provided that you hold ordinary shares for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date and meet other holding period requirements.

A dividend paid in New Israeli Shekel will be included in gross income in a U.S. dollar amount based on the Israeli NIS/U.S. dollar exchange rate in effect on the date the dividend is included in the income of the U.S. Holder, regardless of whether the payment, in fact, is converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend payment is included in the gross income of a U.S. Holder through the date that payment is converted into U.S. dollars (or otherwise disposed of) will be treated as U.S. source ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income.

Subject to certain conditions and limitations, any Israeli withholding tax imposed upon distributions which constitute dividends under United States income tax law will be eligible for credit against a U.S. Holders federal income tax liability. Alternatively, a U.S. Holder may claim a deduction for such amount, but only for a year in which a U.S. Holder elects to do so with respect to all foreign income taxes. The overall limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed with respect to our ordinary shares will generally constitute passive income.

Sale or Exchange of Ordinary Shares. Subject to the discussion in Passive Foreign Investment Companies below, a U.S. Holder of ordinary shares generally will recognize capital gain or loss upon the sale or exchange of the ordinary shares measured by the difference between the amount realized and the U.S. Holders tax basis in the ordinary shares. Gain or loss will be computed separately for each block of shares sold (shares acquired separately at different times and prices). The deductibility of capital losses is restricted and generally may only be used to reduce capital gains to the extent thereof. However, individual taxpayers generally may deduct annually $3,000 of capital losses in excess of their capital gains.

Passive Foreign Investment Company. A foreign corporation generally will be treated as a passive foreign investment company (PFIC) if, after applying certain look-through rules, either (i) 75% or more of its gross income is passive income or (ii) 50% or more of the average value of its assets is attributable to assets that produce or are held to produce passive income. Passive income for this purpose generally includes dividends, interest, rents, royalties and gains from securities and commodities transactions. The look-through rules require a foreign corporation that owns at least 25%, by value, of the stock of another corporation to treat a proportionate amount of assets and income as held or received directly by the foreign corporation. We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. The determination of whether or not we are a PFIC depends on the composition of our income and assets, including goodwill, from time to time.

Based on our current operations, we do not believe that we currently are a PFIC and we do not anticipate that we will be a PFIC in the future. However, there can be no assurance that we are not and will not be treated as a PFIC in the future. If we are classified as a PFIC, U.S. Holders who own our ordinary shares during the taxable year in which we become a PFIC generally will be subject to increased U.S. tax liabilities and reporting requirements for that taxable year and all succeeding years, regardless of whether we continue to meet the income or asset test for PFIC status, although shareholder elections may apply in certain circumstances. U.S. Holders should consult their own tax advisors regarding our status as a PFIC and the consequences of investment in a PFIC.

If we are a PFIC for any taxable year during which you hold ordinary shares, you will be subject to special tax rules with respect to any excess distribution that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ordinary shares, unless you make a mark-to-market election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ordinary shares will be treated as an excess distribution. Under these special tax rules:

| (1) | the excess
distribution or gain will be allocated ratably over your holding period for
the ordinary shares, |
| --- | --- |
| (2) | the amount
allocated to the current taxable year, and any taxable year prior to the
first taxable year in which we were a PFIC, will be treated as ordinary
income, and |
| (3) | the amount
allocated to each other year will be subject to tax at the highest tax rate
in effect for that year and the interest charge generally applicable to
underpayments of tax will be imposed on the resulting tax attributable to
each such year. |

The tax liability for amounts allocated to years prior to the year of disposition or excess distribution cannot be offset by any net operating losses, and gains (but not losses) realized on the sale of the ordinary shares cannot be treated as capital, even if you hold the ordinary shares as capital assets.

If we are a PFIC, you may avoid taxation under the rules described above by making a qualified electing fund election to include your share of our income on a current basis, or a deemed sale election once we no longer qualify as a PFIC. However, you may make a qualified electing fund election only if we agree to furnish you annually with certain tax information, and we do not presently intend to prepare or provide such information.

Alternatively, a U.S. Holder of marketable stock in a PFIC may make a mark-to-market election for stock of a PFIC to elect out of the tax treatment discussed three paragraphs above. If you make a mark-to-market election for the ordinary shares, you will include in income each year an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of your taxable year over your adjusted basis in such ordinary shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year. However, deductions are allnwable only to the extent of any net mark-to-market gains on the stock included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ordinary shares, as well as to any loss realized on the actual sale or disposition of the ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ordinary shares. Your basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. The tax rules that apply to distributions by corporations which are not passive foreign investment companies would apply to distributions by us.

The mark-to-market election is available only for stock which is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission or on Nasdaq, or an exchange or market that the U.S. Secretary of the Treasury determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. Our ordinary shares are currently quoted on the over-the-counter market in the Pink Sheets. As a result of our shares trading on the over-the-counter-market, the mark-to-market election may not be available to you if we were to become a PFIC.

Dividends paid by a PFIC are not qualified dividend income for purposes of the preferential tax rate on qualified dividends discussed above.

If you hold ordinary shares in any year in which we are a PFIC, you would be required to file Internal Revenue Service Form 8621 regarding distributions received on the ordinary shares and any gain realized on the disposition of the ordinary shares.

Taxation of Non-U.S. Holders

Distributions on Ordinary Shares. Distributions made with respect to our ordinary shares to non-U.S. Holders who are not engaged in the conduct of a trade or business within the United States will be subject to United States federal income tax only if 25% or more of our gross income (from all sources for the three-year period ending with the close of the taxable year preceding the declaration of the distribution) was effectively connected with our conduct of a trade or business in the United States. We do not anticipate engaging in the conduct of a trade or business within the United States, except through subsidiaries. However, if the 25% threshold for such period is exceeded, a portion of any distribution paid by us to a non-U.S. Holder could be subject to federal income tax withholding at the rate of 30%; the portion of the distribution that could be subject to withholding would correspond to the portion of our gross income for the period that is effectively connected to its conduct of a trade or business within the United States.

100

Sale or Exchange of Ordinary Shares. A non-U.S. Holder will not be subject to United States federal income tax on any gain realized upon the sale or exchange of ordinary shares unless (i) the gain is effectively connected with a trade or business in the United States of the non-U.S. Holder, or (ii) the non-U.S. Holder is an individual who was present in the United States for 183 days or more in the taxable year of the disposition and other conditions exist.

United States Business. Dividends and gains that are effectively connected with a Non-U.S. Holders conduct of a trade or business in the United States generally will be subject to tax in the same manner as they would be for U.S. Holder. Effectively connected dividends and gains received by a corporate Non-U.S. Holder may also be subject to an additional branch profits tax at a 30% rate or a lower tax treaty rate.

Backup Withholding and Information Reporting

In general, information reporting requirements will apply to dividends in respect of our ordinary shares or the proceeds received on the sale, exchange or redemption of our ordinary shares paid within the United States (and in certain cases, outside the United States) to U.S. Holders other than certain exempt recipients, such as corporations, and a 30% backup withholding tax may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number or to report interest and dividends required to be shown on its U.S. federal income tax returns. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as credit against the U.S. Holders U.S. federal income tax liability provided that the appropriate returns are filed.

A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status to the payor, under penalties of perjury, on IRS Form W-8BEN.

F.	Dividends and paying agents
	Not
Applicable.
G.	Statement by experts
	Not
Applicable.
H.	Documents on display

Any statement in this annual report about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to a registration statement, the contract or document is deemed to modify the description contained in this annual report. You must review the exhibits themselves for a complete description of the contract or document.

101

You may review a copy of our filings with the SEC, including exhibits and schedules, and obtain copies of such materials at the SECs public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W, Washington, D.C. 20549. You may also obtain copies of such materials from the Public Reference Room of the SEC, Room 1580, 100 Street, N.E., Washington, D.C. 20549, at proscribed rates. You may call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.

These SEC filings are also available to the public from commercial document retrieval services.

I. Subsidiary Information

Not applicable.

ITEM 11: Quantitative and Qualitative Disclosures About Market Risk

Market risks relating to NURs operations result primarily from weak economic conditions in the markets in which NUR sells its products and from changes in exchange rates or in interest rates.

Inflation, Deflation and Fluctuation of Currencies

See Item 5.A: Impact of Inflation, Deflation and Fluctuation of Currencies.

Interest Rate

NURs exposure to market risk due to changes in interest rates relates primarily to the interest rate variation of NURs loans. As of December 31, 2006, we had a balance of $11.9 million of long-term loans and $9.0 million of short-term loans, carrying annual interest rates of LIBOR + 0.25%-2.5%. Changes in the LIBOR interest rate may affect our interest payments. As of June 15, 2007, $11.9 million and $9.0 million were outstanding in the aggregate under the long-term loans and short-term loans, respectively.

NUR does not otherwise believe the disclosure required by Item 11 of this annual report to be material to NUR.

ITEM 12: Description of Securities Other Than Equity Securities

Not Applicable.

PART II

ITEM 13: Defaults, Dividend Arrearages and Delinquencies

Not Applicable.

ITEM 14: Material Modifications to the Rights of Security Holders and Use of Proceeds

Not Applicable.

102

ITEM 15: Controls and Procedures

(a) Disclosure Controls and Procedures

NURs principal executive officer and its principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Such disclosure controls and procedures are designed to ensure that information required to be disclosed by NUR is accumulated and communicated to the appropriate management, including the principal executive officer and principal financial officer, on a basis that permits timely decisions regarding timely disclosure. Based on that evaluation, such principal executive officer and principal financial officer concluded that, other than as specified below, NURs disclosure controls and procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.

(b) Managements Annual Report on Internal Control over Financial Reporting

Not applicable.

(c) Changes in Internal Control over Financial Reporting

Except as stated below, there were no changes in NURs internal control over financial reporting that occurred during the year ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, NURs internal control over financial reporting. In addition, other than as set forth below, we have not identified any significant deficiencies or material weaknesses in our internal controls for 2006.

Following the audit of the financial statements for the year ended December 31, 2006, NURs independent auditors noted the existence of material weaknesses in internal control over financial reporting that relate to (1) revenue recognition, (2) monitoring provisions for slow-moving inventory and (3) the closing process of the financial statements prior to the initiation of the audit work. NURs management identified similar material weaknesses during the preparation of the financial reports for the year ended December 31, 2006, but believes that the material weakness identified with respect to revenue recognition relates only to revenue recognition of transactions signed in 2005 but recorded as revenue in 2006. NURs management believes that the additional procedures adopted during 2006 significantly increased its control over revenue recognition and it doesnt believe the material weakness identified with this respect still exists.

The material weaknesses identified by management and noted by our independent auditors were also identified as material weaknesses following the restatement of NURs financial results for 2002 through 2004, reported during 2005, and the preparation of the financial reports for the year ended December 31, 2005. Following the identification of such material weaknesses, NURs management evaluated them and began implementation of corrective actions in 2005.

103

During 2006, NURs management continued implementing various corrective actions as follows: (1) mandatory revenue recognition sessions were held with the sales force and (2) NURs management increased its control over the revenue recognition process by reviewing each equipment sales order and COI certificate before approving it for revenue recognition. During 2007, NUR intends to increase the number of its accounting experts in the finance departments of its headquarters and subsidiaries and to address the issues of provision for slow moving inventory and the closing process of the financial statements by assigning an accounting expert to each of these areas in order to handle them methodically.

All internal control systems, no matter how well designed and operated, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statements preparation and presentation. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

ITEM 16: Reserved

ITEM 16A: Audit Committee Financial Expert

In March 2004, the Board determined that it has at least one Audit Committee financial expert, as defined in Item 16A of Form 20-F, serving on the Audit Committee. Lauri A. Hanover has been designated as the Audit Committee financial expert and was also determined to be independent under the applicable SEC and Nasdaq regulations. For additional information regarding Lauri A. Hanovers financial experience, see Item 6: Directors and Senior Management.

ITEM 16B: Code of Ethics

NURs Audit Committee and Board have adopted a code of ethics, as defined in Item 16B of Form 20-F, that applies to NURs chief executive officer, chief financial officer, vice president of finance, controller and any other person bearing the title of vice president or higher in the Finance Department of NUR and its subsidiaries. A copy of the code of ethics has been filed as an exhibit to our annual report on Form 20-F for the year ended December 31, 2003.

There are no material modifications to, or waivers from, the provisions of the code of ethics that are required to be disclosed.

ITEM 16C: Principal Accountant Fees and Services

Fees paid to the Independent Accountants

Our principal accountants for the years 2005 and 2006 were Kost Forer Gabbay & Kasierer, a member of Ernst & Young Global.

104

The following table sets forth, for each of the years indicated, the fees paid to our independent registered public accounting firm.

	2005	2006
	(in
thousands of U.S. Dollars)
Audit
Fees(1)	$ 313	$ 263
Audit-Related
Fees(2)	-	-
Tax Fees(3)	$ 207	$ 74
All Other
Fees	-	-
Total	$ 520	$ 337

| (1) | Professional services
rendered by our independent registered public accounting firm for the audit
of our annual financial statements or services that are normally provided by
the accountants in connection with statutory and regulatory filings or
engagements. |
| --- | --- |
| (2) | Professional services rendered
by our independent registered public accounting firm for the assurance and
associated services that traditionally are performed by the independent
auditor, including consultation concerning reporting standards. |
| (3) | Professional services
rendered by our independent registered public accounting firm for
international and local tax compliance and tax advice services, including
approved enterprise issues, transfer pricing and expatriate individual tax
calculations. |

Audit Committees pre-approval policies and procedures

Our Audit Committee nominates and engages our registered public accounting firm to audit our financial statements. See also the description under the heading in Item 6.C: Board Practices. In July 2003, our Audit Committee also adopted a policy requiring management to obtain the Audit Committees approval before engaging our independent auditors worldwide to provide any other audit or permitted non-audit services to us. Pursuant to this policy, which is designed to assure that such engagements do not impair the independence of our auditors, the Audit Committee pre-approves annually a catalog of specific audit and non-audit services in the categories audit service, audit-related service and tax services that may be performed by our auditors.

ITEM 16D: Exemptions from the Listing Standards for Audit Committees

Not Applicable.

ITEM 16E: Purchase of Equity Securities by the Company and Affiliated Purchasers

Not Applicable.

PART III

ITEM 17: Financial Statements

Not Applicable.

105

ITEM 18: Financial Statements

See Financial Statements included at the end of this report.

ITEM 19: Exhibits

Number	Description
1.1	Memorandum of Association
of the Registrant, in Hebrew with a translation to English(1)
1.2	Amended and Restated
Articles of Association of the Registrant(2)
1.3	Certificate of Name
Change(3)
2.1	Specimen Certificate for
ordinary shares(1)
2.2	Form of Warrant Agreement,
dated January 17, 2002, between the Registrant and The Investment Corp. of
United Mizrahi Bank Ltd.(4)
2.3	Form of Registration
Rights Agreement, dated January 17, 2002, between the Registrant and The
Investment Corp. of United Mizrahi Bank Ltd.(4)
2.4	Form of Warrant Agreement,
dated February 12, 2002 between the Registrant and Bank Hapoalim B.M.(4)
2.5	Form of Registration
Rights Agreement, dated February 12, 2002 between the Registrant and Bank
Hapoalim B.M.(4)
2.6	Form of Warrant Agreement,
dated February 12, 2002, between the Registrant and Bank Leumi le-Israel
B.M.(4)
2.7	Form of Registration
Rights Agreement, dated February 12, 2002, between the Registrant and Bank
Leumi le-Israel B.M.(4)
2.8	Form of Warrant Agreement,
dated March 11, 2003, between the Registrant and Bank Hapoalim B.M.(5)
2.9	Form of Registration
Rights Agreement, dated March 11, 2003, between the Registrant and Bank
Hapoalim B.M.(5)
2.10	Form of Warrant Agreement,
dated March 11, 2003, between the Registrant and Bank Leumi le-Israel B.M.(5)
2.11	Form of Registration
Rights Agreement, dated March 11, 2003, between the Registrant and Bank Leumi
le-Israel B.M.(5)
2.12	Form of Convertible Loan
and Warrant Agreement, dated July 2003, among the Registrant and certain
investors(6)
2.13	Form of Warrant Agreement,
dated October 15, 2003, among the Registrant and certain investors(6)
2.14	Form of Registration
Rights Agreement, dated July 2003, among the Registrant and certain
investors(6)
2.15	Form of Warrant Agreement,
dated October 15, 2003, between the Registrant and the Placement Agent (6)
2.16	Form of Warrant Agreement,
dated August 1, 2003, between the Registrant and Bank Hapoalim B.M.(6)

106

Number	Description
2.17	Form of Registration
Rights Agreement, dated August 1, 2003, between the Registrant and Bank
Hapoalim B.M.(6)
2.18	Form of Warrant Agreement,
dated August 1, 2003, between the Registrant and Bank Leumi le-Israel B.M.(6)
2.19	Form of Registration
Rights Agreement, dated August 1, 2003 between the Registrant and Bank Leumi
le-Israel B.M.(6)
2.20	Form of Warrant Agreement,
dated June 27, 2003, between the Registrant and Israel Discount Bank Ltd.(6)
2.21	Form of Registration
Rights Agreement, dated June 27, 2003, between the Registrant and Israel
Discount Bank Ltd.(6)
2.22	Form of Warrant Agreement,
dated August 1, 2003, between the Registrant and Israel Discount Bank Ltd.(6)
2.23	Form of Registration
Rights Agreement, dated August 1, 2003, between the Registrant and Israel
Discount Bank Ltd.(6)
2.24	Form of Warrant Agreement,
dated April 17, 2005 between the Registrant and Dan Purjes(7)
2.25	Form of Registration Rights
Agreement, dated March 7, 2005, between the Registrant and Dan Purjes(8)
2.26	Form of Warrant Agreement,
dated October 31, 2005, among the Registrant and certain investors(9)
2.27	Form of Registration
Rights Agreement, dated September 12, 2005, among the Registrant, certain
investors, Bank Hapoalim, Bank Leumi and Israel Discount Bank(9)
2.28	Form of Warrant Agreement,
dated December 8, 2005, between the Registrant and Bank Hapoalim B.M.(9)
2.29	Form of Warrant Agreement,
dated December 8, 2005, between the Registrant and Bank Leumi le-Israel
B.M.(9)
2.30	Form of Warrant Agreement,
dated December 8, 2005, between the Registrant and Israel Discount Bank
Ltd.(9)
2.31	Form of Subscription
Agreement, dated January 25, 2007, between the Registrant and certain
investors
2.32	Form of Warrant Agreement,
dated January 25, 2007, between the Registrant and certain investors
3.1	Voting Agreement, dated
January 23, 2005, between the Registrant and Dan Purjes(7)
3.2	Form of Voting Trust
Agreement, dated March 7, 2005 between the Registrant, Dan Purjes and New
York Private Bank & Trust Company (10)
4.1	1995 Israel Stock Option
Plan (previously referred to in Company filings as the 1995 Flexible Stock
Incentive Plan or the 1995 Stock Option / Stock Purchase Plan)(1)
4.2	Amendment to the 1995
Israel Stock Option Plan(11)
4.3	1997 Stock Option Plan(12)
4.4	1998 Non-Employee
Directors Share Option Plan

107

Number	Description
4.5	2000 Stock Option Plan
4.6	Lease Agreement for office
space in Brussels, Belgium, dated November 26, 1996, between Nivellease, S.A.
and the Registrant(11)
4.7	Lease Agreement for office
space in Newton Center, Massachusetts, dated July 10, 1998, between WHTR Real
Estate Limited Partnership and the Registrant(11)
4.8	Summary of Lod Lease
Agreement, dated January 11, 2000, between A.A. Barzilay Investments and
Assets Ltd. and Kamim Investments and Assets Ltd. and the Registrant(13)
4.9	Addendum to Lod Lease
Agreement, dated September 20, 2004, between A.A. Barzilay Investments and
Assets Ltd. and Kamim Investments and Assets Ltd. and the Registrant(8)
4.10	Addendum to Lod Lease
Agreement, dated November 27, 2005, between A.A. Barzilay Investments and
Assets Ltd. and Kamim Investments and Assets Ltd. and the Registrant(2)
4.11	Management Services
Agreement, dated September 26, 2005, between the Registrant and Fortissimo
Capital Fund GP, LP(9)
4.12	Agreement for
Restructuring of Debt of Registrant, dated September 12, 2005, among the
Registrant and Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel
Discount Bank Ltd.(14)
4.13	Telrad Lease Agreement,
dated January 24, 2006, between the Registrant and Telrad Networks Ltd.(15)
8	List of Subsidiaries of
the Registrant (incorporated by reference to Item 4.C of this Annual Report
on Form 20-F)
11	Code of Ethics(6)
12.1	Certification of Principal
Executive Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302
Certifications)
12.2	Certification of Principal
Financial Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302
Certifications)
13	Certification of Principal
Executive Officer and Principal Financial Officer required by Rule 13a-14(b)
and Rule 15d-14(b) (Section 906 Certifications)
14.1	Consent of Kost Forer
Gabbay & Kasierer
14.2	Consent of BDO McCabe Lo
Limited

| (1) | Previously
filed with NURs F-1 (File No. 33-93160) and incorporated by reference
herein. |
| --- | --- |
| (2) | Previously
filled with NURs Form 20-F for the year ended December 31, 2005 and
incorporated by reference herein. |
| (3) | Previously
filed with NURs Form 6-K dated January 7, 1998 and incorporated by reference
herein. |
| (4) | Previously
filed with NURs Form 20-F for the year ended December 31, 2001 and
incorporated by reference herein. |
| (5) | Previously
filed with NURs Form 20-F for the year ended December 31, 2002 and incorporated
by reference herein. |
| (6) | Previously
filed with NURs Form 20-F for the year ended December 31, 2003 and
incorporated by reference herein. |
| (7) | Previously
filed with NURs Form 6-K dated February 6, 2005 and incorporated by
reference herein. |

108

| (8) | Previously
filed with NURs Form 20-F for the year ended December 31, 2004 and
incorporated by reference herein. |
| --- | --- |
| (9) | Previously
filed with NURs Form 6-K dated October 14, 2005 and incorporated by
reference herein. |
| (10) | Previously
filed with NURs Form 6-K dated March 31, 2005 and incorporated by reference
herein. |
| (11) | Previously
filed with NURs Form F-1 (File No. 333-66103) and incorporated by reference
herein. |
| (12) | Previously
filed with NURs Form 6-K dated October 14, 1997 and incorporated by
reference herein. |
| (13) | Previously
filed with NURs Form 20-F for the year ended December 31, 2000 and
incorporated by reference herein. |
| (14) | Previously
filed with NURs Form 6-K dated September 13, 2005 and incorporated by reference
herein. |
| (15) | Previously
filed with NURs Form 6-K dated February 13, 2006 and incorporated by
reference herein. |

109

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

| By: | /s/ David
Reis |
| --- | --- |
| | David Reis |
| | President and Chief Executive Officer |
| Dated: June
29, 2007 | |

110

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2006

IN U. S. DOLLARS

INDEX

	Page
Report of Independent Registered Public Accounting Firm	F 2
Consolidated Balance Sheets	F 3 F 4
Consolidated Statements of Operations	F 5
Statements of Changes in Shareholders Deficiency	F 6 F 7
Consolidated Statements of Cash Flows	F 8 F 9
Notes to Consolidated Financial Statements	F 10 F 47

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of NUR MACROPRINTERS LTD.

We have audited the accompanying consolidated balance sheets of NUR Macroprinters Ltd. (the Company) and its subsidiaries as of December 31, 2005 and 2006 and the related consolidated statements of operations, changes in shareholders deficiency and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

We did not audit the financial statements of a consolidated subsidiary, whose assets constitute 4% and 4% of total consolidated assets as of December 31, 2006 and 2005, respectively and whose revenues constitute 9%, 14% and 8% of total consolidated revenues for each of the three years in the period ended December 31, 2006, respectively. Those financial statements were audited by other auditors, whose report has been furnished to us, and our opinion, insofar as it relates to amounts included for this subsidiary, is based solely on the report of the other auditors.

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. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits 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 Companys 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, and evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of the other auditors, 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, 2005 and 2006 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.

As discussed in Note 2v to the consolidated financial statements, effective January 1, 2006 the Company adopted Statement of Financial Accounting Standard No. 123(revised 2004) Share-based Payment.

| Tel-Aviv,
Israel | /s/ KOST FORER GABBAY & KASIERER KOST FORER GABBAY & KASIERER |
| --- | --- |
| June 29, 2007 | A Member of Ernst & Young Global |

F 2

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands

	December 31, — 2005	2006
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$ 9,296	$ 4,868
Restricted cash	158	117
Trade receivables (net of allowance for
doubtful accounts of $ 5,510 and $ 4,894 as of December 31, 2005 and 2006,
respectively)	7,316	10,223
Other accounts receivable and prepaid
expenses (Note 3)	3,761	2,387
Inventories (Note 4)	13,137	16,400
Total current
assets	33,668	33,995
LONG-TERM ASSETS:
Severance pay fund	876	1,060
Other assets	327	348
Total long-term
assets	1,203	1,408
PROPERTY, PLANT AND EQUIPMENT, NET (Note 5)	4,636	5,758
OTHER INTANGIBLE ASSETS, NET (Note 6)	209	42
Total assets	$ 39,716	$ 41,203

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

F 3

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands (except share and per share data)

	December 31, — 2005	2006
LIABILITIES AND SHAREHOLDERS DEFICIENCY
CURRENT LIABILITIES:
Short-term bank credit and loans (Note 7)	$ 10,838	$	9,028
Current maturities of long-term loans (Note
8)	110		129
Trade payables	9,877		11,438
Deferred revenues	4,739		2,142
Other accounts payable and accrued expenses
(Note 9)	11,548		10,902
Total current liabilities	37,112		33,639
LONG-TERM LIABILITIES:
Long-term loans, net of current maturities
(including accrued interest on restructured debt of $ 9,037 and $ 10,364 as of
December 31, 2006 and 2005, respectively and subordinated notes issued to
related parties of $ 5,000 as of December 31, 2005 and 2006) (Note 8)	28,023		26,755
Government authorities (Note 10)	927		404
Accrued severance pay	1,208		1,408
Total long-term liabilities	30,158		28,567
COMMITMENTS AND CONTINGENT LIABILITIES
(Note 11)
SHAREHOLDERS DEFICIENCY (Note 13):
Share capital -
Ordinary shares of NIS 1 par value:
Authorized: 170,000,000 as of December 31,
2005 and 2006; Issued and outstanding: 60,498,062 and 60,523,886 shares as of
December 31, 2005 and 2006, respectively	13,629		13,635
Additional paid-in capital	60,582		61,956
Receivables on account of shares	(7,000	)	-
Deferred stock compensation	(77	)	-
Accumulated other comprehensive loss	(490	)	(475	)
Accumulated deficit	(94,198	)	(96,119	)
Total shareholders deficiency	(27,554	)	(21,003	)
Total liabilities and shareholders
deficiency	$ 39,716	$	41,203

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

F 4

| NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES |
| --- |
| CONSOLIDATED STATEMENTS OF OPERATIONS |
| U.S. dollars in thousands (except share and per share data) |

| | Year ended
December 31, — 2004 | | 2005 | | 2006 | |
| --- | --- | --- | --- | --- | --- | --- |
| Revenues (Note 15): | | | | | | |
| Products | $ 71,326 | | $ 67,072 | | $ 72,576 | |
| Services | 5,397 | | 4,306 | | 5,392 | |
| Total revenues | 76,723 | | 71,378 | | 77,968 | |
| Cost of revenues: | | | | | | |
| Products (a) | 44,612 | | 43,505 | | 43,060 | |
| Inventory write-off | 9,658 | | 2,721 | | 806 | |
| | 54,270 | | 46,226 | | 43,866 | |
| Services | 6,278 | | 5,772 | | 7,379 | |
| Total cost of
revenues | 60,548 | | 51,998 | | 51,245 | |
| Gross profit | 16,175 | | 19,380 | | 26,723 | |
| Operating expenses: | | | | | | |
| Research and development | 8,008 | | 7,086 | | 5,827 | |
| Selling and marketing | 9,529 | | 10,865 | | 11,747 | |
| General and administrative | 10,819 | | 12,171 | | 9,803 | |
| Doubtful accounts expenses (income) | 6,266 | | (1,132 | ) | (314 | ) |
| Amortization and impairment of technology
and other intangible assets (Note 2j) | 862 | | 169 | | 167 | |
| Total operating
expenses | 35,484 | | 29,159 | | 27,230 | |
| Operating loss | (19,309 | ) | (9,779 | ) | (507 | ) |
| Financial expenses, net (Note 16) | (2,639 | ) | (3,448 | ) | (1,316 | ) |
| Fair value of warrants issued to former
director (Note 12a) | - | | (1,441 | ) | - | |
| Loss before taxes on income | (21,948 | ) | (14,668 | ) | (1,823 | ) |
| Taxes on income (Note 14d) | 19 | | 38 | | 98 | |
| Net loss | $ (21,967 | ) | $ (14,706 | ) | $ (1,921 | ) |
| Basic and diluted net loss per share | $ (0.91 | ) | $ (0.46 | ) | $ (0.03 | ) |
| Weighted average number of shares used for
computing basic and diluted net loss per share | 24,235,406 | | 31,932,345 | | 60,506,854 | |

(a) Cost of revenues includes purchases from related parties in the year ended December 31, 2004 in the amount of $ 801 and $ 248 rent expenses in the year ended December 31, 2006.

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

F 5

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY
U.S. dollars in thousands (except share data)

Balance as of January 1, 2004	17,414,281	Share capital — 4,261	Additional paid-in capital — 47,521		-		Receipts on account of shares — 1,867		Accumulated other comprehensive loss — (1,137	)	Accumulated deficit — (57,525	)	Total comprehensive loss		(5,013	)
Issuance of shares (private placement)	2,586,140	573	2,215		-		-		-		-				2,788
Issuance of shares related to a credit line agreement	5,645,160	1,250	2,074		-		(1,867	)	-		-				1,457
Issuance of shares settling the credit line agreement	-	-	(1,713	)	-		-		-		-				(1,713	)
Exercise of warrants	43,460	10	5		-		-		-		-				15
Issuance of shares to the chairman of the board of directors for
services rendered, net	131,290	29	158		-		-		-		-				187
Exercise of employee stock options	344,884	75	173		-		-		-		-				248
Comprehensive loss:
Net loss	-	-	-		-		-		-		(21,967	)	$ (21,967	)	(21,967	)
Foreign currency translation adjustments	-	-	-		-		-		356		-		356		356
Total comprehensive loss													$ (21,611	)
Balance as of December 31, 2004	26,165,215	6,198	50,433		-		-		(781	)	(79,492	)			(23,642	)
Issuance of shares and warrants, net (private placement)	14,285,714	3,104	1,828		-		-		-		-				4,932
Issuance of shares held by trustee	20,000,000	4,318	2,682		(7,000	)	-		-		-				-
Issuance of shares to the chairman of the board of directors for
services rendered, net	36,299	7	24		-		-		-		-				31
Deferred stock compensation	-	-	77		-		(77	)	-		-				-
Issuance of warrants in connection with a debt restructuring
agreement	-	-	3,945		-		-		-		-				3,945
Extending term of warrants in connection a with debt restructuring
agreement	-	-	102		-		-		-		-				102
Fair value of warrants issued to a former director	-	-	1,441		-		-		-		-				1,441
Compensation in connection with modifications of option	-	-	48		-		-		-		-				48
Exercise of employee stock options	10,834	2	2		-		-		-		-				4
Comprehensive loss:
Net loss	-	-	-		-		-		-		(14,706	)	$ (14,706	)	(14,706	)
Foreign currency translation adjustments	-	-	-		-		-		291		-		291		291
Total comprehensive loss													$ (14,415	)
Balance as of December 31, 2005	60,498,062	$ 13,629	$ 60,582	$	(7,000	)	$ (77	)	$ (490	)	$ (94,198	)		$	(27,554	)

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

F 6

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIENCY
U.S. dollars in thousands (except share data)

Balance as of December 31, 2005	60,498,062	Share capital — 13,629	Additional paid-in capital — 60,582		(7,000	)	(77	)	(490	)	Accumulated deficit — (94,198	)	Total comprehensive loss		(27,554	)
Issuance of shares and warrants held by trustee	-	-	-		7,000		-		-		-				7,000
Stock - based compensation	-	-	1,426		-		-		-		-				1,426
Reclassification of deferred compensation to additional paid in
capital upon adoption of FAS 123R	-	-	(77	)	-		77		-		-				-
Compensation in connection with modifications of option	-	-	23		-		-		-		-				23
Exercise of employee stock options	25,824	6	2		-		-		-		-				8
Comprehensive loss:
Net loss	-	-	-		-		-		-		(1,921	)	$ (1,921	)	(1,921	)
Foreign currency translation adjustments	-	-	-		-		-		15		-		15		15
Total comprehensive loss													$ (1,906	)
Balance as of December 31, 2006	60,523,886	$ 13,635	$ 61,956	$	-	$	-	$	(475	)	$ (96,119	)		$	(21,003	)

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

F 7

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

	Year ended December 31, — 2004		2005		2006
Cash flows from operating activities :
Net loss	$ (21,967	)	$ (14,706	)	$ (1,921	)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization	1,830		2,027		1,341
Amortization and impairment of technology
and other intangible assets	862		169		167
Issuance of shares to the chairman of the
board of directors for services rendered, net	187		31		-
Compensation in connection with
modifications of options	-		48		23
Stock - based compensation	-		-		1,426
Loss (gain) on sale of property and
equipment	301		(64	)	-
Fair value of warrants issued to a former
director	-		1,441		-
Deferred income taxes, net	-		(106	)	-
Foreign currency translation loss (gain) on
inter company balances with foreign subsidiaries	(913	)	1,406		(499	)
Currency fluctuation of long-term debt	-		-		212
Accrued severance pay, net	155		5		16
Decrease (increase) in trade receivables,
net	4,628		2,217		(2,442	)
Decrease (increase) in other accounts
receivable and prepaid expenses	2,591		(841	)	1,470
Decrease (increase) in inventories	(8,376	)	3,585		(4,347	)
Write-off of inventories	9,658		2,721		806
Decrease in long-term trade receivables	525		233		-
Decrease in long-term related parties
accounts	242		-		-
Decrease (increase) in other assets	16		(73	)	(23	)
Increase (decrease) in trade payables	8,387		(5,732	)	1,494
Decrease in trade payables from related
parties	(2,386	)	-		-
Increase (decrease) in deferred revenues	1,821		409		(2,628	)
Increase (decrease) in other accounts
payable and accrued expenses	984		3,150		(1,592	)
Net cash used in operating activities	(1,455	)	(4,080	)	(6,497	)
Cash flows from investing
activities:
Proceeds from restricted cash	90		524		41
Proceeds from (investment in) restricted
long-term bank deposit	(21	)	65		-
Purchase of property and equipment	(2,123	)	(753	)	(1,648	)
Proceeds from sale of property and
equipment	293		100		-
Payment for the purchase of NUR
Pro-Engineering Ltd. (a)	(230	)	-		-
Net cash used in investing activities	(1,991	)	(64	)	(1,607	)

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

F 8

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

		Year ended December 31,
		2004		2005	2006
Cash flows from financing activities:
Proceeds from issuance of shares and
warrants, net		4,260		4,932		7,000
Proceeds from exercise of options, net		248		4		8
Short-term bank credit and short-term
loans, net		(2,242	)	1,545		(1,810	)
Payment of long-term loans, including
interest on restructured debt		(828	)	(2,124	)	(1,561	)
Net cash provided by financing activities		1,438		4,357		3,637
Effect of exchange rate changes on cash and
cash equivalents		452		338		39
Increase (decrease) in cash and cash
equivalents		(1,556	)	551		(4,428	)
Cash and cash equivalents at the beginning
of the year		10,301		8,745		9,296
Cash and cash equivalents at the end of the
year		$ 8,745		$ 9,296	$	4,868
(1)	Supplemental disclosure of cash flows
activities:
	Cash paid during the year for:
	Interest, including interest on
restructured debt	$ 1,888		$ 2,574	$	1,407
(2)	Supplemental disclosure of non-cash
operating financing activities:
	Fair value of warrants granted in
connection with a credit line	$ (1,713	)	$ -	$	-
	Receivables on account of shares	$ -		$ 7,000	$	-
	Conversion of outstanding bank debt into
warrants	$ -		$ 4,047	$	-
	Transfer of equipment to property, plant
and equipment from inventory	$ 975		$ 1,382	$	687
(a)	Payment for purchase of NUR Pro-Engineering
Ltd.
	Fair value of assets acquired and
liabilities assumed at the date of acquisition:
	Working capital, net (excluding cash and
cash equivalents in the amount of $ 160)	$ 186
	Production agreement	504
		$ *) 690
	*) During 2003, the Company paid an advance
of $ 460 from the total purchase price.

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

F 9

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share data)

NOTE 1:
a.	NUR
Macroprinters Ltd. (the Company), an Israeli company, and its subsidiaries
(collectively, the Group) develop, manufacture, sell and provide services
of digital printing systems for on-demand, short-run, wide format and
super-wide format printing as well as related consumable products.
	The Company
operates through wholly-owned subsidiaries for sales, support services and
marketing of the Companys products in their country or region of domicile.
Such entities include NUR Europe S.A. (NUR Europe) in Belgium, NUR America,
Inc. (NUR America) in the U.S., NUR Asia Pacific Limited (NUR Asia
Pacific) in Hong Kong and NUR Japan Ltd. (NUR Japan) in Japan.
	The Company
manufactures all its printers in a single plant located in Lod, Israel. The
Company manufactures ink in a manufacturing plant located in Ashkelon,
Israel.
	As to
principal markets and customers, refer to Note 15.
b.	Capital
investment and restructuring of bank debt:
	During the
fourth quarter of 2005, the Company secured funding in the amount of $ 12,000
from a group of investors led by Fortissimo Capital Fund GP, LP
(Fortissimo) through private placement of ordinary shares, of which $ 5,000
was paid during 2005 and $ 7,000 was paid during 2006. The net effect of
Fortissimos investment on the shareholders deficiency as of December 31,
2005 reflects only the first payment of $ 5,000, net of issuance expenses in
the amount of $ 68.
	During the
fourth quarter of 2005, the Company entered into a debt restructuring
agreement (the Debt Restructuring Agreement) with its lender banks, whereby
the Companys outstanding bank debt of $ 41,018 was restructured as follows:
$ 14,513 of the Companys then outstanding debt was converted into warrants to
purchase up to 8,000,000 ordinary shares; $ 5,000 was converted into non-interest-bearing
three-year subordinated notes, which are payable only on occurrence of
certain events of liquidation; and the remaining $ 21,505 was refinanced under
new loan agreements.
	In
conjunction with Fortissimos investment, the Company also agreed to extend
the expiration period of warrants that were previously issued to its lender
banks. The value of 8,000,000 warrants issued to the Companys lender banks
under the Debt Restructuring Agreement together with the value of the
extension of expiration of the previously issued warrants aggregate to
$ 4,047, which was recorded as an increase in the Companys additional paid-in
capital. The fair value for these warrants was estimated using a
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 4.36%; dividend yields of 0%; volatility factors of the
expected market price of the ordinary shares of 1.04; and an expected average
life of five years.

F 10

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 1:	GENERAL (Cont.)
		The debt
restructuring was accounted for in accordance with the troubled debt
restructuring provisions of Statement of Financial Accounting Standard (SFAS)
No. 15, Accounting by Debtors and Creditors for Troubled Debt
Restructurings (SFAS 15). Due to the fact that the restructured debt bears
variable interest, the amount of future interest payable can not be
determined and as such, no gain was recognized. Consequently, the
restructured long-term debt remained unchanged and future interest payments
shall reduce the carrying amount of the debt (refer to Note 8).
	c.	The Company
purchases some of the ink and most of the ink-jet printer-heads used in its
printers from a single supplier for each series of printers. The Companys
customers rely on the ink and ink-jet printerheads to operate their printers.
Because the Companys business depends on these items for sale and
maintenance of its printers, a failure in supply or a change in credit terms
could have a material adverse effect on the Companys results of operations
and financial position.
	d.	The Company
employs a limited number of unaffiliated subcontractors to manufacture
components for its printers. Because the Company relies on a limited number
of subcontractors, the Company failure to maintain its relationships with its
subcontractors or failure to develop alternative sources for its printer
components, could have a material adverse effect on the Companys results of
operations and financial position.
NOTE 2:	SIGNIFICANT ACCOUNTING POLICIES
	The
consolidated financial statements have been prepared according to United
States generally accepted accounting principles, as follows:
	a.	Use of
estimates:
		The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
	b.	Reclassification:
		Certain
prior period amounts have been reclassified to conform to the current period
presentation.
	c.	Financial
statements in U.S. dollars:
		The
Companys management believes that the currency of the primary economic
environment in which the Company and certain of its subsidiaries operate is
the U.S. dollar (dollar). Thus, the dollar is the reporting and functional
currency of the Company and certain of its subsidiaries.

F 11

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 2:
	For the
Company and certain subsidiaries, for which the reporting and functional
currency is the dollar, transactions and balances that are denominated in
dollars are presented at their original amounts. Non-dollar transactions and
balances have been remeasured to dollars in accordance with SFAS No. 52,
Foreign Currency Translation. All foreign currency transaction gains and
losses are reflected in the statements of operations as financial income or
expenses, as appropriate.
	For those
subsidiaries whose functional currency has been determined to be their local
currency, assets and liabilities are translated at year-end exchange rates
and statement of operations items are translated at average exchange rates
prevailing during the year. Such translation adjustments are recorded as a
separate component of accumulated other comprehensive loss in shareholders
deficiency.
d.	Principles
of consolidation:
	The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. Intercompany transactions and balances including
profit from intercompany sales not yet realized outside the Group, have been
eliminated upon consolidation.
e.	Cash
equivalents:
	Cash
equivalents are short-term highly liquid investments that are readily
convertible to cash with original maturities of three months or less at the
date acquired.
f.	Restricted
cash:
	Restricted
cash is primarily invested in highly liquid deposits, which are used as
security for certain of the Companys liabilities and obligations.
g.	Inventories:
	Inventories
are stated at the lower of cost or market value.
	The Company
reviewed its inventory quantities based primarily on its estimated forecast
of product demand, production requirements and servicing commitments and as a
result, inventory write-offs were provided to cover risks arising from
slow-moving items, technological obsolescence, excess inventories,
discontinued products and for market prices lower than cost.
	During 2005
and 2006, as a result of the temporary demand for printers of older models,
the Company began utilizing related inventories that were written-off in
prior years. In 2005 and 2006, inventory previously written-off with cost of
$205 and $310, respectively, was used as components for products in the Companys
regular line of production and was sold as finished goods. The sales of these
related manufactured products were reflected in the Companys revenues
without an associated additional cost to the cost of revenues in the period
in which the inventory was utilized.

F 12

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

| NOTE 2: |
| --- |
| Cost is
determined as follows: |
| Raw materials
- using the average cost method. |
| Work-in-progress
and finished products - raw materials as above with the addition of direct
manufacturing costs and indirect manufacturing costs allocated on an average
basis. |
| Changes in
the Groups inventory provision are as follows: |

| Balance as
of January 1, 2004 | Provision for slow-moving inventory — $ 7,420 | |
| --- | --- | --- |
| Charge to
cost | 9,658 | |
| Deduction | (8,944 | ) |
| Balance as
of December 31, 2004 | 8,134 | |
| Charge to
cost | 2,721 | |
| Deduction | (7,117 | ) |
| Balance as
of December 31, 2005 | 3,738 | |
| Charge to
cost | 806 | |
| Deduction | (1,570 | ) |
| Balance as
of December 31, 2006 | $ 2,974 | |

| h. |
| --- |
| Property,
plant 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 assets at the following annual rates: |

	%
Machinery
and equipment	10 - 33
Motor
vehicles	15
Office
furniture and equipment	6 - 10
Buildings	3
Leasehold
improvements	Over the shorter of the term of the lease or the useful life

F 13

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 2:
i.	Impairment
of long-lived assets and intangible assets subject to amortization:
	The Groups
long-lived assets and intangibles assets subject to amortization are reviewed
for impairment in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets held for use is measured by a
comparison of the carrying amount of an asset to the future undiscounted cash
flows expected to be generated by the assets. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
	During 2006
and 2005, no impairment losses were identified. In 2004, the Company
recognized an impairment loss as described in j below.
j.	Technology
and other intangible assets:
	Intangible
assets are stated at cost and are amortized over their estimated useful lives
using a method of amortization that reflects the pattern in which the
economic benefits of the intangible assets are consumed or otherwise used up,
in accordance with SFAS No. 142, Goodwill and Other Intangible Assets.
	Acquired
technology was amortized over five years, customer list was amortized over
seven years and the production agreement is amortized over three years.
	The acquired
technology, resulting from the acquisition of Stillachem technology in 2001,
was used until the second quarter of 2004 for ink production. From the second
quarter of 2004, the Company uses a new technology for the production of ink
and therefore the Companys management has recorded impairment on all of the
outstanding balance.
	During 2004,
the Company lowered its sales of the Salsa product significantly. Therefore,
management has recorded in 2004 impairment on all of the outstanding balance
of customer list.
	In respect
of acquired technology and customer list, the Company recognized an
impairment loss of $736 in 2004. The Company recorded amortization expenses
during 2004, 2005 and 2006, in the amount $126, $169 and $167, respectively.
k.	Revenue
recognition:
	The Company
generates revenues from the sale of its printers, inks and consumable
products and from services to its products. The Company generates revenues
from sale of its products directly to end-users and indirectly through
independent distributors.

F 14

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

| NOTE 2: |
| --- |
| Revenues
from printer sales are recognized in accordance with Staff Accounting
Bulletin No. 104, Revenue Recognition in Financial Statements upon
installation, provided that the collection of the resulting receivable is
probable, there is persuasive evidence of an arrangement, no significant
obligations in respect of installation remain and the price is fixed or
determinable. The Company does not grant a right of return. |
| Revenues
from selling these products to independent distributors are deferred until
the Companys products are installed in their customers premises, provided
that all other revenue recognition criteria are met. |
| When a sale
involves multiple elements, such as sales of printers that include a right to
receive specified upgrades, the entire fee from the arrangement is evaluated
under Emerging Issues Task Force (EITF) 00-21, Revenue Arrangements with
Multiple Deliverables. In such arrangements, the Company accounts for the
separate elements as different units of accounting, provided that the
delivered element has value to the customer on a standalone basis and there
is objective and reliable evidence of the fair value of the undelivered
element. In cases where there was no objective and reliable evidence of the
fair value of the undelivered element, the Company accounts for the total
arrangement as one unit of accounting. As such, the Company recognizes
revenue for the arrangement only when all revenue recognition criteria are
met for the undelivered element. |
| The Company
considers all arrangements with payment terms extending beyond the standard
payment terms not to be fixed or determinable. If the fee is not fixed or
determinable, revenue is recognized as payments become due from the customer,
provided that all other revenue recognition criteria have been met. |
| Revenues
from ink and other consumable products are generally recognized upon shipment
assuming all other revenue recognition criteria have been met. |
| Revenues
from services are comprised of maintenance and support arrangements. Revenues
from maintenance and support arrangements are recognized on a straight-line
basis over the term of the arrangement. |
| In cases
where the Company trades-in old printers as part of sales of new printers,
the fair value of the old printer is recorded as revenue, provided that such
value can be determined. If such value can not be determined the old printers
are recorded at zero value. The amount of revenues recognized for the
transaction equals the fair value of the old printer plus any monetary
consideration received. |
| Deferred
revenue includes amounts received from customers for which revenue has not
yet been recognized. |

F 15

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 2:
l.	Warranty
costs:
	The Group
generally provides a warranty period of six to twelve months, at no extra
charge. The Group estimates the costs that may be incurred under its standard
limited warranty and records a liability in the amount of such costs at the
time product is installed. Factors that affect the Groups warranty liability
include the number of installed units and historical warranty cost. The Group
periodically assesses the adequacy of its recorded warranty liabilities and
adjusts the amounts as necessary.
	Changes in
the Groups liability during the year are as follows:

| | December
31, — 2005 | 2006 | | |
| --- | --- | --- | --- | --- |
| Balance at
the beginning of the year | $ 1,103 | $ | 978 | |
| Utilization
of warranties | (1,957 | ) | (2,232 | ) |
| Changes in
liability for warranty during the year | 1,832 | | 2,759 | |
| Balance at
the end of the year | $ 978 | $ | 1,505 | |

| m. | Research and
development costs: |
| --- | --- |
| | Research and
development costs are charged to the statement of operations as incurred. |
| n. | Government
grants: |
| | Royalty-bearing
grants from the local authorities in Belgium for funding approved research
and development projects are recognized at the time the Companys European
subsidiary is entitled to such grants, on the basis of the costs incurred and
included as a reduction of research and development costs. No grants were received
during 2004, 2005 and 2006. Total royalty expenses accrued or paid amounted
to $ 235, $ 236 and $ 0 in 2004, 2005 and 2006, respectively. |
| o. | Income
taxes: |
| | The Company
provides for income taxes using the asset and liability method. Under this
method, deferred income taxes are recognized for the tax consequences of
temporary differences and net operating losses carryforwards (NOLs) by
applying enacted statutory tax rates applicable to future years to NOLs and
differences between the financial statement carrying amounts and the tax
bases of existing assets and liabilities. If necessary, deferred income tax
assets are reduced by a valuation allowance to an amount that is determined
to be more likely than not recoverable. The Company must make significant
estimates and assumptions about future taxable income and future tax
consequences when determining the amount of the valuation allowance. In
addition, tax reserves are based on significant estimates and assumptions as
to the relative filing positions and potential audit and litigation exposures
thereto. The effect on deferred taxes of a change in tax laws or tax rates is
recognized in the results of operations in the period that includes the
enactment date. |

F 16

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 2:
p.	Concentrations
of credit risk:
	Financial
instruments that potentially subject the Group to concentrations of credit
risk consist principally of cash and cash equivalents, restricted cash and
trade receivables.
	The majority
of the Groups cash and cash equivalents and restricted cash are invested in
dollar and Euro instruments with major banks in Israel, United States, Asia
and Belgium. Such deposits in the United States may be in excess of insured
limits and are not insured in other jurisdictions. However, management
believes that such financial institutions are financially sound, and
accordingly, minimal credit risk exists with respect to these investments.
	The trade
receivables of the Group are derived mainly from sales to customers located
primarily in Europe, America and Asia. Management believes that credit risks
are moderated by the diversity of its end-customers and geographic sales
areas. The Group performs ongoing credit evaluations of its customers
financial condition. The Group does not require collateral from its
customers. Management of the Company periodically performs an evaluation of
its composition of accounts receivable and expected credit trends and
establishes an allowance for doubtful accounts with respect to those amounts
that has determined to be doubtful of collections and in accordance with
aging key and charge off receivables where they deemed uncollectible. Past
due status of accounts receivable is determined primarily based upon
contractual terms.
	The Group
has no off-balance-sheet concentration of credit risk such as foreign
exchange contracts, option contracts or other foreign hedging arrangements.
	Changes in
the Groups allowance for doubtful accounts are as follows:

| Balance as
of January 1, 2004 | Allowance for doubtful accounts — $ 4,963 | |
| --- | --- | --- |
| Provision,
net of recoveries | 6,266 | |
| Write-off
and other | (219 | ) |
| Balance as
of December 31, 2004 | 11,010 | |
| Provision,
net of recoveries | (1,132 | ) |
| Write-off
and other | (4,368 | ) |
| Balance as
of December 31, 2005 | 5,510 | |
| Provision,
net of recoveries | (314 | ) |
| Write-off
and other | (302 | ) |
| Balance as
of December 31, 2006 | $ 4,894 | |

F 17

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 2:
q.	Severance
pay:
	The
Companys liability for severance pay is calculated pursuant to Israels
Severance Pay Law based on the most recent salary of the employees multiplied
by the number of years of employment, as of the balance sheet date. Employees
are entitled to one months salary for each year of employment, or a portion
thereof. The Companys liability for all of employees, is fully provided by
monthly deposits with severance pay funds and insurance policies and by an
accrual. The value of these policies is recorded as an asset in the Companys
consolidated balance sheet.
	The
deposited funds include profits accumulated up to the balance sheet date. The
deposited funds may be withdrawn only upon the fulfillment of the obligation
pursuant to Israels Severance Pay Law or labor agreements. The value of the
deposited funds is based on the cash surrendered value of these policies, and
includes immaterial profits.
	Severance
expenses for the years ended December 31, 2004, 2005 and 2006 amounted to
$ 652, $ 891 and $ 907, respectively.
r.	Employee
benefit plan:
	The Company
has a 401(K) defined contribution plan covering all employees in the U.S.
Employees contribution are generally not greater than $15 per year, of their
annual compensation to the plan through salary deferrals, subject to IRS
limits. The Companys 401(K) contribution plan includes a fixed matching
contribution program of 50% of employee contributions to the plan up to a
limit of 3% of their eligible compensation. During 2006, 2005 and 2004, the
Company matched contributions in the amount of $ 23, $10 and $ 9, respectively.
s.	Fair value
of financial instruments:
	The carrying
amounts of cash and cash equivalents, restricted cash, trade receivables,
other accounts receivable, short-term bank credit and loans, current
maturities of long-term loans, trade payables and other accounts payable
approximate their fair value, due to the short-term maturity of such
instruments.
	The carrying
amount of the Groups long-term loans (less accrued interest as described in
Note 8), other than subordinated notes issued to related parties,
approximates their fair value. Book values of long-term loans bearing
variable interest approximate fair values due to the variable interest rates
on these loans. The Company has not determined the fair value of the $5,000
note from related parties as it is impracticable due to the related party
nature.
t.	Advertising
expenses:
	Advertising
expenses are charged to the statement of operations, as incurred. Advertising
expenses for the years ended December 31, 2004, 2005 and 2006 amounted to
$ 368, $ 189 and $ 287, respectively.

F 18

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except per share data)

NOTE 2:
u.	Basic and
diluted net loss per share:
	Basic net
loss per share is computed based on the weighted average number of ordinary
shares outstanding during each year. Diluted net loss per share is computed
based on the weighted average number of ordinary shares outstanding during
the period plus dilutive potential ordinary shares considered outstanding
during the year, in accordance with SFAS No. 128, Earnings Per Share.
	Outstanding
stock options and warrants have been excluded from the calculation of the
diluted net loss per ordinary share as such securities are anti-dilutive for
all periods presented. The total weighted average number of options and
warrants excluded from the calculations of diluted net loss per share was
2,177,587, 14,343,543 and 50,163,084 for the years ended December 31, 2004, 2005
and 2006, respectively.
v.	Accounting
for stock-based compensation:
	Prior to
January 1, 2006 the Company accounted for share-based awards to employees and
directors using the intrinsic value method in accordance with Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. For awards granted prior to January 1, 2006, the Company
recognizes compensation expenses based on the accelerated attribution method
over the requisite service period of each of the awards.
	On January
1, 2006, the Company adopted Statement of Financial Accounting Standards No.
123(R), Share-Based Payment (SFAS 123(R)) utilizing the modified
prospective transition method. SFAS 123(R) requires employee share-based
payments to be valued at fair value on the date of grant and charged to
expense over the applicable requisite service period. Under the modified
prospective transition method, share-based compensation expense recognized in
the Company s consolidated statement of operations for fiscal year 2006
includes compensation expense for share-based awards granted (i) prior to,
but not yet vested as of, January 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of SFAS 123, Accounting
for Stock-Based Compensation (SFAS 123), and (ii) subsequent to January 1,
2006, based on the grant date fair value estimated in accordance with the
provisions of SFAS 123(R).
	The Company recognizes these compensation costs
net of estimated forfeitures on a straight-line basis
over the requisite service period of the award, which
is generally the option vesting term of three to four
years. SFAS 123(R) requires forfeitures to be estimated
at the time of grant and revised, if necessary, in
subsequent periods if actual forfeitures differ from
those estimates. In its pro forma information required
under SFAS 123 for periods prior to fiscal 2006, the
Company accounted for forfeitures as they occurred.
	In
accordance with the modified prospective method, the Company s consolidated
financial statements for prior periods have not been restated to reflect, and
do not include, the impact of SFAS 123(R).

F 19

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except per share data)

| NOTE 2: |
| --- |
| As a result
of adopting SFAS No. 123(R) on January 1, 2006, the Company s loss before
taxes on income for year ended December 31, 2006, was $1,349 higher, than if
the Company had continued to account for stock-based compensation under APB
No. 25. Basic and diluted net loss per share for the year ended December 31,
2006 were $ 0.03 higher, than if the Company had continued to account for
stock-based compensation under APB No. 25. |
| The Company
estimates the fair value of stock options granted using the
Black-Scholes-Merton option pricing model. The option-pricing model requires
a number of assumptions, of which the most significant are the expected stock
price volatility and the expected option term. Expected volatility was
calculated based upon actual historical stock price movements. The expected
term of options granted is based upon historical experience and represents
the period of time that options granted are expected to be outstanding. The
risk-free interest rate is based on the yield from U.S. treasury bonds with
an equivalent term. The Company has historically not paid dividends and has
no foreseeable plans to pay dividends. |
| The fair
value for options granted in 2004, 2005 and 2006 is estimated at the date of
grant using the Black-Scholes option pricing model with the following
weighted average assumptions: |

2004	2005	2006
Dividend
yield	0%	0%	0%
Expected
volatility	0.8	1.19	1.12
Risk-free
interest	3.25%	3.99%	4.67%
Expected
life (in years)	2	3	3.5

The pro forma information regarding net loss and loss per share required by SFAS No. 123 has been determined as if the Company accounted for its stock-based compensation plans under the fair value method. Had compensation cost for its stock-based compensation plans been determined in accordance with SFAS No. 123, its net loss and loss per share would have been increased to the pro forma amounts indicated below:

	Year ended December 31, — 2004		2005
Net loss as reported	$ (21,967	)	$ (14,706	)
Add: Stock-based compensation expense
included in reported net loss	-		48
Deduct: Stock-based compensation expense
determined under fair value method for all awards	(673	)	(528	)
Pro forma net loss	$ (22,640	)	$ (15,186	)
Net loss per share:
Basic and diluted net loss per share, as
reported	$ (0.91	)	$ (0.46	)
Basic and diluted pro forma net loss per
share	$ (0.93	)	$ (0.48	)

F 20

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except per share data)

NOTE 2:
	The Company
applies SFAS No. 123 and EITF No. 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services, with respect to options and warrants issued to
non-employees. SFAS No. 123 requires the use of option valuation models to
measure the fair value of the options and warrants at the measurement date as
defined in EITF No. 96-18.
w.	Comprehensive
loss:
	The Company
accounts for comprehensive loss in accordance with SFAS No. 130, Reporting
Comprehensive Income. This Statement establishes standards for the reporting
and display of comprehensive loss and its components in a full set of general
purpose financial statements. Comprehensive loss generally represents all
changes in shareholders equity during the period except those resulting from
investments by, or distributions to, shareholders. The Company determined
that its only item of other comprehensive loss relates to foreign currency
translation adjustments.
x.	Impact of
recently issued accounting standards:
	In September
2006, the SEC issued Staff Accounting Bulletin No. 108, Financial
StatementsConsidering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements (SAB 108).
SAB 108 requires companies to quantify the impact of all correcting
misstatements, including both the carryover and reversing effects of prior
year misstatements, on the current year financial statements. SAB 108 is
effective for fiscal years ending after November 15, 2006. The adoption of
SAB 108 did not have a material effect on the consolidated financial
statements.
	In June
2006, the Financial Accounting Standards Board (FASB) issued Interpretation
No. 48, Accounting for Uncertainty in Income Taxes (FIN 48)an
interpretation of FASB Statement No. 109, Accounting for Income Taxes. The
Interpretation addresses the determination of whether tax benefits claimed or
expected to be claimed on a tax return should be recorded in the financial
statements. Under FIN 48, the Company may recognize the tax benefit from an
uncertain tax position only if it is more likely than not that the tax
position will be sustained on examination by the taxing authorities, based on
the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the
largest benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement. FIN 48 also provides guidance on
derecognizing, classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures. The
provisions of FIN 48 are effective beginning January 1, 2007. The Company is
currently assessing the impact FIN 48 will have on its consolidated financial
statements.

F 21

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES (Cont.)

| In September
2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No.
157). This Standard defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007 and interim periods within those fiscal years. Management believes this
Standard will not have a material effect on its consolidated financial
statements. |
| --- |
| In February
2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities (SFAS 159). SFAS 159 permits companies to
choose to measure certain financial instruments and certain other items at
fair value. The standard requires that unrealized gains and losses on items
for which the fair value option has been elected be reported in earnings.
SFAS 159 is effective for the company beginning in the first quarter of
fiscal year 2008, although earlier adoption is permitted. The Company is currently
evaluating the effect that the application of SFAS 159 will have on its
consolidated results of operations and financial condition. |

NOTE 3: OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

	December 31, — 2005	2006
Government
authorities	$ 2,669	$ 1,443
Employees	140	137
Advances to
suppliers	119	112
Prepaid
expenses	533	554
Other	300	141
	$ 3,761	$ 2,387

NOTE 4: INVENTORIES

	December 31, — 2005	2006
Raw
materials	$ 2,800	$ 4,133
Work
in-progress	1,077	2,213
Finished
products	*) 9,260	*) 10,054
	$ 13,137	$ 16,400

*) Includes amounts of $1,981 and $3,507 for 2006 and 2005, respectively, with respect to inventory delivered to customers but for which no revenue was recognized.

F 22

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 5: PROPERTY, PLANT AND EQUIPMENT

a. Composition of property, plant and equipment is as follows:

	December 31, — 2005	2006
Cost:
Machinery and equipment	$ 3,177	$ 3,715
Motor vehicles	26	26
Office furniture and equipment	7,819	8,498
Buildings (c)	1,293	1,441
Leasehold improvements	4,596	5,592
	16,911	19,272
Accumulated
depreciation	12,275	13,514
Property,
plant and equipment, net	$ 4,636	$ 5,758

| b. | Depreciation
and amortization expenses for the years ended December 31, 2004, 2005 and
2006, amounted to $1,830, $2,027 and $1,341, respectively. |
| --- | --- |
| | As for a
floating lien, refer to Note 11c. |
| c. | Capital
lease: |
| | NUR Europe
leases certain spaces under lease agreements which are recorded as capital
leases. The related facilities are included in property, plant and equipment
and depreciated accordingly. |
| | The cost and accumulated depreciation of
facilities for the years ended December 31, 2005 and 2006 were $1,293 and $1,441,
$ 319 and $ 397, respectively. |

NOTE 6: OTHER INTANGIBLE ASSETS, NET

a. Composition of other intangible assets:

	December 31, — 2005	2006
Production
agreement *):
Original amounts	$ 504	$ 504
Accumulated amortization	295	462
Other
intangible assets, net	$ 209	$ 42

*) Resulting from the acquisition of the remaining 50% of NUR Pro Engineering in 2004. This reflects the value of the production agreement related to production of the Companys printers.

F 23

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 6: OTHER INTANGIBLE ASSETS, NET (Cont.)

b. The estimated amortization expense associated with the production agreement is $42 in 2007.

NOTE 7: SHORT TERM BANK CREDIT AND LOANS

	Linkage terms — 2005	2006		December 31, — 2005	2006
	%
		LIBOR +	LIBOR +
Short-term bank credit (b)	U.S. dollar	0.25 - 0.75	0.25 - 0.75	$ 4,999	$ 7,526
Short-term bank loans (a)	U.S. dollar	5.263	-	1,900	-
		LIBOR +	LIBOR +
Short-term bank credit (b)	Euro	0.25 - 0.75	0.25 - 0.75	3,939	113
			LIBOR +
Short-term bank credit (b)	GBP	-	0.25 - 0.75	-	1,168
			Prime +
Short-term bank credit (b)	NIS	-	2%	-	221
				$ 10,838	$ 9,028
Weighted average interest rates at the end
of the year				5.84 %	5.88 %

| a. | Short-term
bank loans: |
| --- | --- |
| | The three
Israeli lender banks (Lender Banks) provided in connection with the Debt
Restructuring Agreement (see Note 1b), a short-term loan in the amount of
$ 1,900 bears fixed interest of $ 100 that was repaid in December 2006. To
secure the repayment of that short-term loan, the Company deposited an amount
of $ 2,000 in its bank accounts, which was released directly to the Lender
Banks. |
| b. | Short-term
bank credit: |
| | The Lender
Banks provided a credit facility in the amount of $ 11,000 of which $ 1,150 is
for guarantees only. The credit facility can be utilized in U.S. dollars,
NIS, GBP or Euro. The credit facility is renewable, at the request of the
Company, on a yearly basis until December 2011. This credit facility shall
bear interest at a rate of LIBOR + 0.75% and Prime + 2% for NIS payable on a
quarterly basis. As of December 31, 2005 and 2006, an amount of $ 8,938 and
$ 9,028 was utilized, respectively by way of a short-term loan, $ 1,258 and
$ 860 was utilized in guarantees, respectively and an amount of $ 837 and $ 915
was utilized, respectively by way of long-term loans. The credit facility is
subject to immediate repayment upon the occurrence of certain events as
defined in the agreement with the Lender Banks. |

F 24

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except per share data)

NOTE 8: LONG-TERM LOANS

| On September
12, 2005, the Company entered into a debt restructuring agreement (Debt
Restructuring Agreement) with the Lender Banks. The Debt Restructuring
Agreement, which was consummated on December 8, 2005, called for the
conversion and refinancing of the then outstanding bank debt in the amount of
$ 41,018 to the Lender Banks. Out of the amount of $ 41,018, an amount equal to
$ 14,513 was converted into warrants to purchase up to 8,000,000 ordinary
shares, $ 5,000 was converted into subordinated notes, which were assigned by
the Lender Banks to Fortissimo (Note from related parties). The remaining
$ 21,505 was refinanced under new short and long term loan agreements. | |
| --- | --- |
| a. | Composed as
follows: |

	Linkage terms — 2005	2006		December 31, — 2005	2006
	%
		LIBOR +	LIBOR +
From banks (b)	U.S. dollar	2.50	2.50	$ 11,000	$ 11,000
		LIBOR +	LIBOR +
From banks	Euro	0.75	0.75	837	932
Capital leases	Euro	4.95-6.30	4.95-6.30	932	915
				12,769	12,847
Less - current maturities				110	129
				12,659	12,718
Note from related parties (c)		-	-	5,000	5,000
Accrued interest on restructured debt (d)		-	-	10,364	9,037
				$ 28,023	$ 26,755
Weighted average interest rates at the end
of the year				8.12 %	7.47 %

b. The long-term loans of $ 11,000 is repayable by the end of 2015. The Company was granted a 28-month grace period on the quarterly payments on account of principal. The long-term loans bear interest at a rate of LIBOR+2.5% per annum which is paid on a quarterly basis. The long-term loans are subject to immediate repayment upon the occurrence of certain events as defined in the agreement with the Lender Banks.

F 25

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 8:
c.	Note from related parties of $ 5,000 bears
no interest and will expire on December 8, 2008. Prior to such date the note is
repayable only in the event of either bankruptcy, insolvency or reorganization
proceeding under any bankruptcy, whether voluntary or involuntary, which
proceedings are not lifted or stayed within 90 days.
d.	The
restructuring of the outstanding bank debt has been accounted for in
accordance with the provisions of SFAS 15. According to the guidance of SFAS
No. 15, as a result of variable interest rate on the restructured debt, no
gain was recognized on the restructuring date and the carrying amount of the
debt remained unchanged. Future interest on the restructured debt is recorded
as a reduction of the carrying amount of the debt instead of interest
expenses. The remaining balance, if any, will be recorded as a gain upon full
payment of the debt. As of December 31, 2005, and 2006, a balance of $ 10,364,
and $ 9,037, respectively, is included within long-term liabilities in the
Companys consolidated balance sheet as accrued interest.
e.	The
aggregate annual maturities of long-term loans are as follows:

	December 31,
	2006
First year (current maturities)	$ 129
Second year	634
Third year	640
Fourth year	1,148
Fifth year	2,089
Sixth year and thereafter	8,207
	12,718
	$ 12,847

| f. |
| --- |
| On June 30,
2005, the Company reached an agreement (the Waiver Agreement) with its
Lender Banks to give waivers of default and as a result the outstanding bank
debt was not subject to acceleration. Under the Waiver Agreement, new
covenants were determined, according to which the Company had to achieve
certain financial ratios during the second half of 2005. |

F 26

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

| NOTE 8: |
| --- |
| In any case
of a breach by the Company, including non achievement by the Company of any
of the new aforementioned financial covenants, the Company would have had to
repay all amounts then owing under any or all documentation between the
Company and the Lender Banks, to the Lender Banks. |
| Under the
Debt Restructuring Agreement, the Lender Banks agreed to waive the Companys
defaults of prior facility agreements for all periods prior to the closing of
the Debt Restructuring Agreement. The Company also has agreed to maintain the
following ratios of (1) the total amounts owed to the Lender Banks plus
available credit under the new short-term loans plus debts of subsidiaries
to outside lenders incurred above an aggregate of $ 2,690 to (2) EBITDA as
defined in the Restructuring Agreement. |

Time Period
Fiscal year ended December 31, 2007	No compliance required.
Fiscal year ended December 31, 2008	13 : 1
Fiscal year ended December 31, 2009	10 : 1
Fiscal year ended December 31, 2010	8 : 1
Fiscal year ended December 31, 2011 and
thereafter	6 : 1

| The first
measurement of the financial covenants will take place following the end of
the third quarter of 2008 based on the Companys financial results during the
first three quarters of 2008 and will be measured on a quarterly basis
thereafter, which measurement will take into account the previous four
calendar quarters. |
| --- |
| In any case
of certain breaches by the Company (i) the Company may be required by the
Lender Banks to repay all amounts then owed under any or all documentation
between the Company and the Lender Banks, to the Lender Banks and (ii) the
Lender Banks shall be entitled to exercise any and all rights set forth in
any or all documentation between the Lender Banks and the Company. |

F 27

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 9: OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

	December 31, — 2005	2006
Employees and payroll accruals	$ 2,464	$ 2,660
Government authorities	1,272	987
Royalties payable	801	675
Warranty provision	978	1,505
Professional services	744	420
Advance from customers	1,008	949
Provision for legal claims	2,851	2,284
Accrued expenses	1,430	1,422
	$ 11,548	$ 10,902

NOTE 10:
a.	In the first
calendar quarter of 2006, the District Court in Jerusalem approved the
settlement agreement between the Company and the Office of Chief Scientist of
the Ministry of Industry, Trade and Labor (OCS) and the Fund for the
Encouragement of Marketing Activities of the Ministry of Industry, Trade and
Labor (the Marketing Fund). The agreement settled the dispute between the
Company, the OCS and the Marketing Fund regarding the Companys outstanding
obligation to pay royalties and the repayment of the outstanding debt in 36
equal monthly installments starting January 2006. The Company also agreed to
accelerate the payment of the outstanding balance by paying 5% of the
operating income, which will reduce the total number of installments.
b.	Composition:

	December 31, — 2005	2006
Debt to the OCS (i)	$ 597	$ 357
Debt to the Marketing Fund (ii)	786	519
	$ 1,383	$ 876
First year (current maturity)	$ 456	$ 472
Second year	456	404
Third year	471	-
	927	404
	$ 1,383	$ 876

| (i) | The
liability is linked to Israels Consumer Price Index (CPI) and bears an
annual interest according to applicable laws. |
| --- | --- |
| (ii) | The balance
is linked to the U.S. dollar and bears interest at a rate of six-month LIBOR. |

F 28

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 11:
a.	Operating
and capital lease commitments:
	The Company
and most of its subsidiaries rent their facilities under various operating
lease agreements, which expire on various dates, ranging from 2007 to 2011.
On several of the leases the Company has the option to extend the lease until
2010-2016. The Company leases various motor vehicles under operating lease
agreements, which expire in 2008. The Company can terminate the motor vehicle
leases by paying a penalty in an amount equivalent to 3-month lease payments.
The following table summarizes the minimum annual rental commitments as of
the periods indicated under capital leases, non-cancelable operating leases
and sub-lease arrangements with initial or remaining terms of more than one
year, reflecting the terms that were in effect as of December 31, 2006:

Year ended December 31, — 2007	Capital lease — 174		2,050	Sub-lease — (379	)	Total — 1,845
2008	174		1,488	(353	)	1,309
2009	175		917	(340	)	752
2010	175		567	(340	)	402
2011 and thereafter	385		124	(28	)	481
Total minimum lease payments	1,083		5,146	(1,440	)	4,789
Less - amounts representing interest	(168	)				(168	)
Present value of future minimum capital
lease payments	$ 915	$	5,146	$ (1,440	)	$ 4,621

| Total rental
lease expenses for the years ended December 31, 2004, 2005 and 2006, were $
1,835, $ 1,739 and $ 1,501, respectively. |
| --- |
| Total income
from sub-lease for the years ended December 31, 2004, 2005 and 2006 was $
304, $ 343 and $ 361, respectively. |
| Lease
expenses of vehicles for the years ended December 31, 2004, 2005 and 2006
were $ 980, $ 1,151 and $ 1,359, respectively. |

F 29

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

| Royalty
commitments: | | |
| --- | --- | --- |
| 1. | The Company
entered into several project plans with the OCS. Under the terms of grants
awarded in prior years by the OCS to the Company, the Company was obligated
to pay royalties at the rate of 2% - 3% of the sales derived from the
applicable products developed within the framework of such research and
development projects, up to an amount equal to 100% - 150% of the grant
received, linked to the U.S. dollar and for grants received after January 1,
1999, accrued for interest at the rate of LIBOR. The Company had no obligation
to repay this amount if sales are not sufficient to satisfy the royalty
obligations. The Company reached a settlement agreement with the OCS in
connection to a previous dispute regarding payment of certain royalties,
refer to Note 10. Following the settlement agreement as described in Note 10,
all the contingent commitment for amounts received in the past from the OCS
was converted into and recorded as an outstanding debt in the amount of $597
and $357 as of December 31, 2005 and 2006, respectively. | |
| | According to
the Encouragement of Industrial Research and Development Law, 1984, the
Companys technologies are subject to transfer of technology and
manufacturing rights restrictions. The discretionary approval of the OCS
committee is required for any transfer of technology developed with OCS
funding. OCS approval is not required for the export of any products
resulting from the research or development, or for licensing of the
technology in the ordinary course of business. There is no assurance that the
Company will receive the required approvals for any proposed transfer. Such
approvals, if granted, could be subject to the following conditions: | |
| | (i) | The Company
will be required to pay the OCS a portion of the consideration received upon
any sale of such technology or upon an acquisition of the Company by an
entity that is not Israeli; or |
| | (ii) | The transfer
of manufacturing rights could be conditioned upon an increase in the royalty
rate and payment of increased aggregate royalties (up to 300% of the amount
of the grant plus interest, depending on the percentage of foreign
manufacture) or a transfer of manufacturing rights into Israel of another
product of similar or more advanced technology. |

F 30

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 11:
	In addition,
the Companys European subsidiary has an obligation to pay royalties at the
higher of a certain minimum annual amount or at rates of 3% - 6% on the sales
of products developed with funds provided by the local authorities in
Belgium, up to an amount equal to the research and development grants
received in connection with such products, linked to the Euro. The
commencement of the royalty payments to the local authorities in Belgium is
contingent upon the Companys European subsidiary generating sales from
products developed under these grants. The grants are not repayable in case the
Companys European subsidiary decides to cease the research and development
activities or the exploitation of the products developed under these grants
and all know how and results of the research and development are transferred
to the local authorities. In the event that the Companys European subsidiary
decides to cease exploitation of the products developed under these grants, a
notification thereof should be given to the local authorities in Belgium.
	The
Companys European subsidiary ceased the research and development activities
and the exploitation of certain products for which grants were received. As
of December 31, 2006 and 2005, the aggregate amount of grants received from
the Belgium authorities, which were not yet repaid amounted to 1,776
($2,339 and $2,100, respectively).
	The grant
agreements with the local Belgian authorities require the European subsidiary
to meet certain conditions. The European subsidiary intends to hold
discussions with the Belgian local authorities regarding certain grants
already received and its meeting the conditions of such grant. At this stage,
the Company is unable to determine the outcome of such discussions and the
negative implications, if any. Accordingly, no provision was recorded in the
financial statements regarding these grants.
2.	Under the
terms of grants awarded in prior years by the Marketing Fund to the Company,
the Company was obligated to pay royalties to the Marketing Fund at the rate
of 3% - 4% of the increases in export sales of products for which the Company
received participations for its marketing activities, up to an amount equal
to 100% - 150% of the grant received, linked to the U.S. dollar.
	The grant is
repayable only in respect of sales of the related products, as a percentage
of the growth in export sales. If there is no increase in export sales, or if
the Company ceases producing the relevant products, the grant would not be
repaid.

F 31

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 11:
		Following
the settlement agreement as described in Note 10, all the contingent
commitments for amounts received in the past from the Marketing Fund were
converted into and recorded as an outstanding debt in the amount of $786 and
$519 as of December 31, 2005 and 2006 respectively.
c.	Charges and
guarantees:
	As
collateral for its liabilities to the banks, the Company placed fixed charges
on its share capital, as well as a floating lien on all of its assets. The
Company also placed a second ranking floating lien in connection with the
Note from related parties.
	As of
December 31, 2005 and 2006, the Company obtained bank guarantees in the total
amount of $1,258 and $860, respectively, in favor of vendors, lessors and
Government authorities.
d.	Litigation:
	1.	During 2001, a client filed a lawsuit
against a subsidiary in the amount of $ 482 alleging bad quality of products
and damages. The subsidiary filed a counter claim of $ 216 in respect of
unpaid invoices. The court appointed an expert in order to hear the parties'
claims, to examine the machine and provide an opinion regarding the damages
suffered by the client from the machine's use. The Company's legal counsel
could not estimate the amount of loss or range of loss, if any, in respect
of this litigation and therefore the Company did not record a provision with
respect to this claim. The court has not rendered a judgment regarding this
issue.
	2.	In March
2002, a former employee filed a lawsuit against a subsidiary in the amount of
250 thousand ($330) plus certain indemnities and interest. In September
2003, a judgment was given instructing the subsidiary to pay the former
employee 250 thousand ($330) plus
interest accruing thereon. In January 2004, the subsidiary filed an appeal.
In October 2005, the court of appeals rendered a judgment instructing the
subsidiary to indemnify the former employee in the amount of 120 thousand ($159) plus the interest
accrued thereon. During 2006 the court of appeals ruled in favor of the
former employee. As of December 31, 2006, the outstanding balance still owed
to the former employee was $132. The Company recorded a full provision in
this amount.
	3.	During 2002, two end-users filed separate
lawsuits in China against subsidiaries of the Company alleging bad quality
of products and seeking reimbursement in aggregate amount of $472. Based on
management's estimate and the opinion of its legal counsel, it is less than
likely that the subsidiaries will be required to pay the amount claimed.
Therefore, no provision is recorded with respect to these claims.

F 32

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 11:
4.	During 2003,
a former supplier filed a lawsuit against a subsidiary, in the amount of 943 thousand ($1,245) in connection with
a disputed supply agreement. In February 2006, the court determined that the
subsidiary is to pay the supplier an aggregate amount of 1,246 thousand ($1,640) representing
penalties and accrued interest. The subsidiary filed an appeal, which was
rejected by the court of appeals. Based on managements estimation and the
opinion of its legal counsel, a full provision was recorded with respect to
this claim.
5.	In September
2003, NUR filed a lawsuit against a former distributor of the Company, for
the collection of unpaid invoices in the amount of $420. In February 2004,
the former distributor filed a statement of defense denying the Companys
claims and it also filed a counter-claim for alleged damages caused to it by
the Company in the amount of $180. Based on the opinion of its legal counsel,
management believes that the counter-claim that was filed by the former
distributor is without merit and that a loss is not probable. Therefore, a provision
was not recorded with respect to this claim.
6.	In December
2003, a client of a subsidiary filed a lawsuit alleging that a machine
purchased by it failed to perform. The customer is seeking reimbursement of
the purchase price paid by it in the amount of $290. Based on managements
estimation and the opinion of its legal counsel, a provision was recorded
with respect to this claim.
7.	In November
2004, a financing corporation filed a complaint against a subsidiary alleging
that the subsidiary is in default under a remarketing agreement related to
the sale of equipment to its customer in 2001. In August 2005, the parties
reached an out of court settlement, under which the subsidiary agreed to pay
the financing corporation an amount of $250 in several installments. As of
December 31, 2006, the Company paid the amount in full.

F 33

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

| NOTE 11: | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.) | 8. | In August
2001, a client of a subsidiary filed a lawsuit claiming that the contract
with the subsidiary for the sale of two machines is null and void, and it
further seeks damages amounting to 1,569 thousand ($2,071). The subsidiary
filed a counter claim for the collection of outstanding amounts. In April
2004, the court dismissed the clients claims and ordered it to pay the
subsidiary an amount of 150 thousand ($197). The client appealed that
judgment. Based on managements estimation and the opinion of its legal
counsel, management believes that the clients appeal is without merit and
the claim is unlikely to result in a loss. Therefore, the Company did not
record a provision with respect to this claim. |
| --- | --- | --- | --- |
| | | 9. | In July
2005, the tribunal of the first instance of Nivelles in Belgium confirmed a
motion filed against a subsidiary by a former employee for the seizure of
that subsidiary s tangible assets in the amount of 500 thousand ($660). In
January 2006, the tribunal of the first instance of Nivelles reduced the
seizure for an amount of 120 thousand ($159). The subsidiary filed an
appeal on that decision. In October 2005, the former employee filed a lawsuit
against the subsidiary in the amount of 484 thousand ($639) plus certain
indemnities and interest thereon. In May 2007, the court ruled in favor of
the subsidiary and dismissed the claim. |
| | | 10. | From time to
time, the Company is party to other various legal proceedings, claims and
litigation that arise in the normal course of business. It is the opinion of
management that the ultimate outcome of these matters will not have a
material adverse effect on the Companys financial position, results of
operations or cash flows. |
| NOTE 12: | TRANSACTIONS AND BALANCES WITH RELATED PARTIES | | |
| | a. | On April 17,
2005, the Companys shareholders approved the grant to a former director and
chairman of the Board (former director), and the then largest shareholder,
of a five-year warrant to purchase up to 3,000,000 ordinary shares at $0.75
per share. The warrant was granted to the former director in consideration
for his agreement to enter into the voting agreement dated January 23, 2005
(the Voting Agreement), coupled with an irrevocable proxy, and the Voting
Trust Agreement dated March 7, 2005 (the Voting Trust Agreement) under
which voting control of all shares owned by the former director and his
family and affiliates was controlled by an independent trustee. As a result
of the delisting of the ordinary shares from the Nasdaq Capital Market, the
Voting Trust Agreement was automatically terminated and converted into the
Voting Agreement. Under the Voting Agreement, the former director is to vote
with the remaining majority in the Company. The Company recorded a non
operating expense of $1,441 in connection with the warrants granted to the
former director based on the fair value of these warrants. The fair value of
these warrants was estimated using a Black-Scholes option pricing model with
the following assumptions: risk-free interest rate of 3.90%; dividend yields
of 0%; volatility factors of the expected market price of the ordinary shares
of 0.9; and an expected life of five years. | |

F 34

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 12:
	In October
2005, the former chairman and controlling shareholder filed a complaint
against the Company in the Supreme Court, New York County seeking to recover
the right to vote his ordinary shares. The right to vote such ordinary shares
had been transferred to the Company pursuant to the Voting Agreement between
the former director and the Company. The complaint filed by the former
director seeks to have the Voting Agreement declared unenforceable.
	In 2006 the
Court dismissed part of the case with prejudice and the rest of the case was
dismissed with leave to refile.
b.	On October
27, 2005, the Companys shareholders approved the terms of a management
agreement entered into between the Company and Fortissimo on behalf of
several private equity funds, which are managed by Fortissimo (the
Management Agreement). According to the Management Agreement, Fortissimo,
through its employees, officers and directors, will provide management
services, advice and provide assistance to the Companys management
concerning the Companys affairs and business. The Management Agreement also
provides that Fortissimo will be entitled to elect a majority of the
Companys board of directors, including the chairman of the board of
directors. In consideration of the performance of the management services and
the board services pursuant to the Management Agreement, the Company has
agreed to pay Fortissimo an aggregate annual management services fee in the
amount $250. The Management Agreement will remain in effect for so long as a
Fortissimo director maintains the position of the chairman of the board of
directors and one additional position in the board of directors.
c.	A company
wholly-owned by the Companys former CEO rendered services to certain
subsidiaries. The Groups expenses during 2004, 2005 and 2006 in respect of
such services amounted to $12, $0 and $0, respectively.
d.	In October
2003, the Company entered into an engagement agreement with a certain law
firm that is owned, among others, by the brother of the former Companys CEO.
Under the agreement, the law firm represented a subsidiary and the Company in
litigations against third parties and provided legal services as needed in
Israel and in Belgium. The aggregate consideration for the services provided
to the Company and its subsidiaries by the law firm amounted to $120, $ 75 and
$ 0 in 2004, 2005 and 2006, respectively. During 2004, the Companys audit
committee and board of directors reviewed, ratified and approved the terms of
the engagement with that law firm.
e.	During 2005,
in connection with a termination agreement of one of the Companys former
executives, the Company granted warrant to purchase up to 300,000 ordinary
shares with an exercise price of $0.51 expiring in December 2007 in
consideration for a non-competition agreement during a two-year period. The
fair value of these warrants was estimated at $88 using a Black-Scholes
option pricing model with the following assumptions: average risk-free
interest rate of 4.35%; dividend yields of 0%; average volatility factors of
the expected market price of the ordinary shares of 1.3; and an expected life
of two years. The Company recorded the expense over the term of the agreement.

F 35

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 12:	TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.)
	f.	On January 24, 2006 the Company entered
into a lease agreement with Telrad Networks Ltd. (Telrad) the owner of an
industrial park in Lod, Israel. The lease is for industrial space starting May 7,
2006 for a period of five years, with a renewal option to continue the lease for
another five years. A monthly fee of $ 31 is to be paid in advance every three
months. Notwithstanding, the first year of rent was to be paid in three equal
installments of $ 124, amounting to a sum of $ 372. In 2006, the Company paid a sum
of $ 287 to Telrad for the use of the facility. The Company withheld an amount of $
85 due to a dispute with Telrad over leasehold improvements made by the company
prior to occupying the premises. Fortissimo is a major shareholder of Telrad.
NOTE 13:	SHAREHOLDERS DEFICIENCY
	a.	The ordinary
shares of the Company were traded until May 2005 on the Nasdaq Capital
Market. As of May 19, 2005, the Companys ordinary shares are quoted
over-the-counter in the pink sheets.
		On April 17,
2005, the Companys shareholders approved an increase of the Companys
authorized ordinary shares to 120,000,000 and an additional increase to
170,000,000 on October 27, 2005.
	b.	Shareholders
rights:
		Ordinary
shares confer upon their holders voting rights, the right to receive
dividends and the right to share in excess assets upon liquidation of the
Company.
	c.	On August
21, 2005, the Company effected a private offering (Investment Agreement) of
its securities with several investors led by Fortissimo in which the Company
issued 34,285,714 ordinary shares of NIS 1 par value each in consideration of
$ 12,000 (excluding issuance expenses in the amount of $ 68) and 25,714,286
warrants exercisable into 25,714,286 ordinary shares of NIS 1 par value each
for an exercise price of $ 0.40 per ordinary share. The warrants will expire
at the end of five years from the closing date of the Investment Agreement in
2005. The total consideration in respect to the Investment Agreement was
payable in three installments as follows: (i) $ 5,000 were paid at the closing
date of the Investment Agreement, (ii) $ 5,000 were paid during the first
quarter of 2006 (2 nd Installment), and (iii) $ 2,000 were paid
during the third and fourth quarter of 2006 (3 rd Installment).
		To ensure
full performance of the obligations under the Investment Agreement, the
Company issued and allocated 20,000,000 ordinary shares and 15,000,000
warrants to an escrow agent with respect to the 2 nd and 3 rd installments. The ordinary shares and warrants held by the escrow agent were
transferred to the investors upon receipt of the 2 nd Installment
and the 3 rd Installment. As of December 31, 2006, 2,285,715
ordinary shares and 1,714,285 warrants were held by the escrow agent and were
transferred to the investors in early 2007.
	d.	Under the
terms of the Debt Restructuring Agreement, the Company extended the
expiration period by additional 18 months to previously issued 1,340,000
warrants. In addition, the Company issued to the Lender Banks 8,000,000
warrants. These warrants were valued using a Black-Scholes option pricing
model at $ 4,047, and recorded as an increase in the Companys additional
paid-in capital.

F 36

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

| NOTE 13: — e. | The Companys
shareholders approved at the Annual Shareholders Meeting held on February 12,
2002 a Terms of Service Agreement with the former chairman of the Board
effective as of January 1, 2002. In his capacity, the former chairman of the
Board received an annual fee of $ 125 which was paid in ordinary shares. The
fee was paid quarterly, at the end of each quarter, by way of issuing
ordinary shares valued at $ 31. Such annual fee was in lieu of any and all
payments, which were due to the former Chairman of the board in his capacity
as a director, Chairman of the Board, and a member of any committees of the
Board, including the right to receive options to purchase ordinary shares in
accordance with the Companys 1998 Share Option Plan for Non-Employee
Directors. On December 21, 2004, the Chairman of the Board resigned from the
board of directors and the Terms of Services Agreement was automatically
terminated. The issuance of shares in 2005 is related to services rendered in
2004. | |
| --- | --- | --- |
| f. | On March 31,
2004, the Company effected a private offering of its securities in which the
Company issued 2,586,140 ordinary shares of NIS 1 par value each in
consideration for $ 3,000 (excluding issuance expenses in the amount of $222). | |
| | In addition,
as part of the share purchase agreement, the Company issued to the investors
warrants exercisable into an aggregate of 646,542 ordinary shares. The
warrants are exercisable at a price per ordinary share of $ 1.54, at any time
until March 2009. | |
| | The Company
granted to the placement agent of the private placement warrants exercisable
into 129,310 ordinary shares. Those warrants are exercisable until March 2009
at $ 1.16 per ordinary share. | |
| | In
connection with the 2003 credit line and warrant agreement, the investors
exercised on December 22, 2003, their right to replace $ 2,000 of the undrawn
credit line by purchasing 3,225,806 ordinary shares for $ 2,000. Issuance
expenses associated with this purchase totaled $ 133. These ordinary shares
were issued to the Investors in January 2004. On March 31, 2004, the
investors exercised their right to replace $ 1,500 available under the credit
line through the purchase of 2,419,354 ordinary shares for $ 1,500. Issuance
expenses associated with this purchase totaled $ 43. | |
| g. | Stock Option
Plans: | |
| | 1. | In December
1998, the Companys shareholders approved the non-employee director stock
option plan (1998 plan) according to which 250,000 options are available
for grant with an exercise price of the average of the closing bid and sale
price at the issuance date. Each option is vested immediately and will expire
after 10 years. Generally, the Company grants options under the plan with an
exercise price equal to the market price of the underlying shares on the date
of grant. |
| | | In October
2005, the Companys shareholders approved to increase the number of options
available for grant under the 1998 plan by 500,000. |

F 37

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 13: SHAREHOLDERS DEFICIENCY (Cont.)

| In August
2000, the Companys board of directors adopted the 2000 Stock Option Plan
(the 2000 Plan). According to the 2000 Plan, 2,000,000 options may be
granted to officers, directors, employees and consultants of the Company and
its subsidiaries. The Options usually vest over a three or four-year period.
The exercise price of the options under the 2000 Plan is determined to be not
less than 80% of the fair market value of the Companys ordinary shares at
the time of grant, and they usually expire after 10 years from the date of
grant. The 2000 Plan expires on August 31, 2008, unless previously terminated
or extended by the Companys board of directors. Generally, the Company
granted options under the plan with an exercise price equal to the market
price of the underlying shares on the date of grant. |
| --- |
| In October
2004 and October 2005, the Companys shareholders approved the increase of
the number of options available for grant under the 2000 Plan by 500,000 and
14,500,000, respectively. In October 2005, the Companys shareholders also
approved the increase of the available number of ordinary shares authorized
for issuance under the 2000 Plan by the number of ordinary shares underlying
options cancelled (except in the case of surrender for the exercise into
shares) or which cease to be exercisable under the Companys previously
terminated option plans. |
| During 2004,
2005 and 2006, the Company granted to directors (including the Chairman of
the board of directors) 46,667, 58,544 and 36,667 options, respectively. |
| Under the
Companys 1998 and 2000 Plans, the Company reserved for issuance 750,000 and
17,661,890 ordinary shares, respectively. As of December 31, 2006, 559,165,
and 5,995,651 options, respectively, are still available for future grants
under these plans. Option that are cancelled or forfeited before expiration,
become available for future grant. |

F 38

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 13:
2.	A summary of
the Companys share option activity through December 31, 2006 for the Plans
is as follows:

	Options outstanding — Number Of options		Weighted average exercise price
Balance as
of January 1, 2004	2,661,710		$ 1.22
Options
granted	1,246,367		$ 0.98
Options
exercised	(344,884	)	$ 0.72
Options
forfeited or expired	(326,159	)	$ 1.70
Balance as
of December 31, 2004	3,237,034		$ 1.11
Options
granted	4,643,544		$ 0.42
Options
exercised	(10,834	)	$ 0.38
Options
forfeited or expired	(1,172,463	)	$ 0.81
Balance as
of December 31, 2005	6,697,281		$ 0.65
Options
granted	5,821,667		$ 0.61
Options
exercised	(25,824	)	$ 0.32
Options
forfeited or expired	(641,060	)	$ 1.16
Balance as
of December 31, 2006	11,852,064		$ 0.60
Year ended December 31, 2006
	Options		Aggregate intrinsic value (in thousands)
Outstanding
at beginning of year	6,697,281		$ -
Granted	5,821,667		-
Exercised	(25,824	)	9
Forfeiture
or expired	(641,060	)	-
Outstanding
as of December 31, 2006	11,852,064		$ *) 695
Exercisable
as of December 31, 2006	2,980,878		$ **) 213

| ) | Represents
intrinsic value of 4,767,000 outstanding options that are in-the-money as of
December 31, 2006. The remaining 7,085,064 outstanding options are out of the
money as of December 31, 2006 and their intrinsic value was considered as
zero. |
| --- | --- |
| *) | Represents
intrinsic value of 1,412,544 exercisable options that are in-the-money as of
December 31, 2006. The remaining 1,568,334 exercisable options are out of the
money as of December 31, 2006 and their intrinsic value was considered as
zero. |
| | The number
of options exercisable as of December 31, 2004, 2005 and 2006 was 1,370,022,
1,938,847 and 2,980,878, respectively. |
| | The weighted
average exercise price of options exercisable as of December 31, 2004, 2005
and 2006 is $ 1.33, $ 1.08 and $ 0.78, respectively |

F 39

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 13:
3.	The options
outstanding as of December 31, 2006 have been separated into ranges of
exercise price, as follows:

Outstanding — Range of exercise price	Options outstanding	Weighted average remaining contractual life	Weighted average exercise Price	Exercisable — Options exercisable	Weighted average exercise price of exercisable options	Weighted average remaining contractual life
		Years				Years
$ 0.31-0.40	4,465,000	8.11	$ 0.40	1,325,209	$ 0.39	6.20
$ 0.48-0.80	6,028,584	9.20	$ 0.61	397,669	$ 0.66	7.12
$ 0.85-1.40	1,023,404	5.67	$ 0.95	923,215	$ 0.95	5.46
$ 1.63-1.88	285,876	5.02	$ 1.64	285,585	$ 1.64	5.02
$ 1.94-3.20	28,000	1.18	$ 2.09	28,000	$ 2.09	1.18
$ 5.50-7.5	21,200	3.73	$ 7.14	21,200	$ 7.14	3.73
	11,852,064	8.36	$ 0.6	2,980,878	$ 0.78	5.91

| | As of
December 31, 2006, the Company had approximately $ 3,308 of unrecognized
compensation expenses related to non-vested stock options, expected to be
recognized over four years. |
| --- | --- |
| 4. | Weighted
average fair values and exercise price of options on dates of grant are as
follows: |

| | Equal
market price — 2004 | 2005 | 2006 | Exceed
market price — 2004 | 2005 | 2006 | Are
less than market price — 2004 | 2005 | 2006 |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Weighted average
exercise prices | $ 0.98 | $ 0.47 | $ 0.61 | $ - | $ 0.41 | $ - | $ - | $ 0.40 | $ - |
| Weighted average
fair value on grant date | $ 0.48 | $ 0.28 | $ 0.45 | $ - | $ 0.23 | $ - | $ - | $ 0.29 | $ - |

F 40

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 13:
h.	The
Companys outstanding warrants as of December 31, 2006, are as follows:

Issuance date				Expiration date
	$
February 2002	120,000	5.00	120,000	August 2007
March 2003	240,000	0.34	240,000	September 2008
June 2003	27,000	0.72	27,000	December 2008
August 2003	953,000	0.62	953,000	January 2009
October 2003	1,019,230	0.52	1,019,230	October 2008
March 2004	646,542	1.54	646,542	March 2009
March 2004	112,903	0.62	112,903	March 2009
March 2004	129,310	1.16	129,310	March 2009
April 2005	3,000,000	0.75	3,000,000	April 2010
October 2005	25,714,286	0.40	25,714,286	April 2010
December 2005	8,000,000	0.35	8,000,000	April 2010
December 2005	300,000	0.51	150,000	December 2007
	40,262,271		40,112,271

	i.	Dividends:
		In the event
that cash dividends are declared in the future, such dividends will be paid
in NIS. A dividend paid to shareholders outside Israel will be converted into
dollars, on the basis of the exchange rate prevailing at the date of payment.
The Company does not intend to pay cash dividends in the foreseeable future.
NOTE 14:	TAXES ON INCOME
	a.	Israeli
taxation:
		1.	Corporate
tax structure:
			Taxable
income of Israeli companies is subject to tax at the rate of 31% in 2006, 29%
in 2007, 27% in 2008, 26% in 2009, 25% in 2010 and thereafter.
		2.	Tax benefits
under the Israeli Law for the Encouragement of Capital Investments, 1959
(the law):
			Certain of
the Companys production facilities have been granted the status of Approved Enterprise under the law, for three separate investment plans.

F 41

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

| NOTE 14: |
| --- |
| According to
the provisions of this law, the Company elected to enjoy alternative
benefits which provide tax benefits in exchange for waiver of grants.
Accordingly, the Companys income from the Approved Enterprise will be
tax-exempt for a period of two, four and four years, for the first, second
and third plan, respectively, commencing with the year it first earns taxable
income. Based on the percentage of foreign ownership of the Company, income
derived during the remaining periods of five, three and three years,
respectively of benefits is taxable at the rate of 15%-25%. |
| The period
of tax benefits detailed above is subject to limits of 12 years from the
commencement of production, or 14 years from receiving the approval,
whichever is earlier. Given the above mentioned conditions, the period of
benefits for the first and second plans commenced in 1994 and 1999,
respectively. The first plan was terminated in 2001 and the second plan was
terminated in 2004. The period of benefits for the third plan has not yet
commenced. |
| The
entitlement to the above benefits is conditional upon the Company fulfilling
the conditions stipulated by the above law, regulations published hereunder
and the letters of approval for the specific investments in Approved
Enterprises. In the event of failure to comply with these conditions, the
benefits may be canceled and the Company may be required to refund the amount
of the benefits, in whole or in part, including interest. As of the balance
sheet date, the Company complies with all these conditions. |
| The
tax-exempt profits earned by the Companys Approved Enterprise can be
distributed to shareholders, without imposing a tax liability on the Company,
only upon the complete liquidation of the Company. If these retained
tax-exempt profits are distributed in a manner other than upon the complete
liquidation of the Company, they would be taxed at the corporate tax rate
applicable to such profits as if the Company had not elected the alternative
tax benefits. |
| The Company
has decided to permanently reinvest the tax exempt profits resulting from the
Approved Enterprise status and not to distribute such profits as dividends.
Accordingly, no deferred income taxes have been provided in respect of the
said tax exempt profits. As of December 31, 2006, the Company has no such
retained tax exempt profits. |
| The law also
entitles the Company to claim accelerated rates of depreciation on equipment
used by the Approved Enterprise during five tax years. |
| Income from
sources other than the Approved Enterprise during the benefit period will
be subject to tax at the regular corporate tax rate. |
| 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
Privileged Enterprise, such as provisions generally requiring that at least
25% of the Privileged Enterprises 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. |

F 42

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 14:
		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 Companys 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, will subject the Company to taxes upon
distribution or liquidation.
	3.	Measurement
of results for tax purposes under the Income Tax (Inflationary Adjustments)
Law, 1985:
		Results for
tax purposes are measured in terms of earnings in NIS after certain
adjustments for increases in Israels Consumer Price Index (CPI). As
explained in Note 2c, the financial statements are measured in U.S. dollars.
The difference between the annual change in Israels CPI and in the
NIS/dollar exchange rate causes a difference between taxable income and the
income before taxes shown in the financial statements. In accordance with
paragraph 9(f) of SFAS No. 109, the Company has not provided deferred income
taxes in respect of the difference between the functional currency and the
tax bases of assets and liabilities.
	4.	Tax benefits
under the Law for the Encouragement of Industry (Taxation), 1969:
		The Company
is an industrial company, as defined by this law and, as such, is entitled
to certain tax benefits, including accelerated rates of depreciation, in
accordance with regulations published under the inflationary adjustments law.
The Company is also entitled to claim public issuance expenses and patent
amortization costs from its taxable income in three and eight equal annual
installments, respectively.
b.	Income taxes
on non-Israeli subsidiaries:
	Non-Israeli
subsidiaries are taxed according to the tax laws in their respective country
of residence.
	Israeli
income taxes and foreign withholding taxes were not provided for
undistributed earnings of the Companys foreign subsidiaries. The Companys
board of directors has determined that the Company will not distribute any
amounts of its undistributed earnings as dividend. The Company intends to
reinvest these earnings indefinitely in its foreign subsidiaries.
Accordingly, no deferred income taxes have been provided. If these earnings
were distributed to Israel in the form of dividends or otherwise, the Company
would be subject to additional Israeli income taxes (subject to an adjustment
for foreign tax credits) and foreign withholding taxes.

F 43

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 14:
c.	Theoretical
tax expenses:
	A
reconciliation of the theoretical tax expense, assuming all income is taxed
at the statutory rate applied to corporations in Israel and the actual tax
expense, is as follows:

	Year ended December 31, — 2004		2005		2006
Loss before
taxes on income	$ (21,948	)	$ (14,668	)	$ (1,823	)
Statutory
tax rate	35	%	34	%	31	%
Theoretical
tax benefit	$ (7,682	)	$ (4,987	)	$ (565	)
Increase
(decrease) in taxes:
Approved enterprise	2,897		2,190		734
Reduced statutory tax rate of subsidiaries	201		111		27
Non-deductible expenses	1,390		590		105
Foreign exchange differences (see note 3
above)	-		395		478
Utilization of carryforward losses for
which a valuation allowance was provided	-		(1,050	)	(212	)
Deferred taxes on losses, reserves and
allowances for which a valuation allowance was provided	3,213		2,789		(469	)
Actual tax
expense	$ 19		$ 38		$ 98
Basic and
diluted net loss per share amount of the tax benefit resulting from Approved
Enterprise status	0.12		0.07		(*	)
(*) Less
than $0.01

d. Taxes on income included in the statements of operations:

Current: — Domestic	$ 19	$ -	$	-
Foreign	-	144		98
	19	144		98
Deferred:
Domestic	-	-		-
Foreign	-	(106	)	-
	-	(106	)	-
	$ 19	$ 38	$	98

F 44

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 14:
e.	Deferred
income taxes:
	Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Groups deferred tax assets are as follows:

	December 31, — 2005	2006
Deferred tax
asset:
Net operating losses and deductions
carryforward	$ 28,149	$	27,169
Stock-based compensation	-		358
Others	139		80
Deferred tax assets before valuation
allowance	28,288		27,607
Valuation allowance (1)	(28,049	)	(27,368	)
Net deferred
tax assets (2)	$ 239	$	239

| | (1) | The Group
has provided valuation allowances in respect of deferred tax assets resulting
from tax losses carryforward and other temporary differences. Management
currently believes that since the Company has a history of losses it is more
likely than not that the deferred tax regarding all loss carryforwards
(except in NUR Japan) will not be utilized in the foreseeable future. |
| --- | --- | --- |
| | (2) | As of
December 31, 2006 and 2005, deferred taxes are recorded in current other
accounts receivable and other assets. |
| f. | Carryforward
tax losses and deductions: | |
| | As of
December 31, 2006, NUR Macroprinters Ltd. had available carryforward tax
losses and deductions aggregating to approximately $ 27,000, which have no
expiration date. | |
| | Additional
carryforward losses of NUR America and NUR Salsa, in the amount of
approximately $ 33,000, which are located in the U.S., will expire in 2021-
2026. Utilization of U.S. net operating losses may be subject to substantial
annual limitation due to the change in ownership provision of the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses before utilization. | |
| | NUR Asia
Pacific and NUR Shanghai had available carryforward losses as of December 31,
2006 aggregating to approximately $ 19,000, which have no expiration date. | |
| | NUR Japan
had available carryforward losses as of December 31, 2006 aggregating to
approximately $ 800, expiring in 2012. | |
| | NUR Europe
and NUR Media Solutions had available carryforward losses as of December 31,
2006 aggregating to approximately $ 15,000 which have no expiration date. | |

F 45

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands

NOTE 14:
g.	Loss before
taxes on income consists of the following:

	Year ended December 31, — 2004		2005		2006
Domestic	$ (8,178	)	$ (11,296	)	$ (4,588	)
Foreign	(13,770	)	(3,372	)	2,765
	$ (21,948	)	$ (14,668	)	$ (1,823	)

NOTE 15:
a.	Summary
information about geographic areas:
	The Company
manages its business on the basis of one reportable segment. Refer to Note 1a
for a description of the Companys business. The following data is presented
in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information. Total revenues are attributed to geographical areas
based on location of end customers.
	The following
table presents total revenues for the years ended December 31, 2004, 2005 and
2006 and long-lived assets as of December 31, 2005 and 2006:

	2004 — Total revenues	2005 — Total revenues	Long-lived assets	2006 — Total revenues	Long-lived assets
Asia	$ 11,451	$ 12,401	$ 51	$ 8,740	$ 359
Europe and Middle East	38,429	37,731	4,310	42,391	5,063
America	26,843	21,246	484	26,837	378
	$ 76,723	$ 71,378	$ 4,845	$ 77,968	$ 5,800

| b. |
| --- |
| Total
revenues from external customers distributed on the basis of the Companys
product lines are as follows: |

	Year ended December 31, — 2004	2005	2006
Printers and
spare parts	$ 51,198	$ 46,783	$ 50,120
Ink	18,379	19,226	22,456
Substrates
and others	1,749	1,063	-
Services	5,397	4,306	5,392
	$ 76,723	$ 71,378	$ 77,968

F 46

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands (except share and per share data)

NOTE 15:
c.	Major
customer data as a percentage of total revenues:
	The Group
does not have any major customers that represent 10% or more of the
consolidated revenues for 2004, 2005 and 2006.

NOTE 16: SELECTED STATEMENTS OF OPERATIONS DATA

| Financial
expenses, net: | | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| | Year ended December 31, | | | | | |
| | 2004 | | 2005 | | 2006 | |
| Expenses: | | | | | | |
| Interest on short-term bank credit and
charges | $ (1,436 | ) | $ (1,244 | ) | $ (385 | ) |
| Interest on long-term loans | (1,195 | ) | (1,630 | ) | (80 | ) |
| Foreign currency loss | (3,912 | ) | (4,350 | ) | (6,423 | ) |
| | (6,543 | ) | (7,224 | ) | (6,888 | ) |
| Income: | | | | | | |
| Interest on bank deposits and other | - | | 132 | | 193 | |
| Foreign currency gain | 3,904 | | 3,644 | | 5,379 | |
| | 3,904 | | 3,776 | | 5,572 | |
| | $ (2,639 | ) | $ (3,448 | ) | $ (1,316 | ) |

| NOTE 17: |
| --- |
| On January
30, 2007 and February 12, 2007, the Company issued 7,105,320 and 4,629,630,
respectively of its ordinary shares at $0.54 per share to various investors.
The Company received from these investments proceeds in the amount of $6.1
million, net of expenses. The Company also issued to the investors warrants
to purchase up to 2,131,596 and 1,388,889, respectively ordinary shares at an
exercise price of $0.65 per share. The warrants are exercisable for five
years from the closing date of the private placement. The securities offered
in the private placement have not been registered under the Securities Act of
1933, as amended (the Act), and may not be offered or sold in the United
States absent registration, or an applicable exemption from registration,
under the Act. NUR agreed to use its best efforts to register all the private
placement related shares (both those purchased and those issuable upon
exercise of the warrants) for resale under the Act. If the Company fails to
file a registration statement prior to July 1, 2007 or ceases the
effectiveness of such filing after the registration, until the event is
cured, the Company will pay each of the investors partial damages in cash
equals to 1% per month of the aggregate purchase price paid by the investor
subject to overall limit of up to 24 months of partial liquidated damages. |

F 47

MARKER FORMAT-SHEET="Head Minor Center-TNR" FSL="Workstation"

[BDO McCable Lo Limited Letterhead]

MARKER FORMAT-SHEET="Head Major Center Bold 1-TNR" FSL="Workstation"

Report of Independent Registered Public Accounting Firm

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

To the Shareholders and the Board of Directors of NUR Asia Pacific Limited

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

We have audited the accompanying balance sheets of NUR Asia Pacific Limited (the Company) as of December 31, 2006 and 2005 and the related statements of operations, stockholders deficit and cash flows for each of the years ended December 31, 2006. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

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 audits include 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 Companys internal control over financial reporting. Accordingly, we express no such opinion. Our 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.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NUR Asia Pacific Limited as of December 31, 2006 and 2005, and the results of its operations and cash flows for each of the three years ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

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

/s/ BDO McCabe Lo Limited BDO McCabe Lo Limited

Hong Kong, June 28, 2007

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