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# UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, DC 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, 2008

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 shall
Company report ___________

For the transition period from
________ to ________

Commission file number
000-30664

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

Israel (Jurisdiction of incorporation or organization)

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

Mira Rosenzweig, Telephone: (972)
(4) 6048100, Facsimile: (972) (4) 6048300, E-mail: mirar@camtek.co.il Ramat Gavriel Industrial Zone, P.O. BOX 544, Migdal Ha'Emek, Israel 
(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)

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

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

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

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



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Indicate the number of outstanding
shares of each of the issuers classes of capital or common stock as of the close of
the period covered by the Annual Report:

29,135,108 Ordinary Shares, par value
NIS 0.01 per share

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

o Yes    x No

| | If
this report is an annual or transition report, indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

o Yes    x No

| | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

x Yes     o No

| | Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Indicate
by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing:
| | -------------------------------------------------------------------------------------------------------------------------------------

| | US
GAAP x
| | ---------

| | International
Financial Reporting Standards as issued by the International Accounting Standards
       Board o
| | --------------------------------------------------------------------------------------------------------------

| | Other
o
| | -------

| | If
Other has been checked in response to the previous question, indicate by
check mark which financial statement item the registrant has elected to follow.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item
17 o       Item 18 o
|-------------------------

| | 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).
| | ---------------------------------------------------------------------------------------------------------------------------------------------

|oYes     xNo
|------------

2

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# TABLE OF CONTENTS

|          |                                                                              | PAGE
|--------- | ---------------------------------------------------------------------------- | ----
|
|
|
|
|PART I    |                                                                              | 5   
|         
|Item 1.   | Identity of Directors, Senior Management and Advisers                        | 5   
|         
|Item 2.   | Offer Statistics and Expected Timetable                                      | 5   
|         
|Item 3.   | Key Information                                                              | 5   
|         
|Item 4.   | Information on the Company                                                   | 18  
|         
|Item 4A.  | Unresolved Staff Comments                                                    | 27  
|         
|Item 5.   | Operating and Financial Review and Prospects                                 | 27  
|         
|Item 6.   | Directors, Senior Management and Employees                                   | 37  
|         
|Item 7.   | Major Shareholders and Related Party Transactions                            | 49  
|         
|Item 8.   | Financial Information                                                        | 50  
|         
|Item 9.   | The Offer and Listing                                                        | 52  
|         
|Item 10.  | Additional Information                                                       | 53  
|         
|Item 11.  | Quantitative and Qualitative Disclosures About Market Risk                   | 66  
|         
|Item 12.  | Description of Securities Other than Equity Securities                       | 67  
|         
|PART II   |                                                                              | 67  
|         
|Item 13.  | Defaults, Dividend Arrearages and Delinquencies                              | 67  
|         
|Item 14.  | Material Modifications to the Rights of Security Holders and Use of Proceeds | 67  
|         
|Item 15T. | Controls and Procedures                                                      | 67  
|         
|Item 16A. | Audit Committee Financial Expert                                             | 68  
|         
|Item 16B. | Code of Ethics                                                               | 68  
|         
|Item 16C. | Principal Accountant Fees and Services                                       | 69  
|         
|Item 16D. | Exemptions from the Listing Standards for Audit Committees                   | 69  
|         
|Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers       | 69  
|         
|Item 16F. | Change in Registrant's Certifying Accountant                                 | 70  
|         
|Item 16G. | Corporate Governance                                                         | 71  
|         
|PART III  |                                                                              | 71  
|         
|Item 17.  | Financial Statements                                                         | 71  
|         
|Item 18.  | Financial Statements                                                         | 71  
|         
|Item 19.  | Exhibits                                                                     | 72  

3

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# Forward-Looking
Statements

Statements
in this Annual Report about our future results, levels of activity, performance, goals or
achievements or other future events constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that may
cause actual results or events to differ materially from those anticipated in our
forward-looking statements. These factors include, among others, those listed under Risk
Factors or described elsewhere in this Annual Report.

In
some cases, you can identify forward-looking statements by our use of words such as may, will, should, could,
expects, plans, intends, anticipates, believes, estimates, predicts, seeks,
strategy, potential or
continue or the negative or other variations of these words, or other
comparable words or phrases.

Although
we believe that the expectations reflected in our forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance or
achievements or other future events. We are under no duty to update any of our
forward-looking statements after the date of this Annual Report, other than as required by
law. You should not place undue reliance on forward-looking statements.

As used in this Annual Report, the
terms we, us, our, the Company and
Camtek mean Camtek Ltd. and its subsidiaries, unless otherwise indicated.

4

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# PART I

|Item 1. |  | Identity of Directors, Senior Management and Advisers.
|------- |  | ------------------------------------------------------

| | Not
applicable.
| | ---------------

|Item 2. |  | Offer Statistics and Expected Timetable.
|------- |  | ----------------------------------------

| | Not
Applicable.
| | ---------------

|Item 3. |  | Key Information.
|------- |  | ----------------

|A. | Selected
Consolidated Financial Data.
|-- | -------------------------------------

We
derived the selected data under the captions Selected Statement of Operations
Data for the years ended December 31, 2008, 2007 and 2006, and Selected
Balance Sheet Data as of December 31, 2008 and 2007 from the audited
consolidated financial statements included elsewhere in this Annual Report. We derived the
selected data under the captions Selected Statement of Operations Data for the
years ended December 31, 2005 and 2004 and Selected Balance Sheet Data as
of December 31, 2006, 2005 and 2004 from audited financial statements that are not
included in this Annual Report.

For
all fiscal periods for which consolidated financial data are set forth below, our
consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States.

5

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|                                             | Year Ended December 31,
|-------------------------------------------- | -----------------------
|
|
|
|
|Selected Statement of Operations Data:       |                        
|Revenues:                                    |                        
|Sales of products                            |                        
|Service fees                                 |                        
|Total revenues                               |                        
|Cost of revenues:                            |                        
|Cost of products sold                        |                        
|Cost of services                             |                        
|                                             |                        
|Total cost of revenues                       |                        
|Gross profit                                 |                        
|                                             |                        
|Research and development costs               |                        
|Selling, general and administrative expenses |                        
|Total operating expenses                     |                        
|Operating (loss) income                      |                        
|Financial income (expenses), net             |                        
|                                             |                        
|Income (loss) before income taxes            |                        
|Income taxes (benefit)                       |                        
|                                             |                        
|Net income (loss)                            |                        
|                                             |                        
|Earnings (loss) per ordinary share:          |                        
|Basic                                        |                        
|Diluted                                      |                        
|                                             |                        
|Weighted average number of ordinary shares   |                        
|outstanding:                                 |                        
|Basic                                        |                        
|Diluted                                      |                        

|                                        | December 31,
|--------------------------------------- | ------------
|
|
|
|
|Selected Balance Sheet Data:            |             
|Cash and cash equivalents               |             
|Total assets                            |             
|Bank credit                             |             
|Convertible Loan                        |             
|Paid in capital                         |             
|Shareholders' equity                    |             
|                                        |             
|Ordinary issued and outstanding  shares |             

|B. | Capitalization
and Indebtedness.
|-- | --------------------------------

Not
applicable.

|C. | Reasons
for the Offer and Use of Proceeds.
|-- | ------------------------------------------

Not
applicable.

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|D. | Risk
Factors
|-- | ------------

There
is a high degree of risk associated with our company and business. If any of the following
risks occur, our business, operating results and financial condition could be materially
adversely affected and the trading price of our ordinary shares could decline.

Risk
Factors Related to Our Business and Our Markets

The current economic and financial
crisis may have a material adverse effect on our results.

The
crisis of the financial and credit markets worldwide in the second half of 2008 has led to
a severe economic recession worldwide, and the outlook for 2009 is uncertain. A
continuation or worsening of unfavorable economic conditions, including the ongoing credit
and capital markets disruptions, could have an adverse impact on our business, operating
results or financial condition in a number of ways. For example, we may experience
declines in revenues, profitability and cash flows as a result of reduced orders, delays
in receiving orders, delays or defaults in payment or other factors caused by the economic
problems of our customers and prospective customers. We may experience supply chain
delays, disruptions or other problems associated with financial constraints faced by our
suppliers and subcontractors. In addition, changes and volatility in the equity, credit
and foreign exchange markets and in the competitive landscape make it increasingly
difficult for us to predict our revenues and earnings into the future. Currently, we lack
of short-term visibility as customers are focused on maintaining flexibility, reducing
inventory and conserving their cash.

We had a history of losses, and we
cannot assure you that we will not incur additional losses in the future. Moreover, if our
business deteriorates, we could face liquidity problems.

Despite
having had net income of $11.6 million, $2.7 million and $10.8 million in 2006, 2005
and 2004, respectively, we incurred net losses of $9.6 million and $7.7 million in 2008
and 2007, respectively. We may not be able to achieve or increase profitability on a
quarterly or annual basis. The failure to generate consistent profitability could have a
material adverse effect on the market price of our shares.

We
have also been using a substantial portion of our liquidity during the downturn in our
business. In 2007, we used $1.3 million of cash in our operations, which amount increased
to $2.9 million in 2008. At December 31, 2008, we had cash and cash equivalents of $15.9
million. Also, at December 31, 2008, we had a short term loan in the sum of $1.5 million,
which was repaid in March 2009. We expect to use additional cash in our operations during
2009, and expect to continue to incur significant additional legal expenses and other
costs associated with certain patent infringement actions. See Our products
may infringe on the intellectual property rights of others, which could result in claims
against usbelow. A recent jury verdict has been rendered in favor of a
competitor in its patent infringement case against Camtek awarding damages of
approximately $6.8 million. As of the date hereof, the court has not entered a judgment on
the verdict. We intend to aggressively pursue motions to overturn or modify the
jurys verdict. Should we be unsuccessful at the trial court level, we plan to appeal
any adverse judgment. A payment of any damages set forth in a judgment, if and when
required, may adversely affect our liquidity and require us to further reduce our expenses
and to arrange for additional financing.

If
available liquidity is not sufficient to meet our operating and other obligations as they
come due, our plans include pursuing additional financing arrangements or further reducing
expenditures as necessary to meet our cash requirements through 2009. However, as a result
of the current global economic and financial crisis and other factors, including our
operating losses and financial condition, there is no assurance that, if and when
required, we will be able to raise additional finance or reduce discretionary spending to
provide the required liquidity.

7

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The markets we target are: printed
circuit board, integrated circuit (IC) substrate and semiconductor manufacturing and
packaging industries. The IC substrate and semiconductor manufacturing and packaging
industries are highly cyclical and the Company does not have any information that enables
it to predict the cycles in these markets. Also, all three markets are
negatively affected by periods of down-turns, as the one currently experienced.

The
printed circuit board and the IC substrate industries experienced a prolonged and severe
down-turn in 2002 and2003, during which the overall rate of capital spending by
printed circuit board and IC substrate manufacturers had been sharply cut and sales of our
products had declined. We experienced an expansion and growth during 2004, and significant
fluctuation on a quarterly and annual basis thereafter. During the second half of 2008 and
the first quarter of 2009 our revenues were severely affected by the global economic
recession, and we cannot predict when market conditions will improve.

As
a result of recovery from the down-turn experienced in 2002 and 2003, we saw an increase
in capital spending in the printed circuit board and IC substrate industries, and sales of
our automated optical inspection, or AOI, systems to these manufacturers increased during
2004. In 2005, there was a decrease in demand from our clients in the printed circuit
board industry, as a result of a capacity adjustment in that market but in 2006 the demand
from our clients in the printed circuit board market increased again. In the first quarter
of 2007 we had a seasonal adjustment down but then an expansion during the second and
third quarters of 2007, with a further adjustment down in the fourth quarter of 2007 and
first half of 2008. During the second half of 2008 and the first quarter of 2009 our
revenues from the printed circuit board and IC substrate industries, and sales of our AOI
systems to manufactures in these industries, were severely affected by the global economic
recession.

The
semiconductor manufacturing and packaging industry is characterized by cyclicality, which
is amplified in the back-end sector, where we operate. As a result of our market
penetration to the semiconductor manufacturing and packaging industry, we experienced
growth from this market from 2004 until the second quarter of 2006. In the second half of
2006 we were affected by the markets weakness, which continued to affect us until
the third quarter of 2007. In the last quarter of 2007 and the first half of 2008 we
experienced growth unrelated to increased capacity in this market. In the second half of
2008 and the first quarter of 2009, as in our other markets, our revenues decreased in
this market due to the severe global economic recession.

In
the event of a reduction in demand, we have only a limited ability to reduce expenses
without harming our ability to rapidly grow when our markets recover and demands increase
again, as in order to maintain such ability we are required to make significant
ongoing expenditures related to engineering, research and development and worldwide
customer service and support operations. Accordingly, we may incur losses during the
current or future downturns or capacity adjustments affecting the markets we serve.

We are planning to increase our
revenues from sales of AOI systems to the semiconductor manufacturing and packaging
industry. If our share in the market fails to grow or we are prohibited from selling the
Falcon system into the United States, our results of operations will be adversely
affected.

Our
future success in the semiconductor manufacturing and packaging industry depends on our
ability to sustain and increase the acceptance rate of our AOI technology and upon the
acceptance by our customers of new applications we included in our AOI systems. If the
market for our AOI systems in the semiconductor manufacturing and packaging industry does
not develop at the rate we expect, whether as a result of our inability to obtain repeat
orders from our customers or to acquire customers who would adopt our systems for new
applications, an economic downturn, intensified competition, presentation to the market of
alternative technologies, changes in technology, changes in product standards, or
otherwise  our results will be adversely affected. In 2007 our revenues from the
Falcon significantly decreased, due to a downturn in the semiconductor manufacturing and
packaging industry. In 2008 our revenues from the Falcon increased by 48% above 2007 to
$30 million. We attribute this increase to several multiple orders of technology-driven
purchases and penetration to new customers with new applications. We cannot assure you
that we will be able to increase Falcon revenues to or above the levels previously
achieved. If an injunction is issued in the lawsuit brought against us by Rudolph (see
Our products may infringe on the intellectual property rights of others, which
could result in claims against usbelow), we may be prohibited from selling
our Falcon systems in the United States, which would result in a decline in our revenues
from the Falcon unless it can be modified in a manner which would not violate the terms of
the injunction, if issued.

8

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Longer sales process for new
products may increase our costs and delay time to market of our products and our sales in
general have decreased during the current downturn, both of which negatively impacted our
inventory and results of operations.

Our
sales process for new products to new and existing customers involves: demonstrations and
testing against industry benchmarks in our sales centers; sales and technical
presentations and presentations regarding our products competitive advantages; and
installation of the systems at the customers site for side-by-side competitive
evaluations for a period of one to six months. More evaluation time is devoted during the
initial penetration period for new products and for new customers in new markets, since
these circumstances usually require engineering efforts to fix errors, customize tasks and
add new features. As a result of all of the above factors, our finished goods inventory
totaled $12.5 million at December 31, 2008, and our costs may increase disproportionately
to our revenues as our product lines and customer base expand. Moreover, our customers
often require that we deliver our products with short lead times. In order to meet our
customers needs in the timeframe they require, we usually need to pre-order
components and subsystems based on our forecasts of future orders, rather than on actual
orders. In order to compensate for unexpected delays, we have had to predict our needs
further into the future, which increases the risk that our predictions may not correspond
to our actual future needs.

At
December 31, 2008, $21.7 million of our inventory was in excess of our estimate of our
current requirements for 2009 based on our recent level of sales. We believe that this
amount will be utilized according to our forecasted sales. Additionally, we have developed
a program to reduce this inventory to desired levels over the near term and believe that
no loss will be incurred on its disposition. However, we cannot estimate a range of the
amount of loss that is reasonably possible should the forecasted sales and the program to
reduce the level of inventory not be successful. Any material write downs of aged or
obsolete inventory could adversely affect our results of operations.

We operate an international sales
organization. A substantial majority of our sales has been to manufacturers in the Asia
Pacific region. The concentration of our sales and other resources within a particular
geographical region subjects us to additional risks.

We
have sold our systems in over 30 countries around the world. In recent years, the majority
of our sales were in the Asia Pacific region. In 2008, our sales in the Asia Pacific
region accounted for approximately 75% of our total revenues, including approximately 35%
of our total revenues from sales in China and Hong Kong, 16% from sales in Korea and 10%
from sales in Taiwan. Changes in local legislation, changes in governmental controls and
regulations, changes in tariffs and taxes, political instability, trade restrictions, a
downturn in economic or financial conditions, as well as any extraordinary events having
an adverse effect on the economy or business environment in this region may cause a
significant decline in our future revenues and may have an adverse effect on our results
of operations. These general risks are heightened in China, where the nature of the
economy and the legal parameters are rapidly evolving and where foreign companies may face
cultural obstacles.

The markets we serve are highly
competitive. There is a dominant market participant for AOI systems both for the printed
circuit board industry and for the final inspection of silicon wafers in the semiconductor
industry, and some of our competitors have greater resources, all of which may make it
difficult for us to maintain profitability or plan our cash flow.

Competition
in the markets we serve is intense. During market downturns, including the current global
economic recession, competition has intensified due to the reduced demand for the type of
products that we manufacture. When competitors respond to declining demand by offering
discounts, free evaluation machines or more favorable credit terms, we may need to
implement some or all of the same methods in order to maintain our market position. These
could mean lower prices for our products and a corresponding reduction in our gross
margin, as well as favorable payment terms to our customers and a corresponding decline in
cash flow. If we have to lower prices to remain competitive and are unable to reduce our
costs to offset price reductions or are unable to introduce new, higher performance
products with higher prices, our operating results may be adversely affected. If we have
to implement more favorable payment terms to our customers, our cash flow may be adversely
affected.

9

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Competitors
currently sell systems that provide functionality similar to our products. In the printed
circuit board industry, our principal competitor and the dominant market participant is
Orbotech Ltd., with additional competitors including Dainippon Screen, Lloyd-Doyle,
Gigavis and local AOI vendors in China and Taiwan. In addition, there is a market for used
AOI systems for printed circuit board manufacturers, which may reduce the demand for our
products and force us to lower our prices in certain cases. Our competitors in the IC
substrate industry include Orbotech Ltd., Dainippon Screen, Shirai, ATI, Utechzone and
Gigavis. In the semiconductor manufacturing and packaging industry, our principal
competitor and the dominant market participant is Rudolph Technologies Inc. [which
purchased the IP and bumped wafer inspection line of RVSI Inspection, LLC
(RVSI) in January 2008], with additional competitors including Zygo
(through acquisition of Solvision in February 2008), KLA-Tencor (through acquisition of
96% ownership in ICOS in May 30, 2008), Topcon, Toray, Tosok and Hitachi.

Since
we entered the final inspection of silicon wafers businessin early 2004, there
have been several mergers and acquisitions that changed the competitive map; starting with
Rudolph Technologies Inc.s acquisition of August Technologies in 2005 and the
acquisition of the bumped wafer inspection line of RVSI in January 2008, continuing with
Solvisions acquisition by Zygo in February 2008 and the purchase of 96% of
ICOSs shares by KLA-Tencor in May 2008. These acquisitions can reinforce the
previously smaller competitors with resources, financial backing and the better market
position of the acquiring companies, while bringing new forces to the marketplace. As a
result, Camtek may need to overcome unfavorable market share perception and invest more
R&D efforts in maintaining its technological position.

Some
of our competitors have greater financial, personnel and other resources and offer a
broader range of products and services. These competitors may be able to respond more
quickly to new or emerging technologies or changes in customer requirements, develop
additional or superior products, benefit from greater purchasing economies, offer more
aggressive pricing or devote greater resources to the promotion of their products.

The unavailability of credit
insurance may adversely affect our willingness to sell to certain customers.

Since
the second quarter of 2006, we have purchased credit insurance from an Israeli insurance
company to cover certain export sales. As a result of the global economic crisis and the
crisis in the financial and credit markets, the criteria for such insurance have gotten
more stringent. Consequently, credit insurance covering some of our customers may be
unavailable. This could adversely affect our willingness to sell products to these
customers.

Technology in the markets in which
we operate is rapidly evolving, and we may not be able to keep pace with these changes or
with emerging industry standards. This could result in a loss of revenues.

The
markets for our products are characterized by changing technology, evolving industry
standards, changes in end-user requirements and new product introductions. Potential new
technologies and improvements to existing production equipment and methods could improve
production yields, thereby reducing the need to use our AOI systems in these industries.
In addition, new technologies could emerge as alternatives to using our products.

Our
future success will depend on our ability to enhance our existing products and to develop
and introduce new technologies for AOI of printed circuit boards, IC substrates and
silicon wafers. These products must keep pace with technological developments and address
the increasingly sophisticated needs of our customers. If we fail to keep pace with
technological changes, with products offered by our competitors or with emerging industry
standards, our ability to attract new business and generate revenues may be damaged.

We
seek to expand our activity into unsaturated markets adjacent to our existing served
markets, such as the inspection of silicon wafers at various steps during their
manufacturing process, inside the wafer fabrication facility. Technological developments
in production processes and in process control may reduce the growth we anticipate in
demand for inspection systems. If this happens, we may not be able to cover our
investments in penetrating these markets, or will have to increase our R&D and
marketing expense to adapt our products to such changes.

10

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Our products may infringe on the
intellectual property rights of others, which could result in claims against us.

Third
parties have asserted claims, and may assert additional claims in the future, that we have
violated their patents or that we have infringed upon their intellectual property rights.
Any intellectual property claims against us, even if without merit, could lead to
protracted litigation, could cost us a significant amount of money to defend and could
divert managements attention from our business.

On
July 14, 2005, a lawsuit was filed against us in the United States District Court for the
District of Minnesota by one of the Companys competitors in the field of
semiconductor manufacturing and packaging, August Technology Corporation and its acquirer,
Rudolph Technologies Inc., alleging infringement of a patent and seeking injunctive relief
and damages. The trial before the jury included the issues of infringement, invalidity,
willful infringement and damages. On March 6, 2009 a jury verdict has been rendered in
favor of Rudolph, awarding damages of approximately $6.8 million with regard to sales of
Camteks Falcon products in the United States. The jury also found that the
infringement was not willful. Judgment has not been entered on this verdict. No provision
has been taken in our consolidated financial statements as of December 31, 2008, since we
believe it is more likely than not that this matter will be resolved in our favor.

On
May 10, 2004, a lawsuit was filed against us in the District Court in Nazareth, Israel, by
our competitor, Orbotech Ltd., alleging that the Dragon and Falcon systems infringe upon a
patent held by Orbotech Ltd. and requesting an injunctive relief and damages. Currently,
the issue being dealt with by the court is the validity of the asserted patent, which
expired in February 2008. Also, the court advised the parties to turn to mediation. We
believe that we have substantial defenses against the validity of Orbotechs patent
and substantial defenses against Orbotechs claims.

On
February 23, 2005, a lawsuit was filed against us in the District Court in Jerusalem by
Orbotech Ltd., alleging infringement of patent held by Orbotech Ltd. regarding a specific
illumination block (an apparatus for illuminating and controlling the illumination of
scanned objects), seeking injunctive relief and damages. The court ruled, based on a
courts scientific advisors opinion and prima facie evidence, that
Camtek infringed the patent, and granted Orbotech a provisional remedy, i.e. interim
relief, which prevents Camtek from manufacturing the allegedly infringing illumination
block in suit. We believe that we have good defenses in the infringement aspect of the
claim. We further believe that we have claims with respect to the validity of the asserted
patent, as well as other defenses such as estoppel and lack of good faith on the part of
Orbotech.

We
cannot assure you that we will be successful in our defense against these claims. If these
claims are ultimately successful, they could have a negative impact on our business by
impairing our ability to sell our systems, and they could result in pecuniary damages
against us and significant legal and other defense costs, which would impact our cash
resources and profitability. In the event we do not prevail against these claims, we may
also be liable for any court costs and attorneys fees incurred by the claimants in
connection with these litigations. Even if we will be successful in our defense against
these claims, we may still incur significant legal expenses while resolving these matters.

Our ordinary shares may be
delisted from Nasdaq, and as a result the liquidity and price of our ordinary shares would
likely decline.

Our
ordinary shares are currently listed on the Nasdaq Global Market. One of the continued
listing requirements of the Nasdaq Global Market is that the minimum bid price of a listed
security must be at least $1.00. On August 20, 2008, we received a Nasdaq Staff Deficiency
Letter indicating that, for the previous 30 business days, the bid price of our ordinary
shares had closed below the minimum requirement. In accordance with Nasdaq rules, we were
provided 180 calendar days, or until February 17, 2009, to regain compliance with this
deficiency.

In
addition, one of the continued listing requirements of the Nasdaq Global Market is that
the market value of publicly held shares of a listed security must be at least $5 million.
The market value of our publicly held shares, as of March 31, 2009, was $3,090,650.

11

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However,
given the extraordinary market conditions, Nasdaq has subsequently implemented a temporary
suspension on the enforcement of the minimum $1.00 bid price and the minimum market value
of publicly held shares listing requirements through July 19, 2009. Pursuant to this
suspension, any company in the compliance process for a bid price or market value of
publicly held shares concern, is frozen at the same stage of the process until
the end of the suspension. Consequently, beginning on July 20, 2009, unless Nasdaq further
extends the suspension period, we will have over 120 calendar days to regain compliance
with the minimum bid price deficiency. If we fail to meet the minimum bid price
requirement during this period, Nasdaq could delist our ordinary shares from the Nasdaq
Global Market. In addition, if we fail to meet the minimum market value of publicly held
shares requirement once this requirement is reinstated, Nasdaq could notify us that it
intends to delist our ordinary shares from the Nasdaq Global Market, and we may not meet
the minimum market value of publicly held shares requirement of the Nasdaq Capital Market
at that time either. Such delisting would likely have an adverse impact on the liquidity
of our ordinary shares and, as a result, the market price for our ordinary shares would
likely become more volatile and decline.

If one or more of our third-party
suppliers or subcontractors does not provide us with key components or subsystems, we may
not be able to deliver our products to our customers in a timely manner, and we may incur
substantial costs to obtain these components from alternate sources.

We
rely on single source and limited source suppliers and subcontractors for a number of
essential components and subsystems of our products. We do not have agreements with all of
these suppliers and subcontractors for the continued supply of the components or
subsystems they provide. In addition, due to the global economic recession, if some of our
key suppliers encounter difficulties and financial problems, they might be unable to
supply us with the necessary components or subsystems. An interruption in supply from
these sources or an unexpected termination of the manufacture of key components or
subsystems would disrupt production and adversely affect our ability to deliver products
to our customers. Although we have taken and currently take precautions against this kind
of event, an unexpected termination or disruption of supply would require an investment in
capital and manpower resources in order to shift to other suppliers and might cause a
significant delay in introducing replacement products. However, to date we have sufficient
units of such components which will allow us to continue to supply our products until such
alternative suppliers are found.

We may encounter difficulties in
purchasing key components and subsystems, or overestimate our needs, to meet customer
demand.

In
the current highly-competitive business environment, our customers require us to fill
orders within a very short period of time. Our products are complex and require essential
components and subsystems that are produced by a number of suppliers and subcontractors.
These suppliers and subcontractors cannot always supply such components and subsystems
within the time frame demanded by our customers. Therefore, we are required to predict
future demands. Under the current economic conditions, we believe that we have sufficient
inventory to fill our customers orders on time. However, if market conditions
rapidly change and customer demand increases, we will be required to order additional
components and subsystems. If our suppliers and subcontractors are unable to timely meet
our increased demand, we might not be able to adequately meet our customers demands.
Our inability to satisfy any increase in customer orders could result in the loss of sales
and could cause customers to seek products from our competitors.

We
may also overestimate our future needs, which could result in our carrying excess
inventory of certain components and subsystems.

We may attempt to expand our
activity in the markets we operate in through M&A activity. Such activity may result
in dilution, operating difficulties and other adverse consequences.

We
expect to invest efforts in attempting to develop new growth engines by acquisition, where
core competencies may provide us with synergy and competitive advantages. Future
acquisitions could result in potentially dilutive issuances of equity securities, decrease
in our cash resources, incurrence of debt, contingent liabilities or impairment related to
goodwill and other intangible assets, any of which could harm our business. Furthermore,
we compete for acquisition and investment opportunities with other well-established and
well-capitalized entities. There can be no assurance that we will be able to locate
acquisition or investment opportunities upon favorable terms.

12

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In
addition, if any such acquisition is completed, our operation of the acquired business or
assets could involve numerous risks, including: post-merger integration problems;
diversion of managements attention from our core business; entering markets in which
we have little or no experience; and the loss of key employees of the acquired operations.

We
can not be certain that any future acquisition or merger will be successful. If the
operation of the business of any future acquisition or merger disrupts our operations, our
business may suffer. In addition, even if we successfully integrate the acquired business
with our own, we may not receive the intended benefits of the acquisition.

If we are unable to protect our
proprietary technologies, we may not be able to compete effectively.

We
differentiate our products and technologies from those of our competitors by using our
proprietary software, our image processing algorithms and the integration of our advanced
hardware components. We rely on a combination of copyrights, trade secrets, patents,
trademarks, confidentiality and non-disclosure agreements to protect our proprietary
know-how and intellectual property, including hardware and software components of our
products. These measures may not be adequate to protect our proprietary technologies and
it may be possible for a third party, including a competitor, to copy or otherwise obtain
and use our products or technologies without authorization or to develop similar
technologies independently. Additionally, our products may be sold in countries,
particularly in the Asia Pacific region, that provide less protection to intellectual
property than that provided under U.S. or Israeli laws.

Fluctuations in currency exchange
rates may result in the prices of our products becoming less competitive or in additional
expenses.

Currency
exchange rate fluctuations may affect the prices of our products. Our prices in most
countries outside of Europe and Japan are denominated in dollars. In those countries, if
there is a significant devaluation in the local currency compared to the dollar, the
prices of our products will increase relative to that local currency and may be less
competitive. In addition, much of our service income is denominated in local currencies.
If a larger number of our sales were to be denominated in currencies other than dollars,
our reported revenue and earnings would be subject to a greater degree of foreign exchange
fluctuations.

We
generate most of our revenues in dollars but incur a significant portion of our salary and
operating expenses in New Israeli Shekel (NIS). As the majority of our
revenues are denominated in dollars, we believe that inflation and fluctuations in the
NIS/dollar exchange rate have no material effect on our revenues. However, a major portion
of the costs of our Israeli operations, such as personnel, subcontractors, materials and
facility-related costs, are incurred in NIS. As a result, we bear the risk that our NIS
costs, as expressed in dollars, increase to the extent by which the continued significant
appreciation of the NIS in relation to the dollar, as experienced in 2007 and 2008, will
increase our costs expressed in NIS and have an adverse effect on our net income. We also
bear the risk that the rate of inflation in Israel will exceed the rate of devaluation of
the NIS in relation to the dollar, which would increase our costs expressed in dollars.

We may face risks of
interruptions in our production capabilities.

Our
major manufacturing facility is located in Migdal HaEmek, Israel. Any event
affecting this site, including natural disaster, labor stoppages or armed conflict, may
disrupt or indefinitely discontinue our manufacturing capabilities and could significantly
impair our ability to fulfill orders and generate revenues, thus negatively impacting our
business.

13

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We
have a supplementary manufacturing facility in China, in which we assemble some of our AOI
systems for the printed circuit board industry. Therefore, we may be influenced by
changing events in China; for example, our manufacturing activity in China may suffer as a
result of changes in Chinas geopolitical status or fluctuations in its economic
stability. In addition, we may be exposed to sourcing risks, such as supply-chain and
business interruption issues. Further potential risks may be associated with such issues
as the protection of our intellectual property; the recruitment and retention of skilled
employees. Any event affecting this site may disrupt our manufacturing capabilities and
could significantly impair our ability to fulfill orders and generate revenues, thus
negatively impacting our business.

We may experience fluctuations in
our future operating results, making it difficult to predict future results.

Our
revenues and net income (loss), in any particular period may be lower (or greater) than
revenues and net income (loss), in a preceding or comparable period. This complicates our
planning processes and reduces the predictability of our earnings. Period-to-period
comparisons of our results of operations may not be meaningful, and you should not rely on
them as indications of our future performance.

Our
quarterly results of operations may be subject to significant fluctuations due to the
following factors:

| |  | the
size, timing and shipment of substantial orders;
| | - | ----------------------------------------------------

| |  | products
mixture;
| | - | -----------------

| |  | customer
budget cycles and installation schedules;
| | - | --------------------------------------------------

| |  | product
introductions;
| | - | ----------------------

| |  | the
pricing of our products;
| | - | ----------------------------

| |  | the
timing of new product upgrades or enhancements;
| | - | ---------------------------------------------------

| |  | temporary
shifts in industry capacity;
| | - | --------------------------------------

| |  | the
timing of  installation  or, in some cases,  of  acceptance of our
                  products by our customers;
| | - | -------------------------------------------------------------------------------------------------------------------

| |  | interest
and exchange rates; and
| | - | --------------------------------

| |  | the
timing of issuing required import permits in certain countries into where we sell.
| | - | --------------------------------------------------------------------------------------

We depend on a limited number of
key personnel who would be difficult to replace.

Our
continued growth and success largely depend on the managerial and technical skills of the
members of our senior management and key employees. Due to the current economic recession,
at the end of 2008 and beginning of 2009 we implemented cost-reduction measures, resulting
in a reduction of about 25% of our human resources related expenses. If our operations
will rapidly expand, we believe that we will need to promote and hire qualified
engineering, administrative, operational, financial and marketing personnel. In
particular, we may find it difficult to hire key personnel with the requisite knowledge of
our business, products and technologies. The process of locating, training and
successfully integrating qualified personnel into our operations can be lengthy and
expensive. During periods of economic growth, competition for qualified engineering and
technical personnel is intense.

14

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If
our Chairman and Chief Executive Officer, Mr. Rafi Amit, who is currently handling
the development of our business in the Far East, other members of our senior management or
any of our key employees are unable or unwilling to continue to be employed by us, our
business would suffer. We do not have a key man life insurance policy for Mr. Amit.

Our relationship with Priortech
may give rise to conflicts of interest.

We
purchase products of, or sell products to, Priortech Ltd., our principal shareholder, and
other companies owned or controlled by it, and act jointly with respect to governmental
and administrative matters and the purchase from third parties of various products and
services, which may create conflicts of interest. Despite Israeli law procedural
requirements, including obtaining special shareholder approvals for interested party
transactions, we cannot be certain that those procedures will eliminate the possible
detrimental effects of any of these transactions and activities. In addition, Mr. Rafi
Amit acts as the Chief Executive Officer of the Company, on a full time basis, as well as
acting as the Companys and Priortechs Chairman of the Board of Directors.
Mr. Yotam Stern, our Executive Vice President, Business & Strategy, spends
40% of his time serving as the Chief Executive Officer of Priortech and other positions in
the Priortech group.

If we are classified as a passive
foreign investment company, our U.S. shareholders may suffer adverse tax consequences.

Generally,
if for any taxable year, after applying certain look-through rules, 75% or more of our
gross income is passive income, or at least 50% of our assets (averaged quarterly) are
held for the production of, or produce, passive income, we may be characterized as a
passive foreign investment company, or PFIC, for U.S. federal income tax purposes. This
characterization could result in adverse tax consequences to our U.S. shareholders,
including gain realized on the sale of our ordinary shares being taxed at as ordinary
income rates rather than capital gain rates, and could result in punitive interest charges
being applied to such sales proceeds. Rules similar to those applicable to dispositions
generally will apply to certain excess distributions with respect to our
ordinary shares. U.S. shareholders should consult with their own U.S. tax advisors with
respect to the U.S. tax consequences of investing in our ordinary shares.

Based
on an analysis of our assets and income, we believe that in 2008 we were not a PFIC. We
currently expect that we will not be a PFIC in 2009. However, PFIC status is determined as
of the end of the taxable year and is dependent on a number of factors, including the
relative value of our passive assets and our non-passive assets, our market capitalization
and the amount and type of our gross income. Therefore, there can be no assurance that we
will not become a PFIC for the year ending December 31, 2009 or in any future taxable
year. For a discussion of how we might be characterized as a PFIC and the related tax
consequences, please see U.S. Federal Income Tax Considerations-Tax Consequences If
We Are a Passive Foreign Investment Company.

Our share price has been volatile
in the past and may continue to fluctuate in the future.

Our
ordinary shares have experienced significant market price and volume fluctuations in the
past. During the period from January 1, 2008 through March 31, 2009, the closing
price of our ordinary shares ranged from $0.21 to $1.81. Our ordinary shares may
experience significant market price and volume fluctuations in response to factors, some
of which are beyond our control, such as the following:

| |  | quarterly
variations in our operating results;
| | - | ----------------------------------------------

| |  | market
conditions relating to our customers' industries;
| | - | --------------------------------------------------------

| |  | global
economic  conditions,  which  generally  influence stock market                   prices
and volume fluctuations;
| | - | ------------------------------------------------------------------------------------------------------------------------

15

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| |  | operating
 results  that  vary  from the  expectations  of  securities                   analysts
and investors;
| | - | ----------------------------------------------------------------------------------------------------------------

| |  | changes
 in  expectations  as to  our  future  financial  performance,
                  including   financial   estimates  or  recommendations  by  securities
                  analysts and investors;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | large
block transactions in our ordinary shares;
| | - | ------------------------------------------------

| |  | announcements
 of  technological  innovations or new products by us or                   our
competitors;
| | - | ---------------------------------------------------------------------------------------------------------

| |  | announcements
 by us or  our  competitors  of  significant  contracts,                   acquisitions,
  strategic  partnerships,  joint  ventures  or  capital                   commitments;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | changes
in the status of our intellectual property rights;
| | - | ----------------------------------------------------------

| |  | announcements
 of  significant  claims or  proceedings  against us and                   developments
in such proceedings;
| | - | --------------------------------------------------------------------------------------------------------------------------

| |  | additions
or departures of our key personnel; and
| | - | -------------------------------------------------

| |  | future
sales of our ordinary shares.
| | - | ------------------------------------

Due
to the continuing global crisis in the financial and credit markets, stock markets have
experienced and continue to experience extreme price and volume fluctuations. Market
fluctuations, as well as general economic conditions, such as a recession, interest rate
or currency rate fluctuations, political events or hostilities in Israel or the
surrounding region could adversely affect the market price of our ordinary shares.

In
the past, securities class action litigation has often been brought against companies
following periods of volatility in the market price of their securities. Currently, we are
facing a class action complaint, as detailed in Item 8A  Legal
Proceedings. This class action complaint could be protracted and divert
managements attention and resources.

Our principal shareholder,
Priortech, holds a controlling interest in us and will be able to exercise its control in
ways that may be adverse to your interests.

Priortech
beneficially holds 63.9% of our issued and outstanding ordinary shares. As a result,
Priortech has the power to control the outcome of matters submitted to a vote of our
shareholders, including the election of members of our board and the approval of
significant corporate transactions. This concentration of ownership may also have the
effect of making it more difficult to obtain approval for a change in control of us.
Messrs. Rafi Amit, Yotam Stern and Itzhak Krell control Priortech and may be deemed
to control us.

Risks
Relating to Our Operations in Israel

# Conducting business in
Israel entails special risks.

Our
principal offices, sole research and development facility and major manufacturing facility
are located in the State of Israel. We depend on components imported from outside of
Israel and almost all of our sales occur outside of Israel. Accordingly, we are directly
influenced by the political, economic and military conditions affecting Israel.
Specifically, we could be adversely affected by:

| |  | any
major hostilities involving Israel;
| | - | ---------------------------------------

16

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| |  | a
full or partial  mobilization  of the reserve  forces of the Israeli
                  army;
| | - | ----------------------------------------------------------------------------------------------

| |  | the
 interruption  or  curtailment  of trade  between  Israel  and its
                  present trading partners; and
| | - | ----------------------------------------------------------------------------------------------------------------------

| |  | a
 significant  downturn in the  economic or  financial  condition  of
                  Israel.
| | - | ------------------------------------------------------------------------------------------------

Since
the establishment of the State of Israel in 1948, a number of armed conflicts have taken
place between Israel and its Arab neighbors, and a state of hostility, varying from time
to time in intensity and degree, has led to security and economic problems for Israel.
Since September 2000, there has been a marked increase in violence, civil unrest and
hostility, including armed clashes, between the State of Israel and the Palestinians, and
acts of terror have been committed inside Israel and against Israeli targets in the West
Bank and Gaza. Increased hostilities, future armed conflicts, political developments in
other states in the region, or continued or increased terrorism could make it more
difficult for us to conduct our operations in Israel, which could increase our costs and
adversely affect our financial results. Furthermore, there are a number of countries,
primarily in the Middle East, as well as Malaysia and Indonesia, that restrict business
with Israel or Israeli companies, and we are precluded from marketing our products to
these countries. Restrictive laws or policies of those countries directed towards Israel
or Israeli businesses may have an adverse impact on our operations, our financial results
or the expansion of our business.

Our
operations could be disrupted as a result of the obligation of our key personnel in Israel
to perform military service. Some of our employees in Israel, including certain key
employees, are obligated to perform annual reserve duty in the Israeli army and are
subject to being called up for reserve duty at any time. The absence of one or more of our
officers and key employees for significant periods of time due to military service could
be disruptive to our operations.

The Israeli government programs
and tax benefits in which we have participated in the past and in which we currently
participate or from which we receive benefits require us to meet several conditions. These
programs or benefits may be terminated or reduced in the future, which could increase our
costs.

We
benefit from certain Israeli government programs and tax benefits, particularly from tax
exemptions and reductions resulting from the Approved Enterprise status of our
manufacturing facilities in Israel. To be eligible for these programs and tax benefits, we
must continue to meet conditions, including making specified investments in fixed assets
and equipment and financing a percentage of those investments with our share capital. If
we fail to meet such conditions in the future, these tax benefits could be cancelled, and
we could be required to refund those tax benefits already received. These programs and tax
benefits may not be continued in the future at their current levels or at all, and our
requests for future participation in these programs for any future expansion of our
manufacturing facilities may not be approved. In recent years, the Israeli government has
reduced the benefits available under certain of its programs in which we do not
participate. The termination or reduction of these programs and tax benefits could
increase our tax rates, thereby reducing our net profits or increasing our net losses.

The government grants we received
in the past for research and development expenditures restrict our ability to manufacture
products or to transfer technologies outside of Israel.

From
our inception through 2000, we received government grants from the Office of the Chief
Scientist of the Ministry of Industry and Trade (the OCS), for the
financing of a significant portion of our product development expenditures. In
March 2001, we commenced repayment of many of these grants pursuant to an
understanding reached with the OCS. As of June 1, 2005, we have fully repaid the
grants received by us from the OCS. Except for special circumstances and if we obtain
governmental consents and pay to the OCS amounts which may be substantial, the terms of
these grants prohibit us from selling or transferring rights in the technology developed
with the grants outside of Israel and allow sale or transfer of rights within Israel only
with special governmental approvals, even after full repayment of the grants. Elements of
our technologies, including in the areas of electronic hardware, image processing,
electro-optics, physics and mechanics, were developed with OCS grants. In addition, we may
only manufacture products developed with these grants outside of Israel pursuant to the
approval of a special governmental committee, and any approval of this nature may also
require us to pay a further significant amount of royalties than the terms of the grants
required, unless the amount of production outside Israel is less than 10% of the original
rate of production and the OCS has not objected to the transfer of products. The
restrictions regarding the sale or transfer of technology or manufacturing rights out of
Israel could have a material adverse effect on our ability to enter into strategic
alliances or enter into merger or acquisition transactions in the future that provide for
the sale or transfer of our technology or manufacturing rights.

17

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It may be difficult to enforce a
U.S. judgment against us, our officers and directors and some of the experts named
in this Annual Report or to assert U.S. securities law claims in Israel.

We
are incorporated in Israel. Substantially all of our executive officers and directors and
our Israeli attorneys are nonresidents of the United States, and a substantial portion of
our assets and the assets of these persons are located outside the United States.
Therefore, it may be difficult to enforce a judgment obtained in the United States against
us or any of these persons, including one based on the civil liability provisions of the
U.S. federal securities laws. Additionally, it may be difficult for you to assert U.S.
federal securities laws claims or to enforce civil liabilities under U.S. federal
securities laws in actions originally instituted in Israel.

Some provisions of Israeli law
could inhibit the acquisition of us by others.

Some
provisions of Israeli corporate law may have the effect of delaying, preventing or making
more difficult a merger with, or acquisition of, us. The Israeli Companies Law generally
provides that a merger be approved by the board of directors and by a majority of the
shares present and voting on the proposed merger at a shareholders meeting called
upon at least 21 days notice of each of the merging companies. A merger may not
be completed until at least 50 days have passed since the filing of the merger
proposal by each of the merging companies with the Israeli Registrar of Companies, and 30
days have passed since the resolution was adopted by the general meeting of each of the
merging companies. The Israeli Companies Law also provides that an acquisition of shares
in a public company must be made by means of a special tender offer if, as a result of the
acquisition, the purchaser would become a 25% or greater shareholder of the company,
unless there is already another 25% or greater shareholder of the company. Similarly, an
acquisition of shares must be made by way of a special tender offer if, as a result of the
acquisition, the purchaser would become a 45% or greater shareholder of the company,
unless there is already a majority shareholder of the company. In any event, if, as a
result of an acquisition of shares, the acquirer will hold more than 90% of a
companys shares, the acquisition must be made by means of a tender offer for all of
the shares. Finally, Israeli tax law treats some acquisitions, such as stock-for-stock
exchanges between an Israeli company and a foreign company, less favorably than U.S. tax
laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder
who exchanges his ordinary shares for shares in another corporation to taxation prior to
the sale of the shares received in such stock-for-stock swap. For more information on the
provisions of Israeli law in these contexts, please see sections Share Capital
and Israeli Taxation.

|Item 4. |  | Information on the Company.
|------- |  | ---------------------------

|A. | History
and Development of the Company
|-- | --------------------------------------

Our legal and commercial name is
Camtek Ltd. We were incorporated under the laws of the State of Israel in 1987. We operate
under the Israeli Companies Law. In our first years of operation, we provided manual
optical inspection equipment to address the needs of the printed circuit board, or PCB,
manufacturing industry. In 1994, we introduced our first automated optical inspection, or
AOI, system for the inspection of PCBs. In late 1998, we introduced our Orion system,
which gained wide acceptance in the high-end PCB market and represented a breakthrough for
us. Applying our core technologies, we developed our Pegasus system, which was introduced
in the third quarter of 2002, for the inspection of integrated circuits (IC) substrates.
In September 2001, we acquired a developer and producer of AOI systems for the
semiconductor manufacturing and packaging industry, or MEP. This acquisition allowed us to
enter the semiconductor inspection market. After a period of intense internal research and
development, we shipped our first new Falcon system for the semiconductor manufacturing
and packaging industry in the fourth quarter of 2003. The first revenue recognition of the
Falcon system was in the second quarter of 2004, and since then, Falcon sales increased to
nearly $40 million in 2006 or 40% of the total 2006 revenues. As a result of industry
weakness, Falcon sales declined in 2007 to nearly $20 million or 29% of our total 2007
revenues but increased to nearly $30 million in 2008 or 40% of our total 2008 revenues,
mainly as a result of an increase in multiple orders based on technology-driven purchases
and penetration to new customers with new applications.

18

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In
July 2000, we sold 5,835,000 ordinary shares in an initial public offering, in which we
received net proceeds of approximately $35 million. In August 2002, we sold 5,926,730
ordinary shares in a rights offering of ordinary shares to our then existing shareholders
(of which 5,922,228 were sold to Priortech Ltd.), in which we received net proceeds of
$6.1 million. On August 23, 2005 we raised $5 million as a convertible loan from FIMI
Opportunity Fund L.P and FIMI Israel Opportunity Fund, Limited Partnership (FIMI) 
of which $1.66 million was repaid in August 2008. On April 30, 2006, we completed a
private placement (the Private Placement) in which we issued 2,525,252 ordinary shares to
Israeli institutional investors at a price of $5.94 per share, raising $14.5 million. The
Private Placement also included warrants that, during a period of four years, are
exercisable into additional 1,262,626 ordinary shares at a price of $6.83 per share.

We
have been a public company since July 2000. In December 2005, we re-listed on the
Tel-Aviv Stock Exchange and became a dual listed company (see below in Item 9.A.
Offer and Listing Details). Our headquarters are located
in Israel, and we have operations in the Asia Pacific region, North America and Europe.

For
discussion of capital expenditures, see Item 5- Operating and Financial Review
and Prospects- Liquidity and Capital Resources.

Our
principal executive offices are located in Ramat Gavriel Industrial Zone, P.O. Box 544,
Migdal HaEmek 23150, Israel, and our telephone number is 011-972-4-604-8100. Our
agent for service of process in the United States is Camtek USA, Inc., located at
2000 Wyatt Dr., Santa Clara CA 95054, Tel: (408) 986 9640. Our
website is located at www.camtek.co.il. The information on our website is not incorporated
by reference into this Annual Report.

|B. | Business
Overview.
|-- | ------------------

# Our Business

We
design, develop, manufacture and market automated optical inspection, or AOI, systems and
related products. AOI systems are computerized systems that optically inspect various
types of electronic product components for defects caused during the manufacturing
process. Our AOI systems are used to enhance both production processes and yields for
manufacturers in three industries: the printed circuit board, or PCB, industry; the high
density substrates for interconnection of integrated circuit devices, or IC substrate,
industry; and the semiconductor manufacturing and packaging industry. Our systems provide
our customers with a high level of defect detection ability, are easy to operate and offer
high productivity. We have sold more than 2300 AOI systems in 34 countries around the
world. Our PCB customer base includes the majority of the largest 100 PCB manufacturers
worldwide. Since the introduction of our Falcon line for the semiconductor industry, we
have sold over 150 Falcon systems to more than 30 semiconductor manufacturers, test and
assembly houses and bumping service providers, including 12 out of the top 15 Integrated
Device Manufacturers (IDM). Our global, direct customer support organization provides
responsive, localized pre and post sales support for our customers through our
wholly-owned subsidiaries.

Our products incorporate proprietary
advanced image processing software and algorithms, as well as advanced electro-optics and
precision mechanics. They are designed for easy operation and maintenance. In addition,
our AOI systems use technology that enables our customers to handle a wide range of
inspection and verification needs.

19

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# Our Markets

We
target three industries: the PCB industry; the IC substrate industry; and the
semiconductor manufacturing and packaging industry, all part of the electronic packaging
industries and the electronics supply chain.

The Printed Circuit Board
Industry

A
PCB is the basic platform that supports and interconnects a broad range of electronic
components, such as IC devices, resistors, capacitors, coils and the like, and enables
them to operate as an electronic system. PCBs consist of traces, or lines, of conductive
material, such as copper, laminated on either a rigid or a flexible insulating base. These
conductive lines provide electrical interconnections between the components. The trace
integrity and conformance to exact dimensions are essential to the functioning of the
electronic product. Imperfections in the various stages of the PCB manufacturing process
may result in defects or flaws, like open conductive lines, electrical short circuits,
nicks and inappropriate line widths.

The
trend towards compact, high-performance and highly reliable electronic products, such as
mobile phones, notebook computers, digital cameras and personal digital assistants, drives
the demand for increased complexity and miniaturization of PCBs. In response to this
demand, PCB manufacturers are producing multi-layer PCBs with increasingly narrower and
denser lines, as well as boards with higher layer counts. Multi-layer boards consist of
several layers of circuitry laminated together to form a single board with both
horizontal and vertical electrical interconnections. In addition, multi-layer boards are
continuing to evolve with new technologies. Currently, high-end PCBs (excluding
substrates) use conductive lines and spaces 50 to 120 microns (0.002 to 0.005 inch). The
scan time required to inspect a given PCB surface increases substantially in relation to
the reduction in line width.

The
manufacturing process for multi-layer boards is comprised of three stages: the manufacture
of production tools, including artwork and masks; the production of inner layers and their
lamination into a single board; and the production of external layers. The majority of AOI
systems in the PCB industry are used for inspection of inner layers. Today, the number of
inner layers in typical multi-layer PCBs usually ranges from 4 to 14, though certain high
layer-count boards may consist of as many as 52 layers. Inspection by AOI systems during
the manufacturing process for the detection of defects in the inner layers prior to the
lamination process is crucial, so that any defective individual layers may be repaired or
replaced while still accessible. Once the multi-layer board is laminated, any undetected
defect in any specific layer will result in discarding the entire board.

The IC Substrate Industry

The
pursuit of electronic products that deliver more functionality, and at the same time are
smaller, lighter and less power-consuming, drives the semiconductor industry to produce
ICs (die) requiring more input/output connections. These dies must fit into smaller
packages. The IC substrate industry, in turn, supports these trends with high-density
interconnect substrates that serve as carriers for the IC die, providing it mechanical and
electrical connection to the printed circuit board. These substrates feature conductive
lines that are 12 to 50 μm (microns) in width. Although IC substrates are produced
using technologies derived from those used for the production of traditional PCBs, the
complexity and high density of these substrates require separate, specialized
manufacturing facilities.

The
die is connected to the upper side of the substrate, either by wire bonding by means of
thin metal wires, or by flipping the IC and directly connecting conductive
bumps on its face to a matching array of pads or bumps on the substrate. The latter
technology is known as flip chip die attach (Flip-Chip). The die substrate is
connected to the PCB via an array of conductive solder balls, known as a ball grid array,
or BGA.

The
complexity of IC substrates requires advanced inspection systems with high magnification
power for detecting minuscule defects that hinder production yields. Optical inspection of
IC substrates is implemented along the manufacturing process, where the substrates are
still in panel form, similar to PCB, and at the end of the production process, where the
substrates are cut to strips or packed in trays. Due to the high integration level of
todays electronic products, defective substrates, that pass undetected, may render
the entire product unusable. Or, if assembled in a mission-critical system, they may cause
a catastrophic failure.

20

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The Semiconductor
Manufacturing and Packaging Industry

The
semiconductor manufacturing industry produces circuits (ICs) on silicon or other
semiconductor materials in the form of thin wafers; each wafer consists of numerous IC
dies (chips). At the end of the wafer manufacturing process, our AOI systems
inspect the wafer for various defects. At this stage, AOI systems verify that the dice are
free of defects, and that the electronic probe tips used for functional testing of the
finished dice on the wafer have caused no critical damage to the terminal pads on the die.
AOI is essential at this stage to help ensure the reliability and service life of the
electronic device after its assembly and packaging.

In
the semiconductor packaging process, the finished wafers are diced, or separated, into
individual ICs, which are then mounted onto substrates, interconnected and encapsulated to
produce semiconductor packages. AOI equipment, together with electrical probe testing,
determines which ICs and substrates are non-defective. AOI equipment is also used to
inspect for any defects that may have been caused to the ICs during electrical probe
testing and the dicing of the wafer.

In
Flip-Chip packaging technology, the face of the IC is attached to the top of a substrate
via an array of bumps, rather than being wire bonded. Wafers designed for Flip-Chip
assembly interconnect go through a process in which solder bumps ranging from 30 to 150
microns in height, or gold bumps about 15 microns tall, are plated or stenciled on pads on
the face of the IC. In a similar technology termed Chip-Scale Wafer Level Packaging
(CS-WLP), larger bumps up to 300 to 500 micron tall are placed on the die and the entire
wafer is coated with a thick layer of polymer  usually epoxy. After dicing, the
individual die is actually a finished device, ready to be mounted directly on the PCB. AOI
with 3-D measurement capabilities is used to detect any missing, misplaced or deformed
bump and to determine bumps conformity to shape and height specifications. Size, shape and
placement deviations may cause damage to the IC or the substrate during the packaging
process, leading to device failure.

A
relatively small, but fast growing segment is Micro-Electro Mechanical Systems (MEMS),
which utilizes materials, manufacturing technologies and facilities from the semiconductor
industry to produce miniature mechanisms, such as inkjet print heads, accelerometers,
image sensors, video projection devices (DLP), sensors and microphones. Many MEMS products
are packaged between layers of glass while still at the wafer format, and diced in several
steps afterwards. The MEMS manufacturing segment relies heavily on testing to ensure the
product performance and reliability. This testing may amount to a significant amount of
the overall product cost. AOI is implemented at various stages along the manufacturing
process to detect cracks, foreign materials or mechanical damage, as well as confirm
dimensional conformity, thus eliminating subsequent testing of defective products,
increasing yield and reducing overall production costs.

An
additional small, but fast growing segment is Light Emitting Diodes (LED), which utilizes
materials, manufacturing technologies and facilities from the semiconductor industry to
produce LEDs. The LED manufacturing segment relies heavily on testing to ensure the
product performance and reliability. This testing may amount to a significant amount of
the overall product cost. AOI is implemented at various stages along the manufacturing
process in the front end and also in the back end after the dicing process. The inspection
process is looking for defects such as cracks, foreign materials or mechanical damage, and
it also ensures dimensional conformity, thus eliminating subsequent testing of defective
products, increasing yield and reducing overall production costs.

# Products

Our AOI systems consist of:

| |  | An
electro-optical assembly unit, either movable or fixed, which consists of a video camera,
precision optics and illumination sources. The electro-optical unit captures the image of
the inspected product;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | A
precise, either movable or fixed table, that holds the inspected product;
| | - | ---------------------------------------------------------------------------

| |  | An
electronic hardware unit, which operates the entire system and includes embedded
components that process and analyze the captured image by using our proprietary
algorithms.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21

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The
inspected product is placed on the movable table and is scanned under the optical assembly
unit. The optical assembly unit then captures images of the product, while the electronic
hardware unit processes the image using the analysis algorithms. Detected discrepancies
are logged and reported as defects per the user preferences. The image of the defect is
immediately available for verification by the system operator. Our systems can also
compile and communicate statistical reports of inspection findings via the customers
factory information system.

We
offer a broad range of systems for automated optical inspection of semiconductor wafers,
IC substrates and PCBs. These systems are used to enhance production yields and assist in
controlling manufacturing processes at wafer fabrication, test and assembly houses, and
PCB plants worldwide. We invest significant resources in research and development to
provide our customers with advantageous performance, low cost of ownership, high
reliability and ease of operation. We believe that a significant part of our competitive
advantage and of our ability to adapt our technologies to evolving market needs comes from
our design philosophy and applicable know-how in basing our products on software-intensive
architectures.

# Automated Optical
Inspection Systems for the PCB and IC Substrate Industries

Our
products for these industries consist of four product lines: the Dragon and Orion for the
inspection of inner and outer layers of PCB panels; the Pegasus and Mustang for final
inspection (AFI) of IC substrates and High Density Interconnect (HDI) panels; the Planet
for inspection of ultra-fine-line IC substrate; and Large Area Masks (LAM) dedicated for
inspection of artwork and photo masks.

# Dragon

Dragon
systems are high-throughput, automation-ready systems for inspection of all PCB types in a
mass production environment. Dragon models are optimized for specific PCB technology
ranges  from mainstream circuits of typically 100 μm (microns) conductor line
width, up to high density substrates having 12 μm (microns) wide conductive lines.
All Dragon models are designed to interface with automated material handling mechanisms
provided by us or other automation suppliers. We believe that the combination of detection
ability, scanning speed, real-time data collection for process control and automated
material handling deliver outstanding value to customers. The Dragon was first introduced
in March 2003.

# Orion

Orion
systems are stand-alone AOI systems for high volume inspection of all PCB types designed
to operate in Inspectify mode of operation. Inspectify is a unique
mode of operation enabling the operator to perform verification immediately after
inspection on the same system, thus saving time and eliminating handling-related defects.
The Orion family has evolved gradually since its introduction in 1999. All Orion models
retain an ergonomic user interface that supports high productivity and flexibility,
allowing successive on-line inspection and verification, or solely inspection followed by
off-line verification on a separate station. Like the Dragon family, Orion models are
dedicated for various PCB technology ranges.

# Pegasus

The
Pegasus line includes systems for automated inspection of finished IC substrates that are
subsequently used in packaging of BGA and Chip Scale Package (CSP) devices. The Pegasus
inspects both sides of the substrate, detecting process and mechanical defects in
particular in the gold-plated areas where the substrate will interconnect with the silicon
die or the PCB and in the solder-mask areas. Pegasus models handle substrates in strip
format in magazines. In December 2006 we introduced the Pegasus 200S, an enhanced product
for inspecting IC substrates in strip format.

# Mustang

The
Mustang line includes systems for automated inspection of finished HDI panels that are
subsequently used in mobile consumer electronics, such as mobile phones, digital cameras,
PDAs and other consumer electronic devices. The Mustang inspects both sides of the panel,
detecting process and mechanical defects, in particular in the gold-plated areas where the
substrate will interconnect with the silicon die or the PCB and in the solder-mask areas.
Mustang models handle panels in panel format (up to 150 x 300mm) in magazines. The Mustang
600 was first introduced in the first quarter of 2008.

22

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# Planet

Planet
is designed for the inspection of ultra-fine-line IC substrate, down to 8μm
linetechnologies. Introduced in June 2007, the Planet addresses the inspection
needs of the very high end of the IC substrate industry  ultra-fine line. The Planet
integrates our experience from both the semiconductor and PCB markets into a-totally new
hardware architecture to deliver the robustness and high resolution required for high
speed detection of micron-scale defects.

# LAM

LAM
is specially designed for main-stream Large Area Masks (LAM) inspection. It offers
unparalleled detection ability on LAM with down to 25 μm line/space width
technology. The LAM incorporates advanced technology innovations to ensure the level of
detection that these fine masks require at this critical production stage. Since large
area masks are made of glass and transparent for light, the LAM inspection system contains
specially designed image acquisition system, where the mask under inspection is located in
between illumination sources and digital camera.

# Integrated AOI System

# AIC

The
AIC (Automated Inspectify Center) integrates inspection and verification into one
efficient cell that maximizes productivity across the entire AOI operation.  
Through its pickup and transfer mechanism, the AIC bridges between the Dragon and
Camteks verification station, CVR-200. Material flow is balanced and streamlined at
the Dragons scan rate. Since panels are on and off-loaded automatically,
handling-related defects are eliminated.

Designed to increase overall
productivity and yield, AIC delivers immediate process-control feedback to the production
line, saving both time and money, and improving the final yield.

# Verification Systems

Camtek
offers various stand-alone verification systems that enable verification of panels after
inspection. Camtek designed the verification stations to meet operators comfort
during work while delivering high image quality and productivity.

|* | CVR-100
is designed for verification of panels after inspection on the Dragon, Planet or Orion
AOI;
|- | ---------------------------------------------------------------------------------------------------

|* | CVR-200
is designed for verification when working in AIC configuration; and
|- | ---------------------------------------------------------------------------

|* | PVS-200
is designed for the verification of IC Substrates (strips or units) and HD panels after
they were inspected by the Pegasus or by the Mustang.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------

# Automated Optical
Inspection Systems for the Semiconductor Industry

# Falcon

The
Falcons advanced algorithms and inspection capabilities enable its dedicated models
to detect defects in the die, which, if left undetected, may cause premature failure. In
addition, inspection data can be used by customers to monitor and characterize several
wafer finishing processes, troubleshoot functional testing issues or control the integrity
of the interconnect bump arrays made on dice intended for packaging in flip chip
technology. The Falcon family currently includes models for:

| |  | 3D
and 2D metrology and inspection of bumped-wafer prepared for packaging in the flip-chip
         technology;
| | - | ---------------------------------------------------------------------------------------------------------------

| |  | 2D
metrology and inspection of finished wafers at the end of their manufacturing process and
in test houses, where inspection adds the value of monitoring the marks left by the
testing probe or protects expensive probe cards from damage by dust particles;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23

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| |  | Post-dicing
inspection of frame-mounted wafers at assembly and packaging facilities, where it adds
the value of detecting dicing-related damage.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Inspection
and metrology of MEMS, LED and other special applications, where customized handling
solutions and inspection capabilities are required for complex structures and
non-standard materials.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Customers

Our
customer base includes the majority of the largest 100 PCB manufacturers worldwide and
over 40 semiconductor manufacturing, testing and packaging companies. Our customers, many
of whom have multiple facilities, are located in 34 countries throughout Asia, Europe and
North America. In 2006 we had one customer that accounted for about 10% of our total
revenues, in 2007 and 2008 no individual customer accounted for more than 10% of our total
revenues. In the IC substrate industry, our customers are typically dedicated substrate
manufacturers, but also include large PCB manufacturers who have separate substrate
manufacturing facilities. Our IC substrate customers are located predominantly in Taiwan
and the Asia Pacific region. In the semiconductor manufacturing and packaging industry, we
target wafer manufacturers and companies involved in the testing, assembly and packaging
of semiconductor devices.

The
following table shows our revenues classified by geographical region for each of the last
three years:

| |                     | Year Ended December 31,
| | ------------------- | -----------------------
|
|
|
|
| | China and Hong Kong |                        
| | Other Asia          |                        
| | United States       |                        
| | Taiwan              |                        
| | Western Europe      |                        
| | Japan               |                        
| | Rest of the world   |                        
| |                     |                        
| |                     |                        
| | Total               |                        
| |                     |                        

Sales, Marketing and
Customer Support

We
have established a global distribution and support network throughout the territories in
which we sell our products, including the Asia Pacific region, North America and Europe.
We believe that this is an essential factor in our customers decision to purchase
our products. We primarily utilize our own employees to provide these customer support
services. We may expand our network into additional territories as market conditions
warrant.

As
of December 31, 2008, 62 of our employees were engaged in our worldwide sales,
marketing and support efforts, including support and sales administration staff. Due to
the concentration of sales in the Asia Pacific region in the last couple of years, we
adjusted our sales organization accordingly, and significantly expanded our sales,
marketing and support teams in this region. In November 2008 and February 2009 we reduced
our worldwide sales, marketing and support workforce, to align it to current market
conditions.

Our
marketing efforts include participation in various trade shows and conventions,
publications and trade press, product demonstrations performed at our facilities and
regular contact with customers by sales personnel. We generally provide a 12-month
warranty to our customers. In addition, for a fee, we offer service and maintenance
contracts commencing after the expiration of the warranty period, which is typically one
year. Under our service and maintenance contracts, we provide prompt on-site customer
support.

24

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In
the second quarter of 2006, we purchased a credit insurance policy from the ICIC 
the Israeli Credit Insurance Policy Company, in order to minimize the risk contemplated in
transactions with customers which are located overseas and which are granted with certain
amount of credit. The policy covers, among other risks, political and financial risks of
such customers. Due to the current global crisis in the financial and credit markets,
which led to a severe economic recession, ICIC, as other insurance companies, has
strengthened its criteria for credit insurance and as a result we are facing difficulties
in receiving credit insurance for some of our customers.

# Manufacturing

Our
manufacturing activities consist primarily of the assembly and integration of parts,
components and subassemblies, which are acquired from third-party vendors and
subcontractors. The manufacturing process for our products generally lasts four to six
weeks. We utilize subcontractors for the production of subsystems.

We
rely on single source and limited source suppliers and subcontractors for a number of
essential components and subsystems of our products. We generally maintain several months
of inventory of critical components used in the manufacture and assembly of our products.
Should our suppliers be negatively affected by the current severe economic recession, we
will be required to search for alternative suppliers. However, to date we have sufficient
units of such components which will allow us to continue to supply our products until such
alternative suppliers are found.

Our
major manufacturing facility is located in Migdal HaEmek, Israel. Considering the
global economic recession, towards the end of 2008 we have started reducing our
manufacturing activities in this facility. Also, we are considering a change in our
manufacturing alignment in Israel, based on a shift to subcontractors.

We
have a supplementary manufacturing facility in Suzhou, China, in which we assemble some of
our AOI systems for the printed circuit board industry.

Competition

The
markets in which we operate are highly competitive. In the PCB industry, our principal
competitor is Orbotech Ltd., with additional competitors including Dainippon Screen,
Lloyd-Doyle, Gigavis and local AOI vendors in China and Taiwan. Our competitors in the IC
substrate industry include Orbotech Ltd., Dainippon Screen, ATI, Shirai, Utechzone and
Gigavis. In the semiconductor manufacturing and packaging industry, our primary competitor
is Rudolph Technologies Inc. (which purchased the IP and bumped wafer inspection line of
RVSI), with additional competitors including KLA-Tencor (through acquisition of 96%
ownership in ICOS), Zygo (through acquisition of Solvision) and several Japanese
competitors whom we face mostly in Japan  Topcon, Toray, Hitachi and Tosok.

We
believe that the principal elements of a sustainable competitive advantage in the AOI
market are:

| |  | On-going
 research,  development  and  commercial  implementation  of new image
                  acquisition, processing and analysis technologies;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Product
architecture based on proprietary core technologies and commercially-available hardware.
Such architecture supports shorter time-to-market, flexible cost structure, longer
service life and higher margins;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Fast
response to evolving customer needs;
| | - | -----------------------------------------

| |  | Product
compatibility with customer automation environment;
| | - | -----------------------------------------------------------

| |  | Strong
pre and post-sale support (applications,  service and training)
                  deployed in immediate proximity to customer sites; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  | maintaining
 a  sufficient  production  line in order to follow the  increasing
                  demand for AOI products.
| | - | --------------------------------------------------------------------------------------------------------------------------

We
believe that we compete effectively on all of these factors.

25

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# Capital Expenditures

The
following table shows our capital expenditures in fixed assets for the last three years:

| |                                | December 31,
| | ------------------------------ | ------------
|
|
|
|
| | Real Estate                    |             
| | Building                       |             
| | Machinery and equipment*       |             
| | Office furniture and equipment |             
| | Automobiles                    |             
| |                                |             
| | Total                          |             

* including transfer of inventory to
fixed assets in the sum of $1,026,000 in 2008 and $2,649,000 in 2007.

# Material Effects of Governmental
Regulations

The following EU directives, which
represent the European standard required in order to sell in Europe, apply: Low Voltage
Directive (LVD) 73/23/EEC and Machinery Directive 98/37/EC. The following SEMI Standards,
which define uniform standards for manufacturers in the semiconductor manufacturing and
packaging industry and production equipment producers, apply: SEMI S-2 (safety
requirements for sale of equipment in the semiconductor manufacturing and packaging
industry) and SEMI S-8 (ergonomic requirements for sale of equipment in the semiconductor
manufacturing and packaging industry). We comply with the above-mentioned governmental
regulations during the systems design process, which is conducted in accordance with
the Companys quality assurance manual. In addition, all new systems are tested
by independent laboratories who certify their compliance with these governmental
regulations.

|C. | Organizational
Structure
|-- | ------------------------

Priortech Ltd.,
our principal shareholder, through its affiliated companies, engages in various aspects of
electronic packaging, including the production and assembly of PCBs and the development
and sale of IC substrates. Based on sales, PCB Technologies, a subsidiary of Priortech, is
one of the largest PCB manufacturers in Israel. Priortech currently holds 63.9% of our
outstanding ordinary shares. Our revenues from sales to affiliated and subsidiaries of
Priortech, totaled $467,000, $27,000 and $407,000 in 2008, 2007 and 2006, respectively. In
addition to these sales of products, we act jointly with Priortech with regard to various
governmental, administrative and commercial matters, which we believe is to the mutual
advantage of both parties.

The
following table shows the Companys significant subsidiaries, all of which are wholly
owned (except for Camtek HK  Ltd. , in which Priortech Ltd., our controlling
shareholder, holds one share, or less than one percent), together with each
subsidiarys jurisdiction of incorporation, as of the date of this report. For a
complete list of subsidiaries, see Exhibit 8.1.

26

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|Name of Subsidiary              | Jurisdiction of Incorporation
|------------------------------- | -----------------------------
|
|
|
|
|Camtek H.K. Ltd.                | Hong Kong                    
|                               
|Camtek (Europe) NV              | Belgium                      
|                               
|Camtek USA Inc.                 | New Jersey, USA              
|                               
|Camtek Imaging Technology (CIT) | China                        

|D. | Property,
Plants and Equipment
|-- | ------------------------------

Our
main office, manufacturing and research and development facilities are located in the
Ramat Gavriel Industrial Zone of Migdal HaEmek in northern Israel. These facilities
occupy 74,000 square feet, of which 16,000 square feet are devoted to the manufacturing of
our products. At the end of 2006, we decided to prepare construction programs and to apply
for the necessary construction permits for the purpose of expanding our current
facilities. The expansion was planned to occupy a further 71,500 square feet, which would
enable us to double our manufacturing and development capabilities. In 2007 we invested a
sum of $1 million in the expansion and improvement of our current facilities. Due to the
current economic conditions, we decided to postpone the completion of such expansion and
therefore no material investment was made during 2008.

Also,
at the end of 2006, we entered into a lease for a new manufacturing facility in China, in
which we manufacture products that do not require the geographical proximity to the
development facilities and that are designated to be sold to customers in Asia. The
Chinese facility occupies 42,000 square feet.

Our
sales offices and demonstration centers, which we lease in various locations around the
world, occupy an aggregate of approximately 36,000 square feet. Aggregate leasing costs in
2008 amounted to approximately $0.85 million.

|Item 4A. |  | Unresolved Staff Comments
|-------- |  | -------------------------

None.

|Item 5. |  | Operating and Financial Review and Prospects.
|------- |  | ---------------------------------------------

|A. | Operating
Results
|-- | -----------------

The
following discussion of our financial condition and results of operations should be read
in conjunction with the consolidated financial statements and the notes to those
statements included herein, which have been prepared in accordance with accounting
principles generally accepted in the United States, or United States GAAP.

# Overview

We
design, develop, manufacture and market automated optical inspection, or AOI, systems and
related products. Our AOI systems are used to enhance both production processes and yields
for manufacturers in the printed circuit board, or PCB, industry, the integrated circuit
substrate, or IC substrate, industry and the semiconductor manufacturing and packaging
industry.

We
sell our AOI systems internationally. The majority of sales of our AOI systems in 2008 was
to manufacturers in the Asia Pacific region, particularly in China, South East Asia, Korea
and Taiwan. This trend is due, among other factors, to the migration of PCB manufacturers
into this region following the development and growth of electronics industry centers in
the region. In 2008, our sales to customers in the Asia Pacific region accounted for
approximately 75% of our total revenues, including approximately 35% of our total revenues
from sales in China and Hong Kong, 16% in Korea and 10% in Taiwan. We expect this trend of
major portion of our revenues coming from customers in the Asia Pacific region to continue
in the foreseeable future.

27

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In
addition to revenues derived from the sale of AOI systems and related products, we
generate revenues from providing maintenance and support services for our products. We
expect our service revenues to increase as our installed base increases. We generally
provide a one-year warranty with our systems. Accordingly, service revenues are not earned
during the warranty period.

In
regular market conditions, the demand for AOI equipment is characterized by short notice.
To meet customers needs for quick delivery and to realize the competitive advantage
of the ability to do so, we have to pre-order components and subsystems based on our
forecast of future orders, rather than on actual orders. This need is compounded by the
fact that, in times of increasing demand in our markets, our suppliers and subcontractors
tend to extend their delivery schedules or fail to meet their delivery deadlines. To
compensate for these unscheduled delays, we build inventories further into the future,
which increases the risk that our forecast may not correspond to our actual future needs.
The uncertainties involved in these longer-term estimates during regular times of business
expansion tend to increase the level of component and subsystem inventories. Currently,
due to the global economic recession and the decrease in demand for capital equipment, we
maintain relatively high levels of inventory (See also in Longer sales process
for new products may increase our costs and delay time to market of our products and our
sales in general have decreased during the current downturn, both of which negatively
impacted our inventory and results of operations under
Risk Factors above and Valuation of
Inventory underCritical Accounting
Policies below). Compared to our sales cycles for repeat orders from
existing customers, we have longer sales cycles for new customers as well as for new
customers in new markets. In addition, the selling cycle in our markets may typically take
several quarters from first contact to revenue recognition, including on-site evaluation.
Naturally, repeat orders take less time. Still, a significant portion of our finished
goods inventory consists of systems under evaluation and demonstration systems.

# Critical Accounting
Policies

Critical
accounting policies are those that are, in managements view, most important to the
portrayal of a companys financial condition and results of operations and most
demanding on their calls on judgment, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in subsequent
periods. We believe our most critical accounting policies relate to:

Revenue
Recognition. The Company recognizes revenue from sales in accordance with Securities
and Exchange Commission Staff Accounting Bulletin No. 104 SAB 104 and
Financial Accounting Standard Boards Emerging Issues Task Force (EITF)
Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. Accordingly,
the Company recognizes revenue from sales of its products when the products are installed
at the customers premises and are operating in accordance with its specifications,
signed documentation of the arrangement, such as a signed contract or purchase order, has
been received, the price is fixed or determinable, and collectability is reasonably
assured.

Service
revenues consist mainly of revenues from maintenance contracts and are recognized ratably
over the contract period.

Revenue
under multiple element arrangements is recognized in accordance with EITF Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables. Under this method, if an
element is determined to be a separate unit of accounting, the revenue for the element is
based on fair value and determined by vendor objective evidence (VOE),
accordingly, non-standard warranty, with determined VOE, is deferred as unearned revenue
and is recognized ratably as revenue commencing with and over the applicable warranty
term.

Our
products are only installed by our qualified technicians. Thus, before we recognize the
revenue from the sale of a product and consider the sales cycle completed, our technicians
must install our product at the customers premises, activate the product according
to its specifications and then certify completion of such installation and activation.

28

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Our
revenue recognition policy requires that we make a judgment as to whether collectability
is reasonably assured. Our judgment is made for each customer on a case-by-case basis,
and, among other factors, we take into consideration the individual customers
payment history and its financial strength, as demonstrated by its financial reports or
through a third-party credit check. In some cases, we secure payments by a letter of
credit or other instrument.

Valuation of Accounts Receivable. We
review accounts receivable to determine which are doubtful of collection. In making this
determination of the appropriate allowance for doubtful accounts, we consider information
at hand regarding specific customers, including aging of the receivable balance,
evaluation of the security received from customers, our history of write-offs,
relationships with our customers and the overall credit worthiness of our customers.
Changes in the credit worthiness of our customers, the general economic environment and
other factors may impact the level of our future write-offs.

Valuation of Inventory.
Inventories consist of completed AOI systems, AOI systems partially completed and
components, and are recorded at the lower of cost, determined by the moving  average
basis, or market. We review inventory for obsolescence and excess quantities to determine
that items deemed obsolete or excess inventory are appropriately reserved. In making the
determination, we consider future sales of related products and the quantity of inventory
at the balance sheet date, assessed against each inventory items past usage rates
and future expected usage rates. Changes in factors such as technology, customer demand,
competing products and other matters could affect the level of our obsolete and excess
inventory in the future.

In 2008 we wrote-off inventory in the
amount of $4.1 million. The write off amount is included in the line item Cost of
products sold, in the Consolidated Statements of Operations . The write-off relates to
slow moving inventory, items deemed obsolete and certain matured products in the field of
automated finished product inspection, which we realized will not be compatible for future
sales. Inventory that is not expected to be converted or consumed in 2009 is classified as
non-current. As of December 31, 2008, a $21.7 million portion of our inventory was in
excess of our estimated requirements for 2009, based on our best estimates, global
economic recession and the recent level of sales. We have adopted a program intended to
consume this inventory and to decrease the current levels to desired levels. We believe
that no loss will be incurred as a result of this disposition. No estimate can be made
with respect to the range of amounts of loss that are reasonably possible should our
program and estimates will not be fulfilled or if the economic recession will be worse
then we expect.

Valuation of Long- Lived
Assets. We apply SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. This Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to undiscounted future cash
flows expected to be generated by the asset. If the carrying amount of the long lived
asset exceeds its estimated undiscounted future cash flows, an impairment charge is
recognized as computed by subtracting the fair market value of the asset from its carrying
value. We prepared future cash flows based on our best estimates including projections and
financial statements, future plans and growth estimates.

Provisions for contingent
liabilities. Provisions in general are highly judgmental, especially in cases of legal
disputes. We assess the probability of an adverse event as a result of a past event and if
the probability is evaluated to be more than 50%, we are required to fully provide for the
total amount of the estimated contingent liability. We continually evaluate our pending
provisions to determine if accruals are required. It is often difficult to accurately
estimate the ultimate outcome of a contingent liability. Different variables can affect
the timing and amount we provide for certain contingent liabilities. Our assessments are
therefore subject to estimates made by us and our legal counsel adverse revision in our
estimates of the potential liability could materially impact our financial condition,
results of operations or liquidity. As of December 31, 2008 we did not record contingent
liability with respect to our legal disputes (see also Our products may
infringe on the intellectual property rights of others, which could result in claims
against usabove), since we believe it is more than 50% that our legal
disputes will end in our favor.

Income Taxes. We account for
income taxes under SFAS No. 109, Accounting for Income Taxes, or
SFAS 109". Under SFAS 109 deferred tax assets or liabilities are
recognized in respect of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts as well as in respect of tax losses and
other deductions which may be deductible for tax purposes in future years, based on tax
rates applicable to the periods in which such deferred taxes will be realized. In
assessing the realizability of deferred tax assets, we consider whether it is more likely
than not that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary differences become deductible
and during which the carry-forwards are available. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount considered more likely than not
to be realized.

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Our financial statements include
deferred tax assets, net, which are calculated according to the above methodology. If
there is an unexpected critical deterioration in our operating results and forecasts, we
would have to increase the valuation allowance with respect to those assets. We believe
that it is more likely than not that those net deferred tax assets included in our
financial statements will be realized in subsequent years.

The Company records interest and
penalties related to unrecognized tax benefits as a component of income tax expense.

Stock Option and Restricted Share
Plans. In years prior to adoption of SFAS No. 123(R), Share-Based
Payments, ( before January 1, 2006) we had elected to apply the intrinsic
value-based method of recording compensation expense as allowed by SFAS No. 123, as
amended by SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure, an amendment of SFAS No. 123". As such, we computed and recorded
compensation expense for awards of stock options whose terms were fixed with respect to
the number of shares and option price only if the market price on the date of grant
exceeded the exercise price of the stock option. The compensation cost for these awards
was recorded over the option vesting period, generally 4 years.

Upon adoption of SFAS 123(R) on
January 1, 2006, we elected the modified-prospective method of adoption and we began to
record compensation expense for awards of employee stock options at their fair value
commencing with the date of grant. Prior periods were not restated. Under the
modified-prospective method, compensation costs recognized in 2008, 2007 and 2006 include
costs related to (1) to the fair value of share-based payments granted in 2008, 2007 and
2006 as well as (2) the amortization of the fair value of stock option awards which were
unvested as of January 1, 2006. In 2008 and 2007, we recognized equity-based compensation
expense under SFAS 123(R) in the amount of $0.3 million and $0.4 million, respectively.
When calculating this equity-based compensation expense we took into consideration awards
that are ultimately expected to vest. Therefore, this expense has been reduced for
estimated forfeitures. In our pro forma information required under SFAS No. 123 for the
periods prior to fiscal 2006, we accounted for forfeitures as they occurred.

Recently Issued
Accounting Standards

In December 2007, the FASB issued
FASB Statement No. 141R, Business Combinations (Statement 141R) and FASB Statement No.
160, Non-controlling Interests in Consolidated Financial Statements an amendment to
ARB No. 51 (Statement 160). Statements 141R and 160 require most identifiable assets,
liabilities, non-controlling interests, and goodwill acquired in a business combination to
be recorded at full fair value and require non-controlling interests
(previously referred to as minority interests) to be reported as a component of equity,
which changes the accounting for transactions with non-controlling interest holders. Both
Statements are effective for periods beginning on or after December 15, 2008, and earlier
adoption is prohibited. Statement 141R will be applied to business combinations occurring
after the effective date. Statement 160 will be applied prospectively to all
non-controlling interests, including any that arose before the effective date. All of our
subsidiaries are wholly owned, so the adoption of Statement 160 is not expected to impact
our financial position and results of operations. We are currently evaluating the impact
of adopting Statement 141(R) on our financial position and results of operations and
expecting no material impact on our financial position and results of operations.

In June 2008, the FASBs
Emerging Issues Task Force reached a consensus on EITF Issue No. 07-5, Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own
Stock. This EITF Issue provides guidance on the determination of whether such
instruments are classified in equity or as a derivative instrument. The Company will adopt
the provisions of EITF 07-5 on January 1, 2009. We are currently evaluating the impact, if
any, of adopting EITF 07-5 on our financial position and results of operations.

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# Results of Operations

# Year Ended December 31,
2008 compared to Year Ended December 31, 2007.

Revenues. Revenues in 2008 increased by 6.4% to $75.5 million from $70.9 million
          in the year ended December 31, 2007. Due to the global economic recession
          our revenues in the third and fourth quarters of 2008 were negatively affected.
          In 2008, sales to the PCB and IC substrate industries decreased by 5% and 65%,
          respectively, compared to previous year, while sales to MEP industries increased
          48% compared to 2007. Sales of all products increased 4.1% to $62.1 million
          in the year ended December 31, 2008, from $59.6 million in the year
          ended December 31, 2007. The increase in sales to the MEP industries is
          attributed to the increase in several multiple orders of technology driven
          purchases and the penetration to new customers with new applications. The
          mixture of products sold and their configuration and throughput varieties make
          it very difficult to estimate average selling prices and pricing trends.

Service
fees increased by 17.7% to $13.3 million in the year ended December 31, 2008,
from $11.3 million for the year ended December 31, 2007, primarily due to
increased revenue from continuing service costs as our installed base increased.

Gross Profit. Gross profit
consists of revenues less cost of revenues, which includes the cost of components,
production materials, labor, depreciation, factory and service center overhead and
provisions for warranties. These expenditures are only partially affected by sales volume.
In 2008 we experienced a decrease in gross profit and gross margins primarily due to $4.1
million inventory write off and strengthening of the NIS against the US dollar. Our gross
profit on product sales decreased by $1.9 million to $25 million in 2008,
compared to $26.9 million in 2007. Our gross profit on service revenue increased by $0.7
million in 2008 to $2.8 million, compared to $2.1 million in 2007. Our total gross profit
decreased by $1.2 million to $27.8 million in 2008 from $29 million in
2007, representing a decrease of 4%. Our gross margin decreased to 36.9% in 2008, compared
to a gross margin of 40.9% in 2007.

Research and Development
Costs. Research and development expenses consist primarily of salaries, materials
consumption and costs associated with subcontracting certain development efforts. Total
research and development expenses for 2008 were $12.8 million, compared to
$12.1 million in 2007. Research and development expenses increased in 2008 by $0.7
million, primarily due to $0.3 million equipment write-off and strengthening of the NIS
against the US dollar. In addition, the total expenses for 2008 included $0.25 million
related to a development of a technology owned by a company in the printed circuit board
industry, which we are currently evaluating for the purpose of a possible assets purchase.

Selling, General and
Administrative Expenses. Selling, general and administrative expenses consist
primarily of expenses associated with salaries, commissions, promotion and travel,
doubtful debt, professional services and rent costs. Our selling, general and
administrative expenses increased by 3% to $24.8 million in 2008 from
$24.1 million in 2007. Selling expenses have decreased mainly due to the decline in
salaries expenses, while general and administrative expenses included a sum of
approximately $2.2 million, comprised of professional fees related to the lawsuit that
Rudolph Technologies has filed against us and a potential acquisition that Camtek has
pursued but decided to abort. Selling, general and administrative expenses as a percentage
of revenues decreased in 2008 to 32.9% from 34% in 2007.

Financial and Other (Expenses)
Income, Net. We had net financial income of $1.0 million in 2008, as compared to net
financial expense of $128,000 in 2007. These changes relate primarily to exchange rate
influence and interest received and paid. Changes in currency rates resulted in income of
$1.2 million in 2008, compared to income of $66,000 in 2007.

Provision for Income Taxes.
Income tax expenses increased to $770,000 in 2008, compared to $362,000 in 2007, as a
result of increase in valuation allowance over deferred tax assets.

Net Income (Loss). We incurred
a net loss of $9.6 million in 2008 compared to a net loss of $7.7 million in
2007, in view of the factors discussed above.

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# Year Ended December 31,
2007 compared to Year Ended December 31, 2006.

Revenues. In 2007, as a result of a downturn in the semiconductor manufacturing and
          packaging industry, our revenues were adversely affected. Revenues decreased 29%
          to $70.9 million in the year ended December 31, 2007 from
          $100.1 million in the year ended December 31, 2006. Sales to the PCB,
          IC substrate and MEP industries decreased 17%, 4% and 48%, respectively. Sales
          of all products decreased 35% to $59.6 million in the year ended
          December 31, 2007, from $92.5 million in the year ended
          December 31, 2006. The mixture of products sold and their configuration and
          throughput varieties make it very difficult to estimate average selling prices
          and pricing trends.

Service
fees increased by 49.1% to $11.3 million in the year ended December 31, 2007,
from $7.6 million for the year ended December 31, 2006, primarily due to
increased revenue from continuing service costs as our installed base increased.

Gross Profit. Gross profit
consists of revenues less cost of revenues, which includes the cost of components,
production materials, labor, depreciation, factory and service center overhead, provisions
for warranties and royalty payments to the Government of Israel. In 2007 we experienced a
decrease in gross profit and gross margins, primarily due to decreased revenues. Our gross
profit on product sales decreased by $23 million to $26.9 million in 2007,
compared to $49.9 million in 2006. Our gross profit on service revenue increased by $0.4
million in 2007 to $2.1 million, compared to $1.7 million in 2006. Our total gross profit
decreased by $22.6 million to $29 million in 2007 from $51.6 million in
2006, representing a decrease of 43.7%. Our gross margin decreased to 40.9% in 2007,
compared to a gross margin of 51.6% in 2006, primarily due to decreased revenues and the
mixture of products sold.

Research and Development
Costs. Total research and development expenses for 2007 were $12.1 million,
compared to $11.8 million in 2006. Research and development expenses increased in
2007 by $0.3 million, primarily due to increased material consumption.

Selling, General and
Administrative Expenses. Our selling, general and administrative expenses decreased by
13.4% to $24.1 million in 2007 from $27.8 million in 2006, primarily due to
decreased commissions and shipping expenses. Selling, general and administrative expenses
as a percentage of revenues increased in 2007 to 34% from 27.8% in 2006.

Financial and Other (Expenses)
Income, Net. We had net financial expense of $128,000 in 2007, as compared to net
financial expense of $288,000 in 2006. These changes related primarily to exchange rate
influence and interest received and paid. Changes in currency rates resulted in income of
$66,000 in 2007, compared to expenses of $435,000 in 2006.

Provision for Income Taxes.
Income tax expenses increased to $362,000 in 2007, compared to $41,000 in 2006, as a
result of increase in valuation allowance over deferred tax assets.

Net Income (Loss). We incurred
a net loss of $7.7 million in 2007 compared to a net income of $11.6 million in
2006, in view of the factors discussed above.

|B. | Liquidity
and Capital Resources
|-- | -------------------------------

Our
cash and cash equivalent balances totaled approximately $15.9 million at
December 31, 2008 and $21.1 million at December 31, 2007. At December 31,
2008, we had a short term loan of $1.5 million, which was repaid in March 2009. Our cash
consisted mainly of money raised through equity offerings in 2000 and 2002, money raised
through a convertible loan in 2005 and money raised through a private placement in 2006.
We raised approximately $36.0 million from our initial public offering in 2000,
approximately $6.1 million in a rights offering of ordinary shares to our then
existing shareholders in 2002, $5.0 million as a convertible loan from FIMI Opportunity
Fund L.P. and FIMI Israel Opportunity Fund, Limited Partnership (of which $1.66 million
was paid in 2008), and $14.5 million from the private placement to Israeli institutional
investors. The private placement also included warrants that are exercisable into
additional 1,262,626 ordinary shares at a price of $6.83 per share, during a period of
four years. Our working capital was approximately $26.2 million at December 31,
2008 and $58.8 million at December 31, 2007. The decrease is mainly attributed to the
classification of $21.7 million as non-current inventory and the decline in cash, cash
equivalents and marketable securities.

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We
entered into accounts receivable factoring agreements with two financial institutions (the
Banks). Under the terms of the agreements, we have the option to factor
receivables with the Banks on a non-recourse basis, provided that the Banks approve the
receivables in advance. In some cases we continue to be obligated in the event of
commercial disputes, such as product defects, which are not covered under the credit
insurance policy, unrelated to the credit worthiness of the customer. We account for the
factoring of our financial assets in accordance with the provisions of SFAS 140
Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities- a replacement of FASB Statement No. 125". We do not expect any
reimbursements to take place in the foreseeable future.

The factoring fees of the above
mentioned agreements aggregate $24,000 in 2008 (compared to $52,000 in 2007).

As of December 31, 2008, trade
receivables amounting to approximately $520,000, were factored (compared to $560,000 as of
December 31, 2007).

On
November 11, 2008 and February 17, 2009 we announced cost reduction measures, the purpose
of which was to align Camtek with current market conditions. Those measures include
restructuring of our R&D organization and global sales force, thus reducing our human
resources related expenses, and adjusting our production expenses to the new revenue
level. These measures resulted in a reduction of about 12% in November 2008 and 14% in
February 2009, in our human resources related expenses.

On
March 6, 2009 a jury verdict was rendered against us in the lawsuit brought by Rudolph,
our competitor in the semiconductor manufacturing and packaging industry, awarding damages
of approximately $6.8 million in favor of Rudolph, with regard to sales of Camteks
Falcon products in the United States. (See also in Item 8.A  Legal
Proceedings). Should we ultimately fail in this lawsuit, including in the
appeal, or fail in reducing the awarded damages, we will be forced to pay damages which
will adversely affect our cash resources.

We anticipate that our existing
capital resources and cash flows from operations will be adequate to satisfy our liquidity
requirements through 2009. If available liquidity is not sufficient to meet our operating
and loan obligations as they come due, our plans include pursuing alternative financing
arrangements or further reducing expenditures as necessary to meet our cash requirements.
However, there is no assurance that, if required, we will be able to raise additional
capital or reduce discretionary spending to provide the required liquidity (see also in
We had a history of losses, and we cannot assure you that we will not incur
additional losses in the future. Moreover, if our business deteriorates, we could face
liquidity problemsunderRisk Factorsabove).

Cash
flow from operating activities

For
the year ended December 31, 2008, we had negative cash flow from operations of
$2.9 million, primarily due to our losses and decrease in payables, partially offset
by a decrease in receivables and inventory. For the year ended December 31, 2007, we
had negative cash flow from operations of $1.3 million, primarily due to our losses,
partially offset by a decrease in receivables and inventories. We expect to use additional
cash in our operations during 2009, and expect to continue to incur significant additional
legal expenses and other costs associated with certain patent infringement actions. See
Our products may infringe on the intellectual property rights of others, which
could result in claims against usunder Risk
Factors above.

Cash
flow from investing activities

Cash
flow provided from investing activities in 2008 was $1.1 million, primarily due to
net proceeds from sale of marketable securities of $2.5 million, partially offset due to
capital expenditures of $1.0 million. Cash flow used in investing activities in 2007 was
$3.7 million, primarily due to capital expenditures of $3.2 million

Our
capital expenditures in 2007 were primarily for the purpose of expanding our facilities in
Israel and China, and in 2008 for the purpose of improving our IT systems worldwide and
expanding our facilities in China.

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Cash
flow from financing activities

Cash
flow used in financing activity in 2008 was $1.1 million, due to repurchase of treasury
stock of $0.9 million, payment of a long term loan of $1.66 million, partially offset by
increase of $1.5 million in short term bank loans.

Cash
flow provided by financing activities in 2007 was $0.03 million, due to exercise of share
options.

# Effective Corporate Tax
Rate

Our
production facilities have been granted Approved Enterprise status under the
Investment Law. We participate in the Alternative Benefits Program and, accordingly,
income from our Approved Enterprises will be tax exempt for a period of 10 years,
commencing in the first year in which the Approved Enterprise first generates taxable
income due to the fact that we operate in Zone A in Israel.

On
April 1, 2005, an amendment to the Investment Law came into effect (the
Amendment) and has significantly changed the provisions of the Investment Law.
The Amendment limits the scope of an enterprise which may be approved by the Investment
Center by setting criteria for the approval of a facility as a Beneficiary
Enterprise, such provisions generally require that at least 25% of the Beneficiary
Enterprises income will be derived from export. Additionally, the Amendment enacted
major changes in the manner in which tax benefits are awarded under the Investment Law so
that companies no longer require Investment Center approval in order to qualify for tax
benefits.

In
addition, the Amendment provides that terms and benefits included in any certificate of
approval issued prior to December 31, 2004 will remain subject to the provisions of the
Investment Law as they were on the date of such prior approval. Therefore, our existing
Approved Enterprise will generally not be subject to the provisions of the Amendment. As
a result of the Amendment, tax-exempt income generated under the provisions of the new
law, as part of a new Beneficiary Enterprise, will subject us to taxes upon distribution
or liquidation.

We
have been granted the status of Approved Enterprises, under the Investment Law, for
investment programs for the periods ending in 2007 and 2010, and the status of Beneficiary
Enterprise according to the Amendment, for the period ending in 2014
(Programs).

Out
of our retained earnings as of December 31, 2008, approximately $19.6 million were
tax-exempt earnings attributable to our Approved Enterprise and approximately $2.8 million
are tax-exempt earnings attributable to our Beneficiary Enterprise. The tax-exempt income
attributable to the Approved and Beneficiary Enterprise cannot be distributed to
shareholders without subjecting us to taxes. If these retained tax-exempt profits are
distributed, we would be taxed at the reduced corporate tax rate applicable to such
profits. According to the Amendment, tax-exempt income generated under the Beneficiary
Enterprise will be taxed upon dividend distribution or complete liquidation, whereas tax
exempt income generated under the Approved Enterprise will be taxed only upon dividend
distribution. As of December 31, 2008, if the income attributed to the Approved Enterprise
were distributed as dividend, we would incur a tax liability of approximately $4.9
million. If income attributed to the beneficiary Enterprise were distributed as dividend
or upon liquidation, we would incur a tax liability in the amount of approximately $0.7
million. These amounts will be recorded as an income tax expense in the period in which we
declare the dividend.

We
intend to indefinitely reinvest the amount of our tax-exempt income and not distribute any
amounts of our undistributed tax-exempt income as dividend. Accordingly, no deferred tax
liabilities have been provided on income attributable to our Approved and Beneficiary
Enterprise Programs as the undistributed tax exempt income is essentially permanent in
duration.

The
entitlement to the above benefits is conditional upon our fulfilling the conditions
stipulated by the law and the regulations published thereunder as well as the criteria set
forth in the approval for the specific investments in Approved Enterprises. In the event
of failure to meet such requirements in the future, income attributable to our Programs
could be subject to the statutory Israeli corporate tax rates and we could be required to
refund a portion of the tax benefits already received, with respect to such Program. Our
management believes that we have met the aforementioned conditions.

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# Inflation and Foreign
Currency Fluctuation

The
currency of the primary economic environment in which our operations are conducted is the
dollar. Most of our revenues are derived in dollars. The prices of part of our materials
and components are purchased in dollars or are linked to changes in the dollar/NIS
exchange rate effective on the date of delivery of the goods to our factory. Most of our
marketing expenses are also denominated in dollars or are dollar linked. Our product
prices in most countries outside of Europe and Japan are denominated in dollars. However,
most of our service income is denominated in local currency. In Europe or Japan, if there
is a significant devaluation in the local currency as compared to the dollar, which was
the case in Europe in 2007 and 2008, the prices of our products will decrease and
negatively affect our revenues and income. The opposite effect occurs when the dollar
increases in value in comparison to these currencies. As the majority of our revenues are
denominated in dollars, we believe that inflation and fluctuations in the NIS/dollar
exchange rate have no material effect on our revenues. However, a major portion of the
costs of our Israeli operations, such as personnel, subcontractors, materials and
facility-related, are incurred in NIS. As a result, we bear the risk that our NIS costs,
as expressed in dollars, increase to the extent by which the continued significant
appreciation of the NIS in relation to the dollar, as experienced during 2007 and 2008,
thus, will increase our costs expressed in dollars and have an effect on our net income.
In order to secure part of the risk, we are engaged from time to time in hedging
transactions.

In
our consolidated financial statements, transactions and balances originally denominated in
dollars are presented at their original amounts. Gains and losses arising from non-dollar
transactions and balances are included in the determination of net income as part of
financial expenses, net.

# Effects of Government
Regulations and Location on the Companys Business

For
a discussion of the effects of Israeli governmental regulations and our location in Israel
on our business, see Risks relating to our Operations in
Israel in item 3, above.

|C. | Research
and Development, Patents and Licenses.
|-- | -----------------------------------------------

We
believe that intensive research and development are essential to our business. We devote
substantial research and development resources to developing new products and to improving
our existing products to meet our customers evolving needs. We have dedicated teams
with expertise in image processing software and algorithms, electronic hardware,
electro-optics, physics, mechanics and systems design.

Our
product development efforts over the past couple of years have resulted in the
introduction of several new AOI systems, including new models in the Dragon, Orion,
Pegasus, Planet, Mustang and Falcon product lines.

Our
research and development efforts are primarily focused on:

| |  | increasing
the throughput of our AOI systems;
| | - | ---------------------------------------------

| |  | improving
our defect detection capabilities; and
| | - | ------------------------------------------------

| |  | reducing
the number of false alarms, while
| | - | ------------------------------------------

| |  | simplifying
 operation and reducing the level of user expertise  required to realize the benefits
                  of our systems.
| | - | -----------------------------------------------------------------------------------------------------------------------------------

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In
addition, we are focusing our efforts on leveraging our core technologies, expertise and
experience into continually enhancing the value to the user and the return on investment
from our products. We believe that our internal multi-disciplinary expertise will enable
us to maintain and enhance our technological edge.

As
of December 31, 2008, we had 97 employees engaged in research and development, all of
whom are based in our headquarters in Israel. We also use subcontractors for the
development of some of the hardware components of our systems. Our research and
development expenses were $12.8 million, $12.1 million and $11.8 million for the years
ended December 31, 2008, 2007 and 2006, respectively, representing 16.9%, 17% and
11.8% of total revenues for the years then ended.

We
will continue to devote our research and development resources to maintaining and
extending our technology leadership position.

In
general, we rely on a combination of our copyrights, trade secrets, patents, trademarks
and non-disclosure agreements to protect our proprietary know-how and intellectual
property. We also enter into confidentiality agreements with key employees and with all of
the subcontractors who develop and manufacture components for use in our products. We also
employ specialists whose main role is to maintain and protect our intellectual property
from both professional and legal perspectives. We cannot be certain that actions we take
to protect our proprietary rights will be adequate nor can we be certain that we will be
able to deter reverse engineering or that there will not be independent third-party
development of our technology.

We
have 129 patents pending in Israel and worldwide (Patent Cooperation Treaty organization
or PCT, China, Japan, Taiwan, Korea, Singapore, United States, Canada, Europe), 13 US
Provisional patent applications and 14 issued patents: 2 in Europe, 2 in Taiwan, 6 in the
United States and 4 in Israel. These patents relate to our proprietary technology and
know-how developed for AOI products in the PCB and semiconductor industries.

|D. | Trend
Information.
|-- | ------------------

During
2001, 2002 and early 2003, competition in the PCB and IC substrate industries intensified
due to the low demand for AOI systems, resulting from the general economic downturn during
that time. The demand increased again during 2004. We also experienced a capacity
correction of the demand for our AOI products in the first quarter of 2005, due to a
seasonal adjustment of the markets, as well as a decrease in the PCB business, mainly in
the Chinese market, but in the next quarters of 2005 the trend changed again, and the
demand for AOI systems increased. In the first three quarters of 2006 we continued to
experience steady demand for our AOI systems in the PCB industry, in which we maintained
our position, while in the fourth quarter of 2006 and first quarter of 2007 we experienced
a decline in customer demand for our systems in this industry. In the second quarter of
2007 we faced improved demand to our systems, with a peak in the third quarter of 2007.
Nevertheless, the fourth quarter of 2007 was weaker, while in the first half of 2008 we
experienced a further decline in customers demand for our systems in this industry.
During the second half of 2008 and the first quarter of 2009 our revenues from the printed
circuit board, IC substrate and semiconductor manufacturing and packaging industries, were
severely affected by the global economic recession.

In
2008, as was the case in the previous three years, the majority of sales of our AOI
systems were to manufacturers in the Asia Pacific region, particularly in China and
Taiwan. This trend is due, among other factors, to the migration of PCB manufacturers into
this region due to significant labor cost advantages available there. We expect that this
trend toward the manufacturing of PCBs and other electronic components in the Asia Pacific
region will continue for the foreseeable future, though at a lower rate of increase.

Revenues from sales of Falcon systems
grew sequentially from their start in the second quarter of 2004 until the second quarter
of 2006. In the second half of 2006 the semiconductor industry entered the downward phase
of its cycle, driven by over-capacity and price erosion of IC devices. As a result, Falcon
sales declined gradually until the second quarter of 2007, totaling $20 million in 2007,
compared to nearly $40 million in 2006. In the last quarter of 2007 and the first half of
2008 we experienced growth unrelated to increased capacity in this market. In the second
half of 2008 and the first quarter of 2009 our revenues decreased due to the severe global
economic recession. Revenues in 2008 totaled to nearly $30 million in 2008 or 40% of our
total 2008 revenues, mainly as a result of an increase in multiple orders consisting
technology-driven purchases and penetration to new customers with new applications.

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|E. | Off-Balance
Sheet Arrangements.
|-- | -------------------------------

We do not have any arrangements or
relationships with entities that are not consolidated into our financial statements and
are reasonably likely to materially affect our liquidity or the availability of our
capital resources.

However, we have entered into various
non-cancelable operating lease agreements, principally for office space and vehicles.

As of December 31, 2008, minimum future
rental payments under such non-cancelable operating leases were approximately $3.1
million.

As of December 31, 2008, trade
receivables amounting to approximately $520 thousand, were factored.

|F. | Contractual
Obligations and Other Commercial Commitments.
|-- | ---------------------------------------------------------

As of December 31, 2008, we had
contractual obligations and commercial commitments of:

|                                | Payment Due in
|------------------------------- | --------------
|
|
|
|
|Operating lease obligations (1) |               
|                                |               
|Other long-term obligations (2) |               
|                                |               
|Total                           |               

|(1) | In
May 2007, we entered into an operating lease for vehicles for a period of 36
               months. As of December 31, 2008, the minimum future rental payments
were                approximately $954.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Our
subsidiaries have entered into various operating lease agreements,
               principally for office space. As of December 31, 2008, minimum future
               rental payments under these leases amounted to $2,167.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Item 6. |  | Directors, Senior Management and Key Employees.
|------- |  | -----------------------------------------------

|A. | Directors
and Senior Management.
|-- | --------------------------------

The
following table sets forth information with respect to our directors and executive
officers as of the date of this Annual Report. The address of our directors and executive
officers is c/o Camtek Ltd., Ramat Gavriel Industrial Zone, P.O. Box 544, Migdal
HaEmek 23150, Israel.

37

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|Name             | Age | Title                                                         
|---------------- | --- | --------------------------------------------------------------
|
|
|
|
|Rafi Amit        | 60  | Chairman of the Board of Directors and Chief Executive Officer
|Yotam Stern      | 56  | Executive Vice President, Business & Strategy and Director    
|Gabriela Heller* | 44  | Director                                                      
|Rafi Koriat*     | 62  | Director                                                      
|Eran Bendoly     | 44  | Director                                                      
|Roy Porat        | 42  | GM Camtek Ltd. and President of Camtek USA                    
|Mira Rosenzweig  | 37  | Vice President - Chief Financial Officer                      
|Miri Saar        | 51  | Vice President - Human Resources                              
|Moshe Grencel    | 55  | Vice President, Operations                                    
|Michael Lev      | 55  | Vice President, Intellectual Property                         
|Roni Flieswasser | 48  | Chief Technology Officer                                      
|Aharon Sela      | 56  | President of Camtek Hong Kong                                 

*Outside directors (as such term is
defined under Israeli Companies Law)

Rafi
Amit has served as our Chief Executive Officer since January 1998 and has served
as Chairman of the Board of Directors since 1987. Since 1981, Mr. Amit has also
served as the President and director of Priortech and has been the Chairman of the Board
of Directors of Priortech since 1988. From 1981 until 2004, Mr. Amit served as
Priortechs Chief Executive Officer. Mr. Amit holds a B.Sc. in Industrial
Engineering and Management from Technion  Israel Institute of Technology.

Yotam
Stern has served as an executive of ours since January 1998 and since
February 2001 has served as our Executive Vice President, Business &
Strategy. He has also served as a member of our Board of Directors since 1987. From
January 1998 until February 2001, Mr. Stern served as our Chief Financial
Officer. Mr. Stern has also served as the Chief Financial Officer of Priortech since
1981 and as Priortechs Chief Executive Officer since 2004 as well as serving as a
director of Priortech since 1985. Mr. Stern holds a B.A. in Economics from Hebrew
University of Jerusalem.

Gabriela
Hellerhasserved on our Board of Directors since September 2006. Ms. Heller
has an extensive financial experience as an accountant, Chief Financial Officer and
internal controller. Currently Ms. Heller serves as Chief Financial Officer of Walden
Israel Ltd., which is the management company of Walden Israel Ventures, various venture
capital funds operating in Israel. From 1989 to 1994 Ms. Heller served as Manager with
Kost Forer Gabbay & Kasierer  Ernst & Young Israel, one of the leading
accounting firms in Israel. In addition, from 1998 to 2000 Ms. Heller served as Internal
Controller to Vilar International Ltd., traded on TASE. Ms. Heller is currently serving on
the Board of Directors of Kerur Holdings Ltd, traded on TASE. From 2004 until 2007 she
served on the board of directors of Electra Consumer Products Ltd., from 1999 to 2003 Ms.
Heller served on the Board of Directors of Priortech, and from 2000 to 2003 served on the
Board of Directors of One1 Products Ltd. Ms. Heller is a CPA (Israel), holds a B.A. in
Accounting and Economics from the Hebrew University of Jerusalem, School of Business
Administration, and an LL.M from Bar Ilan University, Faculty of Law.

Rafi
Koriathas served on our Board of Directors since September 2006. Mr. Koriat has
extensive experience as Chief Executive Officer (CEO) and Board member in the
fields of semiconductor assembly and processing equipment, optical network components and
related emerging fields. Prior to his present position as founder and CEO of Korel
Business Ltd., which specializes in strategic positioning and guiding high tech companies
and management, Mr. Koriat was CEO of Lambda Crossing engaged in the manufacturing of
optical components for networks (2001-2006) and Founder and CEO of Steag CVD Systems Ltd.
and its subsidiary, Steag CVD Inc. in San Jose, California; both companies are
manufacturers of advanced front-end semiconductor capital equipment (1992-2001).
Previously, he worked for 20 years (1972 -1992) at Kulicke and Soffa Industries Inc. in
the United States and Israel as Corporate Vice President for Engineering and Technology,
Corporate Director for Business and Marketing and Division Manager. Mr. Koriat is also the
founder and chairman of the Sub Micron Semiconductor Consortium, OptiPac Consortium
(optical communication networks) and nanotechnology consortium (NES), under the Israel
Chief Scientist Magnet program. Mr. Koriat holds a B.Sc. from the Technion-Israel
Institute of Technology, a M.Sc. from Drexel University in Philadelphia, Pennsylvania and
completed an Executive Management Program at Stanford University.

38

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Eran
Bendoly has served on our Board of Directors since November 2000. Currently, Mr.
Bendoly serves as the Chief Financial Officer of Expand Networks Ltd. Expand is a leading
provider of WAN optimization technology. From 2006 to 2008 Mr. Bendoly served as Chief
Financial Officer of Personeta Inc., a leading vendor of intelligent network service
creation platforms. From 2003 to 2006, Mr. Bendoly served as Chief Executive Officer of
Xenia Management Ltd., which is the managing partner of Xenia Ventures LP, a limited
partnership that operates a technological incubator in Kiryat Gat, Israel. From 2000 to
2002, Mr. Bendoly served as Director of Finance for Europe, Middle East & Africa of
Mindspeed Technologies, Inc., a U.S.-based fabless semiconductor manufacturer. From 1998
to 2000, Mr. Bendoly served as Chief Financial Officer of Novanet Semiconductor Ltd., and
from 1996 to 1998, he served as Vice President, Finance and Operations of Novacom
Technologies Ltd. Mr. Bendoly holds a B.A. in International Relations from the Hebrew
University of Jerusalem and an M.B.A. from the KU Leuven University of Belgium.

Roy
Porat serves as GM Camtek Ltd. and President of our U.S. subsidiary, Camtek USA Inc.,
since March 2008. Previously, he has served as President of Camtek Hong Kong since
September 2003. From 2001 until September 2003, Mr. Porat served as
President of Camtek USA, Inc. From 1999 to 2000, Mr. Porat served as the Chief
Executive Officer of Aeronautics Ltd. From 1994 to 1999, Mr. Porat served in
various executive positions at our affiliate, PCB Technologies. Mr. Porat holds a
B.Sc. in Industrial Engineering from Technion  Israel Institute of Technology.

Mira
Rosenzweighas been employed by us since September 2008 as our Chief Financial
Officer. Previously, from 2001 to 2008, Ms. Rosenzweig served as Director of Finance
and in various other positions for Elron Electronic Industries Ltd., traded on Nasdaq and
TASE. Ms. Rosenzweig is a CPA (Israel) and holds a B.A in Accounting and Economics
from University of Haifa, Israel.

Miri
Saarhas been employed by us since March 2005 as Vice President Human Resources.
Previously, Ms. Saar served as HR Manager for Conexant Systems Israel from 2001 to 2005,
prior to which she served in other senior positions in several high-tech companies in
Israel. Ms. Saar holds a BA in English and Applied Linguistics from Tel-Aviv University,
Israel, and is also a registered mediator at the Ministry of Justice.

Moshe
Grencelhas been employed by us since January 2007, as Vice President Operations.
 Between 2004 and 2006 Mr. Grencel served as the Executive Vice President of Supply
Chain of Delta Galil, a leading company in the underwear textile industry.   From
2001 until 2004, Mr. Grencel served as Senior Vice President Operations of Lumenis, a
medical lasers manufacturer.  From 1983 until 2000, Mr. Grencel held various
executive positions with Elscint Ltd., a medical diagnostic equipment manufacturer. Mr.
Grencel holds a B.Sc. in Industrial Management from the Technion  Israel Institute
of Technology.

Michael
Levhas been employed by us since 1994 and has served as our Vice President,
Intellectual Property, since April 2007. From 1994 until April 2007 Mr. Lev held various
positions with the Company, in the printed circuit board and semiconductor manufacturing
and packing areas. Mr. Lev holds a M.Sc. in Electrical Communication from Azerbaijan
Polytechnic Institute.

Roni
Flieswasser established our European branch in September 1995, prior to the
establishment of Camtek (Europe) NV. Prior to joining Camtek, Mr. Flieswasser worked
with AOI systems at Orbotech, and was a partner for four years in a software company
specializing in business applications.

Aharon
Sela serves as President of Camtek Hong Kong since March 2008. Previously, from 2004
until March 2008, he served as V.P. Sales of the MEP Division at Camtek Europe and Camtek
Hong Kong. From 2002 until 2004 Mr. Sela served as Manager of Camtek Japan and previously
he served as Executive V.P. Sales and Marketing at Inspectech Ltd. (which was merged with
Camtek in 2001). Mr. Sela holds a B.Sc. in Electrical Engineering from Technion 
Israel Institute of Technology.

39

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|B. | Compensation.
|-- | -------------

# Compensation of
Executive Officers and Directors

The
aggregate remuneration paid by us in the year ended December 31, 2008 to all the
persons listed in Section A above (Directors and Senior Management), was approximately
$2,741,000, which includes $147,000 paid to provide pension, retirement or similar
benefits, as well as amounts expended by us for automobiles made available to all our
executive officers, and other fringe benefits commonly reimbursed or paid by companies in
Israel. Regulations promulgated under the Israeli Companies Law regulate the annual
remuneration and remuneration for participation in meetings of outside directors and the
reimbursement of their expenses. Messrs. Rafi Amit and Yotam Stern did not receive
any additional compensation for their service as our directors.

# Employment Agreements

We
maintain written employment agreements with our employees, including all of our executive
officers, that contain customary provisions, including non-compete and confidentiality
agreements. In recent years, Israeli courts have required employers seeking to enforce
non-compete undertakings of a former employee to demonstrate that the competitive
activities of the former employee will harm one of a limited number of material interests
of the employer. If we cannot demonstrate that we will be harmed by the competitive
activities of a former employee, we may be unable to prevent our competitors from
benefiting from the expertise of our former employees.

Effective
January 1, 1998, we entered into an employment agreement with Mr. Rafi Amit, our
Chief Executive Officer. The agreement has a two-year term, which is automatically renewed
at the end of every two years thereafter. The agreement contains confidentiality and
non-compete provisions for the term of Mr. Amits employment and for a two-year
period after the termination of his employment. Furthermore, the agreement provides that
all intellectual property developed by Mr. Amit, or in which he took part, in
connection with his employment, is our sole property. Pursuant to his employment
agreement, Mr. Amit may dedicate up to 20% of his time to work for Priortech or any
of the Priortech entities. Mr. Amit is currently engaged full time in his employment with
the Company. The employment agreement may be terminated by either party at any time, or
not renewed at the end of any successive two-year extension of its term, by written notice
of termination or non-renewal delivered to the other party six months in advance. We may,
however, immediately terminate the employment of Mr. Amit in various circumstances,
including a breach of fiduciary duty.

Effective
January 1, 1998, we entered into an employment agreement with Mr. Yotam Stern,
our Executive Vice President, Business & Strategy. The agreement has a two-year
term, which is automatically renewed at the end of every two years thereafter. The
agreement contains confidentiality and non-compete provisions for the term of
Mr. Sterns employment and for a two-year period after the termination of his
employment. Pursuant to his employment agreement, Mr. Stern may dedicate up to 40% of
his time to work for Priortech or any of the Priortech entities. The employment agreement
may be terminated by either party at any time, or not renewed at the end of any successive
two-year extension of its term, by written notice of termination or non-renewal delivered
to the other party six months in advance. We may, however, terminate Mr. Sterns
employment immediately upon the occurrence of various circumstances, including a breach of
fiduciary duty.

|C. | Board
Practices.
|-- | ----------------

# Composition of the Board
of Directors

Our
Articles provide that our Board of Directors shall consist of not less than five not more
than ten directors, including the outside directors. Currently, our board consists of five
directors.

Directors,
other than outside directors, are elected by a resolution of the shareholders at the
annual general meeting and serve until the conclusion of the next annual general meeting
of the shareholders. Directors may be removed at any time by a resolution of the
shareholders. Since directors may be elected and removed by a majority vote,
Priortech Ltd., which holds a majority of our voting shares, has the power to elect
all of our directors, subject to the restrictions placed on the election of outside
directors as described below. The Chief Executive Officer is appointed by our Board of
Directors. Each of the other officers is appointed by the Chief Executive Officer.

40

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The
Chairman of our Board of Directors and Chief Executive Officer is Mr. Rafi Amit.
Under the Israeli Companies Law, the Chief Executive Officer of a public company may not
hold the position of Chairman of the Board unless that designation is approved at the
general meeting of shareholders, by a vote of at least two-thirds of the non-controlling
shareholders attending the meeting and voting on the resolution. This approval requirement
need not be met if the total number of shares not held by controlling shareholders of the
company which are voted against the resolution represents 1% or less of all of the voting
rights. The designation may be approved for a term of up to three years and may be
re-approved by the same majority for an additional three-year term each time. At our
annual general shareholders meeting to be held on April 20, 2009, our shareholders
will be requested to authorize Mr. Rafi Amit to continue to hold the position of
Chairman of the Board for an additional period of three years.

Our
Articles provide that any director may appoint as an alternate director, by written notice
to us or to the Chairman of the Board, any individual who is qualified to serve as
director and who is not then serving as a director or alternate director for any other
director. An alternate director has all of the rights and obligations of a director,
excluding the right to appoint an alternate for him-self. Currently no alternate directors
serve on our board.

Messrs. Rafi
Amit, Yotam Stern and Eran Bendoly are each serving an approximately one-year term, which
expires at our 2009 annual general meeting of shareholders. Each of our outside directors,
Messrs. Gabriela Heller and Rafi Koriat, is serving a three-year term in accordance
with the Israeli Companies Law, which expires in September 2009. At our 2009 annual
general meeting of shareholders, it is proposed to reappoint both of them for a further
three-year-term, until September 2012.

None
of the members of our Board of Directors, except Messrs. Rafi Amit and Yotam Stern,
is a party to a service contract with us, which would provide them with benefits upon
termination of employment.

# Outside Directors;
Independent Directors

Under
the Israeli Companies Law, public Israeli companies are required to appoint at least two
directors who qualify as outside directors under Israeli law.

The
outside directors must not have any relationship with us. For this purpose,
relationship means any employment, business or professional relations, either
in the present or in the preceding two years. An individual whose relatives, business
partners, employers or controlled companies have a relationship with us may not serve as
an outside director. In addition, an individual whose other business affairs may cause a
conflict of interest with the performance of his duties as an outside director or
interfere with his ability to serve as such may not serve as an outside director. Also, at
least one of the outside directors must have financial and accounting expertise and the
other must have professional qualifications, as defined in regulations promulgated under
the Israeli Companies Law.

Outside
directors are elected by a majority of the shares present and voting at the shareholders
meeting. In addition, the shares voted in favor of their election must include at least
one third of the shareholdings present and voting at the meeting, not counting
abstentions, which are not held by controlling shareholders of the company. This minority
approval requirement need not be met if the total number of shares not held by controlling
shareholders of the company which are voted against the election of an outside director
represents 1% or less of all of the voting rights.

Each
of our outside directors serves a three-year term, and may be re-elected to serve in this
capacity for one additional term of up to three years, and afterwards, as the Company is a
dual listed company, may be re-elected for additional terms of up to three years each,
provided that prior to their election by a majority of the shares present and voting at
the shareholders meeting, such election is approved by the Companys Audit Committee
and Board of Directors, on terms referred to in relevant regulations. An outside director
can be removed from office only by either the same percentage of shareholders that may
elect him, or by a court order. In either case, an outside director may be removed only if
the outside director ceases to meet the statutory qualifications for serving as an outside
director or breaches his fiduciary duty. The court may also remove an outside director
from office if he or she is unable to perform his or her duties on a regular basis. If at
the time an outside director is appointed by the shareholders, all other directors are of
the same gender, the outside director to be appointed shall be of the other gender.

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Neither
we nor our subsidiaries may, prior to the lapse of two years after the termination of
membership on our board of any of our outside directors, employ such former outside
director, engage him or her to serve as an executive officer or director for us or retain
his or her professional services.

Ms. Gabriela
Heller and Mr. Rafi Koriat currently serve as our outside directors.

The
Sarbanes-Oxley Act of 2002, as well as related rules subsequently implemented by the
Securities and Exchange Commission, or the SEC, and the Nasdaq Global Market, or Nasdaq,
require foreign private issuers, such as us, to comply with various corporate governance
practices. Nevertheless, the Company has decided to opt-out of certain of these practices
and follows its home country practice pursuant to Nasdaq Rule 4350(a), as disclosed in
Item 16G  Corporate Governance.

We
believe that we are currently in compliance with, and we intend to take all actions
necessary for us to maintain compliance with, the applicable corporate governance
requirements of the Sarbanes-Oxley Act, the rules adopted by the SEC and the listing
standards of Nasdaq.

Under
the Nasdaq listing requirements, we are required to have a majority of independent
directors on our Board of Directors. Ms. Gabriela Heller and Messrs. Rafi Koriat and
Eran Bendoly all qualify as our independent directors under Nasdaq rules.

# Internal Auditor

The
board of directors of an Israeli public company must appoint an internal auditor proposed
by the audit committee. The role of the internal auditor is to examine, among other
things, the compliance of the companys conduct with applicable law and orderly
business procedures. An internal auditor may not hold any other position in the company,
have any business affairs outside of the company which may create a conflict of interest
with his or her duties as internal auditor or be an interested party. For this
purpose, an interested party is a person who holds 5% or more of the
companys shares, serves as or has the power to appoint a director or the chief
executive officer of the company, is otherwise personally employed by the company or
serves on its board or is a relative of any of these parties. The only exception to the
rule against an internal auditor being employed by the company is that the internal
auditor may serve as an ombudsman, provided that this does not interfere with the
performance of the duties of the internal auditor. In addition, the internal auditor may
not be a member of the companys independent accounting firm. We currently have an
internal auditor who meets the independence requirements of Israeli law.

# Committees of the Board
of Directors

The
Israeli Companies Law provides that a public company must appoint an audit committee and
may also appoint other committees to the board of directors, unless otherwise specified in
the Companys Articles. The board of directors may delegate its powers to such
committees of the board of directors as it deems appropriate, subject to the provisions of
the Israeli Companies Law. Powers that may not be delegated include, among others, the
power to distribute dividends, the determination of general company policy, the issuance
of securities, the issuance of shares (unless such issuance is under an employee share
option plan) and the approval of financial reports. However, those matters can be
delegated to committees for the purpose of making recommendations to the full board of
directors. According to the Companies Law, a committee to which powers have been delegated
shall be composed only of directors. However, a committee whose purpose is only to make a
recommendation can be composed of non-directors unless otherwise specified in the
Companys Articles. According to the Companies Law, at least one outside director
must be appointed to serve on each committee of the board, excluding the audit committee,
which must be comprised of at least three directors, including all of the outside
directors of the Company. However, the Sarbanes-Oxley Act and the Nasdaq listing
requirements require that all members of the audit committee be independent. The audit
committee may not include the chairman of the board, any director who is employed by the
company or regularly provides service to it, a controlling shareholder, or a relative of
any such individual. Our Board of Directors has an audit committee and a compensation
committee.

42

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Audit Committee. The Audit Committee oversees and approves the retention, performance
and compensation of our independent registered public accounting firm and establishes and
oversees the implementation of procedures concerning our systems of internal accounting
and auditing control. The Audit Committee is also responsible for identifying deficiencies
in the management of our business and proposing solutions for any such deficiencies, and,
in accordance with the Israeli Companies Law and the Sarbanes-Oxley Act, approving certain
acts and transactions that involve conflicts of interest or that involve interested
parties. The members of our Audit Committee are Ms. Gabriela Heller and Messrs. Eran
Bendoly and Rafi Koriat, all of whom are independent directors in accordance with Nasdaq
listing requirements. Mr. Bendoly and Ms. Heller qualify as financial experts for
purposes of the Sarbanes-Oxley Act and the Nasdaq listing requirements, and
Ms. Heller and Mr. Koriat qualify as outside directors under Israeli Companies Law.

Compensation Committee. The
Compensation Committee reviews and makes recommendations to our board concerning the terms
of the compensation packages provided to our employees, including our executive officers,
and the terms of any bonus, share options or other awards to be provided to our employees,
including our executive officers. Under Israeli law, all compensation arrangements with a
general manager who is not a director require the approval of the board of directors.
Arrangements regarding the compensation of directors require approval of the audit
committee, the board of directors and the shareholders, in that order, and if the director
holds a controlling interest in the company, special shareholder approvals are required.
See Duties of Office Holders and Approval of Transactions under Israeli Law.
The members of our Compensation Committee are Ms. Heller and Messrs. Koriat and
Bendoly.

# Duties of Office Holders
and Controlling Shareholders and Approval of Transactions under Israeli Law

# Office Holders

The
Israeli Companies Law codifies the duty of care and the fiduciary duties that office
holders have towards the company. An office holders duty of care includes the duty
to act as a reasonable office holder would have acted in the same position and
under the same circumstances. An office holders fiduciary duty requires the office
holder to act in good faith and for the good of the company, which includes:

| |  | avoiding
 conflicts of interest  between the office  holder's  position  with the company and his
         personal affairs;
| | - | ----------------------------------------------------------------------------------------------------------------------------

| |  | avoiding
any competition with the company;
| | - | ------------------------------------------

| |  | avoiding
the exploitation of the company's business opportunities for personal gain; and
| | - | ----------------------------------------------------------------------------------------

| |  | revealing
to the company any information or documents relating to the companys affairs which
the office holder has received due to his position.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------

An office holder, under
the Israeli Companies Law, is anyone serving, regardless of formal title, as a director,
general manager, chief executive officer, executive vice president, vice president, or any
other executive reporting directly to the general manager. Each person listed in the table
under Directors and Senior Management is one of our office holders. All
arrangements as to compensation of office holders who are neither directors nor
controlling shareholders are approved by our compensation committee. The compensation of
office holders who are directors or controlling shareholders, and any other employee who
is a controlling shareholder or a close relative of such controlling shareholder, as
defined in the Companies Law, must also be approved by our Audit Committee, our Board of
Directors and our shareholders, in that order. Special shareholder voting procedures are
required for the approval of compensation of office holders or employees who are also
controlling shareholders or any relative thereof.

# Disclosure of Personal
Interest

The
Israeli Companies Law requires an office holder or controlling shareholder of a public
company to disclose any personal interest in an existing or proposed transaction with the
company, no later than at the first board meeting in which the transaction is discussed. A
personal interest also includes an interest in any company in which the person, his or her
close relative or any entity in which such person or close relative has a personal
interest, is a direct or indirect 5% or greater shareholder, is a director or the general
manager or has the right to appoint at least one director or the general manager. Board
approval is required to approve the transaction, and no transaction that is adverse to the
companys interest may be approved. Approval by the companys audit committee
and board of directors is required for an extraordinary transaction, meaning any
transaction that is not in the ordinary course of business, is not on market terms or is
likely to have a substantial effect on the companys profitability, assets or
liabilities. A director who has a personal interest in a matter may not be present at a
board of directors or audit committee meeting during discussions or vote on the matter.
However, a director with a personal interest may be present if the transaction to be
discussed is not an extraordinary transaction, or if a majority of the audit committee
members or the directors, as the case may be, has a personal interest in the matter. If a
majority of the board of directors or the audit committee has a personal interest in the
transaction, shareholder approval is also required.

43

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# Transactions with
Controlling Shareholders

A
controlling shareholder is a shareholder who has the ability to direct the activities of a
company, including a shareholder who holds 25% or more of the voting rights if no other
shareholder holds more than 50% of the voting rights. Under Israeli law, the disclosure
requirements regarding personal interests that apply to directors and office holders also
apply to a controlling shareholder of a public company.

Required Approval.
Extraordinary transactions with a controlling shareholder and a controlling
shareholders close relative or in which a controlling shareholder (or its relative)
has a personal interest, and the terms of compensation of a controlling shareholder or a
relative of a controlling shareholder who is a director, executive officer or employee,
require the approval of the audit committee, the board of directors and the shareholders
of the company. This shareholder approval must include the majority of shares voted at the
meeting. In addition, either:

| |  | the
majority must include at least one-third of the shares of  disinterested  shareholders
 voted          at the meeting; or
| | - | -----------------------------------------------------------------------------------------------------------------------------

| |  | the
total number of shares of disinterested shareholders voted against the transaction must
not exceed one percent of the aggregate voting rights in the company.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

A shareholder who participates in
this vote must provide notice to the company prior to voting, stating whether such
shareholder has a personal interest in the transaction. In the absence of this notice, the
shareholder may not vote on the matter, and his or her vote shall not be counted.

Approval of Certain Specific
Extraordinary Transactions. According to regulations promulgated under the Israeli
Companies Law, the following specific kinds of extraordinary transactions with a
controlling shareholder do not require shareholder approval, provided that the audit
committee and the board of directors have approved the transaction and determined that it
is one of the following:

| |  | the
extension of an existing transaction which was previously approved in accordance with the
Israeli Companies Law, provided no material change has been made to the terms of the
extended transaction;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a
transaction that benefits only the company;
| | - | ---------------------------------------------

| |  | a
transaction made in accordance with the terms of a framework  transaction  previously
 approved          in accordance with the requirements of the Israeli Companies Law;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a
transaction constituting part of a transaction with a third party or a joint offer to
contract with a third party, provided that the benefit to the company does not materially
differ than that to the controlling shareholder, taking into account the proportional
interest of each of the parties; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a
transaction between companies controlled by a common controlling shareholder or between a
public company and its controlling shareholder or a third party, in whom the controlling
shareholder has a personal interest, provided that the transaction is on market terms, is
in the ordinary course of business and does not adversely affect the interests of the
company.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# Insurance,
Indemnification and Exemption

Our
Articles provide that, subject to the provisions of the Israeli Companies Law, we may:

|(1) | Obtain
insurance for our office holders covering their liability for any act
               performed in their respective capacities as an office holder with respect
to:
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a
violation of the duty of care to us or to another person;
| | - | -----------------------------------------------------------

| |  | a
breach of fiduciary duty, provided that the office holder acted in good faith and had
reasonable grounds to assume that the act would not cause us harm; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a
monetary liability imposed on an office holder for the benefit of another person.
| | - | -----------------------------------------------------------------------------------

|(2) | Undertake
to indemnify our office holders or to indemnify an office holder
               retroactively for a liability imposed or approved by a court, and for
reasonable                legal fees incurred by the office holder in his or her capacity
as an office                holder, in proceedings instituted against the office holder
by the company, on                its behalf or by a third party, in connection with
criminal proceedings in which                the office holder was acquitted, or in
connection with criminal proceedings or                other proceedings in which the
office holder was investigated but not indicted,                or as a result of a
conviction for a crime that does not require proof of                criminal intent or
as result of proceeding in which a monetary liability was                imposed
regarding a crime that does not require proof of criminal intent. An
               advance undertaking to indemnify an office holder must be limited to
categories                of events that can be reasonably foreseen in light of the
Companys                activities, and to an amount which is reasonable under the
circumstances, as                determined by the board of directors.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We
may exempt, in advance, an office holder from all or part of his or her responsibility for
damages occurring as a result of a breach of his or her duty of care. However, we may not
exempt, in advance, an office holder for breach of his or her duty of care in respect of
distribution of dividends. We may also approve an action taken by the office holder, even
if performed in breach of his or her fiduciary duty, if the office holder was acting in
good faith, the action does not adversely affect us and the office holder has revealed to
the board his or her personal interest in the action.

Notwithstanding
the foregoing, we may not insure, indemnify or exempt an office holder for any breach of
his or her fiduciary duty, or for a violation of his or her duty of care (1) if the
act was committed recklessly or with intent, or (2) if the act was committed with the
intent to realize improper personal gain, or (3) for any fine imposed on the office
holder, except as provided above.

As
required under Israeli law, our Audit Committee, Board of Directors and shareholders have
approved the indemnification and insurance of our office holders, as well as the
resolutions necessary both to exempt our office holders in advance from any liability for
damages arising from a breach of their duty of care to us, and to provide them with the
indemnification undertakings and insurance coverage they have received from us in
accordance with our Articles.

45

---

---

|D. | Employees.
|-- | ----------

# Employees

The
following table sets forth for the last three years, the number of our employees engaged
in the specified activities at the end of each year:

| |                          | As of December 31,
| | ------------------------ | ------------------
|
|
|
|
| | Executive management     |                   
| | Research and development |                   
| | Sales support            |                   
| | Sales and marketing      |                   
| | Administration           |                   
| | Operations               |                   
| | Total                    |                   

The
following table sets forth for the last three years, the number of our employees located
in the following geographic regions at the end of each year:

| |                             | As of December 31,
| | --------------------------- | ------------------
|
|
|
|
| | China (including Hong Kong) |                   
| | Taiwan                      |                   
| | Japan                       |                   
| | Other Asia                  |                   
| | Europe                      |                   
| | North America               |                   
| | Israel                      |                   
| | Total                       |                   

During
the first half of 2008 the Company expanded its workforce, mainly in the departments of
Research and Development, Operations and Sales Support. However, in November 2008 and
February 2009, in light of the severe global slowdown, the Company has implemented a cost
reduction plan, one element of which involved reductions in its global work force. On
November 2008 the reduction included about 55 employees and represented about 12% of the
Companys total workforce and on February 2009 the second reduction included 68
employees, representing about 14% of its then total workforce. The Company will not record
material costs relating to termination benefits to employees who ceased their employment
due to the workforce reductions.

In
2007 we adjusted our cost structure, in light of the revenues reduction compared to
previous year, resulting in a decrease in the number of employees by 14%, from 534 to 456
employees.

With
respect to our Israeli employees, we have no collective bargaining agreements with our
employees. However, by administrative order, certain provisions of the collective
bargaining agreements between the Histadrut (General Federation of Labor in Israel) and
the Coordination Bureau of Economic Organizations, relating primarily to the length of the
work day, minimum wages, pension contributions, insurance for work-related accidents,
procedures for dismissing employees, determination of severance pay and other conditions
of employment, are applicable to our employees. In accordance with these provisions, the
salaries of our Israeli employees are partially indexed to the Consumer Price Index in
Israel, depending on the rate of increase of the Consumer Price Index.

We
consider our relationship with our employees to be good, and we have never experienced a
labor dispute, strike or work stoppage.

|E. | Share
Ownership.
|-- | ----------------

The
following table sets forth certain information with respect to the beneficial ownership of
our outstanding ordinary shares by our directors and executive officers.

Beneficial
ownership is determined in accordance with the rules of the SEC and generally means sole
or shared power to vote or direct the voting or to dispose or direct the disposition of
any ordinary shares. Except as indicated by footnote, the persons named in the table below
have sole voting and investment power with respect to all ordinary shares shown as
beneficially owned by them. The percentage of beneficial ownership is based upon
29,135,108 ordinary shares outstanding as of March 31, 2009.

46

---

---

|Name                    | Number of Ordinary
Shares Owned(1) | Percentage of Total
Outstanding Ordinary
Shares
|----------------------- | ---------------------------------- | -----------------------------------------------
|
|
|
|
|Rafi Amit(2)            |                                    |                                                
|Yotam Stern(3)          |                                    |                                                
|Directors and executive |                                    |                                                
|officers as a group (14 |                                    |                                                
|persons)(4)             |                                    |                                                

|(1) | Ordinary
shares relating to options currently exercisable or exercisable within           60 days
of the date of this Annual Report are deemed outstanding for computing           the
percentage of the persons holding such securities but are not deemed
          outstanding for computing the percentage of any other person. As of the date of
          this Annual Report, the total number of options held by the persons included in
          the above table, that are currently exercisable or exercisable within 60 days
of           the date hereof, is 87,240.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Mr.
Amit  directly  owns 56,560 of our ordinary  shares.  In addition,  as a result of a
voting                      agreement  relating  to a majority  of  Priortech's  voting
 equity,  Mr.  Amit may be deemed to                      control  Priortech.  As a
 result,  Mr.  Amit may be deemed to  beneficially  own the  shares of
                     Camtek held by Priortech.  Mr. Amit disclaims beneficial ownership
of such shares.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Mr.
Stern  directly owns 113,800 of our ordinary  shares.  In addition,  as a result of a
voting                      agreement  relating to a majority  of  Priortech's  voting
 equity,  Mr.  Stern may be deemed to                      control  Priortech.  As a
result,  Mr.  Stern may be deemed to  beneficially  own the  shares of
                     Camtek held by Priortech.  Mr. Stern disclaims beneficial ownership
of such shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes
Messrs. Amits and Sterns interest in ordinary shares beneficially owned by
Priortech. Our directors and executive officers as a group directly own 334,750 of our
ordinary shares. Each of our directors and executive officers, other than Messrs. Amit
and Stern, beneficially owns less than 1% of our outstanding ordinary shares as of March
31, 2009 (including options held by each such person which have vested or will vest
within 60 days of March 31, 2009) and have therefore not been listed separately.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Restricted Share Unit
and Option Plans

General.
          We currently maintain one restricted share unit plan and five share option
          plans. The purpose of our restricted share unit and option plans is to afford an
          incentive to our officers, directors, employees and consultants and those of our
          subsidiaries, to acquire a proprietary interest in us, to increase their efforts
          on our behalf and to promote the success of our business.

Restricted Share Unit
Plan. In August 2007, the Company approved the 2007 Restricted Share Unit
Plan (the RSU Plan), for the grant of restricted share units, each of which
imparts the right to an ordinary share of the Company, to selected employees, officers,
directors and consultants of the Company. The RSU Plan is being administered by our Board
of Directors.

The total number of RSUs to be
granted pursuant to the RSU Plan is 300,000, out of which 176,500 have been granted as of
the date of this Annual Report.

47

---

---

Under the RSU Plan, RSUs are granted
for no consideration and the exercise price for each grantee is no more than the
underlying shares nominal value, unless otherwise determined by the Board. The RSUs
vest according to a four-year vesting schedule, with 25% of the shares vest on the first
anniversary of the date of grant and the remaining vesting on a quarterly basis.

We have filed a registration
statement on Form S-8 under the Securities Act of 1933, as amended, to register the
ordinary shares issuable under the RSU Plan. Ordinary shares issued pursuant to the RSU
Plan are eligible for resale in the public market, subject to restrictions on resales by
affiliates.

Option Plans.

General.
          As of December 31, 2008, there were 685,491 outstanding options to acquire
          our ordinary shares pursuant to our share option plans at a weighted average
          exercise price of $3.12, exercisable at various dates through July 2015.
          Future options to be granted by us to our employees, officers, directors and
          consultants or those of our affiliates will only be made pursuant to the 2003
          Share Option Plan.

Administration of Our Share Option
Plans. Our option plans are administered by our Board of Directors. Under these option
plans, options to purchase our ordinary shares may also be granted to our officers,
directors, employees or consultants and those of our subsidiaries. The exercise price of
options is determined, under our option plans, by our Board of Directors, and is generally
set as the fair market value (although some options are exercisable for no additional
consideration and are the equivalent of restricted stock grants). The vesting schedule of
the options is also determined by the Board of Directors; generally the options vest over
a four-year period. Each option granted under the option plans is exercisable between four
to ten years from the date of the grant of the option, according to the plan under which
they were granted and subject to certain early expiration provisions, such as in the event
of termination.

The Share Option Plans. In
September 1997, we adopted a share option plan under which options to purchase our
ordinary shares were granted to employees, as determined by the board from time to time.
This plan was amended in 2000 and in 2003, each time in order to comply with new Israeli
tax legislation.

In
November 2000, we adopted three share option plans: the Executive Share Option Plan,
the US Incentive Stock Option Plan and the European Employee Share Option Plan. Under
these plans, options were granted to employees, directors, executive officers and
consultants of our company and our affiliates around the world.

In
October 2003, we adopted our 2003 Share Option Plan and its corresponding Sub-Plan
for Grantees Subject to United States Taxation and Sub-Plan for Grantees Subject to
Israeli Taxation. The total number of options that may be granted under the 2003 Share
Option Plan is 998,800 options.

Options Granted During 2008.
During 2008 we did not grant any options to employees.

Options Granted During 2007.
During 2007 we granted 45,000 options to employees at a weighted average exercise price of
$4.32, a price that reflected the price of the share in the market at the grant date.
These options are subject to the terms of the 2003 Share Option Plan.

We
have filed registration statements on Form S-8 under the Securities Act of 1933, as
amended, to register the ordinary shares issuable under all of our option plans. Ordinary
shares issued pursuant to these share option plans are eligible for resale in the public
market, subject to restrictions on re-sales by affiliates.

As
of December 31, 2008, there were options exercisable and vested for 617,491 ordinary
shares (out of the total outstanding options of 685,491) at a weighted average exercise
price of $2.99 per share, and unvested options exercisable for 68,000 ordinary shares at a
weighted average exercise price of $4.41.

48

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|Item 7. |  | Major Shareholders and Related Party Transactions.
|------- |  | --------------------------------------------------

|A. | Major
Shareholders.
|-- | -------------------

The
following table provides information regarding the beneficial ownership of our ordinary
shares as of March 31, 2009, as to each person or entity who beneficially owns more than
5.0% of our outstanding ordinary shares. None of these shareholders has different voting
rights than any of the Companys other shareholders.

Beneficial
ownership is determined in accordance with the rules of the SEC and generally means sole
or shared power to vote or direct the voting or to dispose or direct the disposition of
any ordinary shares. Except as indicated by footnote, the person named in the table below
has sole voting and investment power with respect to all ordinary shares shown as
beneficially owned by it. The percentage of beneficial ownership is based upon 29,135,108
ordinary shares outstanding as of March 31, 2009.

|               | Beneficial Ownership
|-------------- | --------------------
|
|
|
|
|Priortech Ltd. |                     

*A majority of the voting equity in
Priortech Ltd. is subject to a voting agreement. As a result of this agreement, Messrs.
Rafi Amit, Yotam Stern and Itzhak Krell may be deemed to control Priortech Ltd. The voting
agreement does not provide for different voting rights for our major shareholder than the
voting rights of other holders of our ordinary shares. Priortechs principal
executive offices are located at South Industrial Zone, Migdal HaEmek 23150, Israel.

As of March 31, 2009, there were a
total of 9 holders of record of our issued and outstanding ordinary shares, of which 7
were registered with addresses in the United States. Such United States holders were, as
of such date, the holders of record of approximately 36.1% of our issued and outstanding
ordinary shares. The number of record holders in the United States is not representative
of where such beneficial holders are resident because many of these ordinary shares were
held of record by brokers or other nominees.

|B. | Related
Party Transactions.
|-- | ---------------------------

# Ordinary Course
Transactions and Activities with Priortech and its Affiliates

From
time to time we have entered into transactions in the ordinary course of business with
Priortech and its affiliates. Our purchases of materials, such as PCBs and assembled PCBs
from Priortech and its affiliates, totaled $467,000, $27,000 and $407,000 in 2008, 2007
and 2006, respectively. In addition, we purchase bare PCBs and assembled PCBs from a
Priortech subsidiary for the development and manufacture of our systems so long as the
price charged and other payment terms is comparable to the best offer we could obtain from
a third party. Our total revenues from sales to affiliates of Priortech totaled
$2,099,000, $958,000 and $2,076,000 in 2008, 2007 and 2006, respectively. We act jointly
with Priortech with regard to various governmental, administrative and commercial matters,
which we believe is to the mutual advantage of both parties. Unpaid balances between
Priortech and its subsidiaries in Israel and us bear interest at 5.5%. As of December 31,
2008, the remaining balance Priortech and its affiliates owed us under transactions made
in the ordinary course of business with them was $376,000.We believe that these
transactions and activities were conducted on terms and conditions as favorable to us as
those which we could have entered into with unaffiliated third parties.

49

---

---

# Registration Rights
Agreement with Priortech

On
March 1, 2004, we entered into a registration rights agreement providing for us to
register with the SEC certain of our ordinary shares held by Priortech. This registration
rights agreement may be used in connection with future offerings of our ordinary shares,
and includes, among others, the following terms: (a) Priortech is entitled to make up
to three demands that we register our ordinary shares held by Priortech, subject to delay
due to market conditions; (b) Priortech will be entitled to participate and sell our
ordinary shares in any future registration statements initiated by us, subject to delay
due to market conditions; (c) we will indemnify Priortech in connection with any
liabilities incurred in connection with such registration statements due to any
misstatements or omissions other than information provided by Priortech, and Priortech
will indemnify us in connection with any liabilities incurred in connection with such
registration statements due to any misstatements or omissions in written statements by
Priortech made for the purpose of their inclusion in such registration statements; and
(d) we will pay all expenses related to registrations which we have initiated, except
for certain underwriting discounts or commissions or legal fees, and Priortech will pay
all expenses related to a registration initiated at its demand in which we are not
participating.

On
December 30, 2004, the Registration Rights Agreement with Priortech was amended. The
amendment concerns primarily the grant of unlimited shelf registration rights thereunder
to Priortech with respect to its holdings in us, and the assignability of those shelf
registration rights to its transferees.

# Employment Agreements
with Messrs. Rafi Amit and Yotam Stern

Effective
January 1, 1998, we entered into an employment agreement with Mr. Rafi Amit, our
Chief Executive Officer. Pursuant to his employment agreement, Mr. Amit may dedicate
up to 20% of his time to work for Priortech or any of the Priortech entities (for further
details see Employment Agreements).

Also
effective January 1, 1998, we entered into an employment agreement with
Mr. Yotam Stern, our Executive Vice President, Business & Strategy. Pursuant
to his employment agreement, Mr. Stern may dedicate up to 40% of his time to work for
Priortech or any of the Priortech entities (for further details see Employment
Agreements).

Mr. Rafi
Amit works on a full time basis for us and therefore receives a full time salary, while
Mr. Yotam Stern receives from us 60% of a full time salary. Mr. Stern is
compensated directly by each of the Priortech entities for which he works. Mr. Rafi
Amit also serves as the Chairman of Priortech, and Mr. Yotam Stern also serves as the
Chief Executive Officer and as a director of Priortech.

Messrs. Amit
and Stern do not receive any additional compensation for their service as our directors.

|C. | Interests
of Experts and Counsel.
|-- | ---------------------------------

Not
Applicable.

|Item 8. |  | Financial Information.
|------- |  | ----------------------

|A. | Consolidated
Statements and Other Financial Information.
|-- | --------------------------------------------------------

Please
see the consolidated financial statements listed in Item 18 for audited consolidated
financial statements prepared in accordance with this Item.

# Legal Proceedings

On
May 10, 2004, a lawsuit was filed against us in the District Court in Nazareth, Israel, by
our competitor, Orbotech Ltd., alleging that the Dragon and Falcon systems infringe upon a
patent held by Orbotech Ltd. and requesting an injunctive relief and damages. Currently,
the issue dealt with by the court is the validity of the asserted patent, which expired in
February 2008. Also, the court advised the parties to turn to mediation. We believe that
we have substantial defenses against the validity of Orbotechs patent and
substantial defenses against Orbotechs claims. Accordingly, no provision has been
recorded by us.

50

---

---

On
February 23, 2005, a lawsuit was filed against us in the District Court in Jerusalem by
Orbotech Ltd., alleging infringement of patent held by Orbotech Ltd. regarding a specific
illumination block (an apparatus for illuminating and controlling the illumination of
scanned objects), seeking injunctive relief and damages. The court ruled, based on a
courts scientific advisors opinion and prime facie evidence only, that
Camtek infringed the patent, and granted Orbotech a provisional remedy, i.e. interim
relief, which prevents Camtek from manufacturing the allegedly infringing illumination
block in suit. The claim is currently in the preliminary stage of discovery and only after
evidence is presented and cross examinations are conducted will a final judgment be
rendered by the District Court, subject to the right to appeal. Among others, the Company
has filed two motions for the lawsuit to be dismissed, both still pending. As detailed
with respect to the lawsuit in the District Court in Nazareth above, the parties are due
to attend a mediation meeting. We believe that we have good defenses in the infringement
aspect of the claim. The Company further believes that it has claims with respect to the
validity of the asserted patent, as well as other defenses such as estoppel and lack of
good faith on the part of Orbotech. Accordingly, no provision has been recorded by us.

On July 14, 2005, a lawsuit was filed
against the Company in the United States District Court for the District of Minnesota by
one of the Companys competitors in the field of semiconductor manufacturing and
packaging, August Technology Corporation (today Rudolph Technologies Inc. together with
August Technology Corporation), alleging infringement of a patent and seeking injunctive
relief and damages. On March 6, 2009 a jury verdict was rendered in favor of Rudolph,
awarding damages of approximately $6.8 million with regard to sales of Camteks
Falcon products in the United States. The jury also found that the infringement was not
willful. As of the date of this Annual Report, no judgment has been entered with respect
to this verdict. On March 27, 2009, plaintiffs filed a motion for entry of judgment,
permanent injunction, prejudgment interest and a request for an accounting for
supplemental damages. The Company believes this motion is premature at least until the
Companys motions on invalidity and the remaining issues relating to inequitable
conduct are resolved. As a result, the Company will be filing a motion to stay a decision
on plaintiffs March 27 motion shortly.  The alleged infringement refers to a US
patent only, and, therefore, any injunction, if issued, would not have any effect
anywhere other than in the United States. Camtek intends to aggressively pursue motions
for a new trial and/or for judgment in its favor notwithstanding the verdict, as well as
an appeal, if necessary. We believe that we have good grounds to be ultimately successful
after such motions and appeal, if necessary. Although it is difficult to estimate the
outcome of a patent infringement case, and while estimating the outcome of litigation can
never be a precise exercise, we believe that the probability that plaintiffs will be
ultimately successful (after motions and after appeal, if necessary) is less than 50%.
Accordingly, no provision has been recorded by us.

On March 7, 2008, a purported class
action complaint (the Class Action Complaint), Yuval Lapiner v. Camtek,
Ltd. et al., was filed in the United States District Court for the Northern District of
California on behalf of purchasers of our ordinary shares between November 22, 2005 and
December 20, 2006. The Class Action Complaint names the Company and certain of our
directors and officers as defendants. It alleges that the defendants violated Sections
10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, and breached
fiduciary duties by making false and misleading statements in the Companys SEC
filings and press releases. The plaintiffs seek unspecified compensatory damages against
the defendants, as well as attorneys fees and costs. We filed a motion to dismiss
the CAC, as amended, on February 17, 2009. The hearing on this motion is currently set for
June 5, 2009. We do not believe that the Class Action Complaint has merit and intend to
defend ourselves vigorously. Accordingly, no provision has been recorded by us.

On July 2005, the Company, together
with our parent company, Priortech Ltd., filed a lawsuit in Israel against Orbotech Ltd.,
in respect of damages in the amount of $4.1 million incurred by it due to a claim and a
motion for injunction filed against the Company by Orbotech in May 2004, in the District
Court in Nazareth. The Company believes that Orbotechs claim and motion against it
were not filed in good faith, but in order to thwart Camteks secondary public
offering that was scheduled few days after the submission of Orbotechs claim and
motion and was supposed to approximately $40 million for the Company and Priortech Ltd.
Preliminary stage proceedings have recently been completed. Trial is scheduled to continue
on or around May 2009.

We are not a party to any other
material legal proceedings.

|B. | Significant
Changes.
|-- | --------------------

There
have been no significant changes since the date of the financial statements included in
this Annual Report.

51

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|Item 9. |  | The Offer and Listing.
|------- |  | ----------------------

|A. | Offer
and Listing Details.
|-- | --------------------------

# Price History of
Ordinary Shares

Since
April 22, 2004, the primary trading market for our ordinary shares has been the
Nasdaq Global Market, where our ordinary shares are listed and traded under the symbol
CAMT. From February 5, 2003 through April 21, 2004, our ordinary
shares were listed and traded on the Nasdaq SmallCap Market, and from July 28, 2000
through February 4, 2003, our ordinary shares were listed and traded on the Nasdaq
National Market.

For
the period between November 26, 2001 and October 21, 2003, our ordinary shares
were also listed on the Tel Aviv Stock Exchange, or TASE. During such period, the trading
activity in our ordinary shares on the TASE was insignificant. At our request, our
ordinary shares were de-listed from the TASE. In December 2005, we re-listed our ordinary
shares in the TASE.

The
following table sets forth, for the periods indicated, the high and low reported sales
prices of our ordinary shares:

|                                                      | TASE (1) | Nasdaq
|----------------------------------------------------- | -------- | ------
|
|
|
|
|Annual and Quarterly Market Prices                    |          |       
|Fiscal Year Ended December 31, 2004:                  |          |       
|Fiscal year ended December 31, 2005:                  |          |       
|Fiscal year ended December 31, 2006:                  |          |       
|2007:                                                 |          |       
|First Quarter                                         |          |       
|Second Quarter                                        |          |       
|Third Quarter                                         |          |       
|Fourth Quarter                                        |          |       
|Fiscal Year Ended December 31, 2007:                  |          |       
|2008:                                                 |          |       
|First Quarter                                         |          |       
|Second quarter                                        |          |       
|Third Quarter                                         |          |       
|Fourth Quarter                                        |          |       
|Fiscal Year Ended December 31, 2008:                  |          |       
|First Quarter 2009:                                   |          |       
|Second Quarter 2009 through April 1, 2009             |          |       
|Monthly Market Prices for the Most Recent Six Months: |          |       
|October 2008                                          |          |       
|November 2008                                         |          |       
|December 2008                                         |          |       
|January 2009                                          |          |       
|February 2009                                         |          |       
|March 2009                                            |          |       

|1) | The
closing prices of our ordinary shares on the TASE have been translated into
                    U.S. dollars, using the daily representative rate of exchange of the
NIS to the                     U.S. dollar, as published by the Bank of Israel for the
applicable day of the                     high/low amount in the specified period.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

52

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|B. | Plan
of distribution.
|-- | ---------------------

Not
applicable.

|C. | Markets.
|-- | --------

As
noted above, the Companys ordinary shares are traded on the Nasdaq Global Market
under the symbol CAMT. Since December 2005, our ordinary shares are traded
also on the Tel-Aviv Stock Exchange and we are subject to the Israeli legislation, which
applies to companies that are traded in dual listing.

|D. | Selling
Shareholders.
|-- | ---------------------

Not
applicable.

|E. | Dilution.
|-- | ---------

Not
applicable.

|F. | Expenses
of the Issue.
|-- | ----------------------

Not
applicable.

|Item 10. |  | Additional Information.
|-------- |  | -----------------------

|A. | Share
Capital
|-- | -------------

Not
applicable.

|B. | Memorandum
and Articles
|-- | -----------------------

Following
is a summary of material information concerning our share capital and a brief description
of the material provisions contained in our Memorandum of Association and our Articles.

# General

Our
authorized share capital consists of one class of shares, which are our ordinary shares.
Out of our authorized share capital of 100,000,000 ordinary shares, par value NIS 0.01 per
ordinary share, 29,135,108 ordinary shares are outstanding and fully-paid as of April 1,
2009. Under the Agreement with FIMI as described in Item 4.A., we undertook to issue to
FIMI ordinary shares in the event of conversion of the $5 million debentures ($3.4 million
as of December 31, 2008) or any part thereof in accordance with the terms of this
agreement. Conversion of the loan, in a whole or in part, is at the lenders option
on any given business day after the closing date (August 23rd, 2005).
Conversion price is $3.19 per share. In August 2008 we repaid part of the convertible loan
in the sum of about $1.7 million. As of the date of this Annual Report, no ordinary shares
were issued to FIMI as no conversion of the remaining $3.4 million debentures or any part
thereof has been made in accordance with the terms of this agreement.

53

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The
ordinary shares do not have preemptive rights. The ownership and voting of our ordinary
shares are not restricted in any way by our Articles, or by the laws of the State of
Israel, except for shareholders who are citizens of countries in a state of war with
Israel. Under the Israeli Companies Law, Israeli companies may purchase and hold their own
shares, subject to the same conditions that apply to distribution of dividends (see
Dividend and Liquidation Rights below). These shares do
not confer any rights whatsoever for as long as they are held by us. Additionally, a
subsidiary may purchase or hold shares of its parent company to the same extent that the
parent company is entitled to purchase its own shares, and these shares do not confer any
voting rights for as long as they are held by the subsidiary.

# Transfer of Shares and
Notices

Ordinary
shares are issued in registered form. Ordinary shares registered on the books of the
transfer agent in the United States may be freely transferred on the transfer agents
books. Each shareholder of record is entitled to receive at least 21 days prior
notice for a general meeting of the shareholders.

# Dividend and Liquidation
Rights

Our
Board of Directors may, without seeking shareholder approval, declare a dividend to be
paid to the holders of ordinary shares out of our retained earnings or our earnings
derived over the two most recent years, whichever is higher, as reflected in the last
audited or reviewed financial report prepared less than six months prior to distribution,
provided that there is no reasonable concern that a payment of a dividend will prevent us
from satisfying our existing and foreseeable obligations as they become due. Dividends are
distributed to shareholders in proportion to the nominal value of their respective
holdings. In the event of our liquidation, after satisfaction of liabilities to creditors,
our assets will be distributed to the holders of ordinary shares in proportion to the
nominal value of their respective holdings. This right may be affected by the grant of
preferential dividend or distribution rights to the holders of any class of shares with
preferential rights that may be authorized in the future. Our shareholders would need to
approve any class of shares with preferential rights.

# Modification of Class
Rights

The
Israeli Companies Law provides that the articles of a company may not be modified in such
a manner that would have a detrimental effect on the rights of a particular class of
shares without the vote of a majority of the affected class.

# Voting,
Shareholders Meetings and Resolutions

Holders
of ordinary shares have one vote for each ordinary share held on all matters submitted to
a vote of the shareholders. These voting rights may be affected by the grant of special
voting rights to the holders of any class of shares with preferential rights that may be
authorized in the future; however, currently no holders of our securities have any special
voting rights.

An
annual meeting of the shareholders must be held every year, and not later than
15 months following the last annual meeting. A special meeting of the shareholders
may be convened by the board of directors at its decision to do so or upon the demand of
any of: (1) two of the directors or 25% of the then serving directors, whichever is
fewer; (2) shareholders owning at least 5% of the issued share capital and at least
1% of the voting rights in the company; or (3) shareholders owning at least 5% of the
voting rights in the company. If the board does not convene a meeting upon a valid demand
of any of the above, then whoever made the demand, and in the case of shareholders, those
shareholders holding more than half of the voting rights of the persons making the demand,
may convene a meeting of the shareholders to be held within three months of the demand.
Alternatively, upon petition by the individuals making the demand, a court may order that
a meeting be convened.

The
quorum required for a meeting of shareholders consists of at least two shareholders
present in person or by proxy within one half hour of the time scheduled for the beginning
of the meeting, who hold or represent together at least 33 1/3% of the voting power in our
company. A meeting adjourned due to lack of a quorum is generally adjourned to the same
day in the following week at the same time and place or any time and place as the
directors designate in a notice to the shareholders. If a quorum is not present at the
reconvened meeting, the meeting may be held with any number of participants. However, if
the meeting was convened following a demand by the shareholders, the quorum will be that
minimum number of shareholders authorized to make the demand.

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In
any shareholders meeting, a shareholder can vote either in person or by proxy.
General meetings of shareholders will be held in Israel, unless decided otherwise by our
board.

Most
resolutions at a shareholders meeting may be passed by a majority of the voting
power of the company represented at the shareholders meeting and voting on the
matter. Resolutions requiring special voting procedures include the appointment and
removal of outside directors, approval of transactions with controlling shareholders and
the approval for the chairman of the board to also serve as chief executive officer. See
Management -Duties of Office Holders and Approval of Transactions under the Israeli
Law.

Under
the Israeli Companies Law, a shareholder has a duty to act in good faith and in a
customary manner in exercising his rights and duties towards the company and other
shareholders, to refrain from prejudicing the rights of other shareholders and to refrain
from abusing his power in the company. The rights and duties apply, among other things, to
voting at the general meeting of the shareholders on any of the following matters:
(1) amendments to the articles; (2) an increase in the companys authorized
share capital; (3) a merger; or (4) an approval of those related party
transactions that require shareholder approval.

In
addition, any shareholder who: (1) is a controlling shareholder; (2) knows that
its vote will determine the outcome of a shareholder vote; or (3) under the
provisions of the articles, has the power to appoint or to prevent the appointment of an
office holder in the company, is under a duty to act in fairness towards the company.
Israeli law does not define the substance of this duty of fairness, however the laws of
contracts, regarding breach of contract, shall apply to violations of the duty to act in
fairness.

# Anti-Takeover Effects of
Israeli Laws; Mergers and Acquisitions Under Israeli Law

The
Israeli Companies Law allows a merger to be effected without the need for court approval
if the merger receives the approval of the boards of directors of each of the merging
companies and a majority of the shareholders present and voting at the general
shareholders meeting of each of the merging companies. However, such approval by the
general shareholders meeting is not required if the merging company is the full
owner of the other party to the merger, or if the merger does not require the change of
the merging companys articles of association and the merging company is not issuing
more than 25% of its share capital as part of the merger and a person will not become a
controlling shareholder as result of the merger. Israeli law also provides that in
addition to the approval of the merger by the requisite majority at the shareholders
general meeting, if either party to the merger or its interested parties hold over 25% of
the shares of the other party to the merger, then the majority must also include a
majority of the shares held by those shareholders present and voting (excluding
abstainees) who do not have an interest in the other party.

Israeli
law does not require court approval of a merger other than in specified situations.
However, upon petition by a creditor of a merging company, the court may delay or prevent
the consummation of the merger, if it deems there to be a reasonable concern that as a
result of the merger, the surviving company will not be able to meet the obligation to
creditors of either of the merging companies.

A
merger may not be completed until 30 days have passed since the resolution was adopted by
the general meeting of each of the merging companies, 50 days have passed from the
time that the merger proposal was filed with the Israeli Registrar of Companies and until
all required approvals have been obtained and submitted to the Registrar of Companies.

In
addition, the Israeli Companies Law contains provisions dealing with arrangements between
a company and its shareholders. These arrangements may be used to effect squeeze-out
transactions in which the target company becomes a wholly-owned subsidiary of the
acquirer. These provisions generally require that the merger be approved by at least 75%
of the shares of participating shareholders and a majority of the shareholders voting at a
shareholders meeting. In addition to shareholder approval, court approval of the
transaction is required, which entails further delay.

55

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The
Israeli Companies Law also provides that an acquisition of shares in a public company must
be made by means of a special tender offer if, as a result of the acquisition, the
purchaser would become a holder of 25% or more of the companys voting power. This
rule does not apply if there is already another holder of 25% or more of the voting power
of the company. Similarly, the Israeli Companies Law provides that an acquisition of
shares of a public company must be made by means of a special tender offer if, as a result
of the acquisition, the purchaser would become a holder of more than 45% of the voting
power of the company. This rule does not apply if someone else already holds 45% of the
voting power of the company or if such acquisition of shares is made in a private
offering, following the consent of the companys audit committee, board of directors
and general meeting of shareholders or if following the acquisition the purchaser will
become a controlling shareholder.

An
acquisition of shares following which the purchaser would become a holder of more than 90%
of a public companys shares must be made by a tender offer for the purchase of all
the remaining shares; if a tender offer is not accepted by holders of less than 5% of the
companys issued shares, then the holders of the remaining shares must sell their
shares to the acquirer on the terms of the tender offer, although they may petition the
court to raise the offered price on the basis that it is an unfair price.
However, the acquirer will not be permitted to acquire tendered shares, to the extent that
the acquisition of those shares would bring the acquirers holdings to more than 90%
of the target companys shares, in which case the acquirer may only purchase the
balance which will bring the acquirers holdings to 90%. In addition, a shareholder
who holds more than 90% of the shares of a public company may not purchase additional
shares as long as the shareholder holds more than 90%. Shares acquired in violation of
these provisions become dormant and cease to confer any rights upon their holder; and all
rights are suspended as long as the shares are held by the acquirer.

In
addition, our technology developed pursuant to the terms of the Law for the Encouragement
of Industrial Research and Development, 1984, may not be sold or transferred to third
parties without the prior approval of a governmental committee. Approval for the sale or
transfer of technology may be granted only if the recipient undertakes to abide by all of
the provisions of the Law for the Encouragement of Industrial and Research Development and
its associated regulations, including the restrictions on the transfer of know-how, the
obligation to manufacture in Israel and the obligation to pay royalties in an amount that
might be increased. These requirements could inhibit the acquisition of us by others.
However, an amendment to the Law for the Encouragement of Industrial Research and
Development enables the transfer of know-how outside of Israel, and the manufacture
outside of Israel, under very limited and specific conditions, including additional
payment of certain amounts.

Finally,
Israeli tax law treatment of certain acquisitions, such as stock-for-stock swap between an
Israeli company and a foreign company, may be less favorable than the treatment that may
be applicable under U.S. tax law. For example, Israeli tax law may subject a shareholder
who exchanges his ordinary shares for shares in a foreign corporation to immediate
taxation. However, a stock-for-stock swap of listed securities will not be subject to
taxation until the earlier of: (1) the time at which the shares will be sold; or
(2) for 50% of the stock, the lapse of two years from the date of the transaction,
and for the remaining 50%, the lapse of four years from the date of the transaction. Also,
such stock-for-stock swap is conditioned upon the submission of a request to the Israeli
tax authorities at least 30 days prior to the swap and the receipt of an approval to
perform such swap prior to its completion.

# Transfer Agent

The
transfer agent and registrar for the ordinary shares is the American Stock
Transfer & Trust Company, New York, New York.

|C. | Material
Contracts.
|-- | -------------------

None.

|D. | Exchange
Controls
|-- | -----------------

Nonresidents
of Israel who purchase our shares may exchange any NIS received as dividends, if any,
thereon, and any amounts payable upon the dissolution, liquidation or winding up of our
affairs, as well as the proceeds of any sale in Israel of the ordinary shares to an
Israeli resident, into freely repatriable dollars, at the rate of exchange prevailing at
the time of exchange, pursuant to regulations issued under the Currency Control Law, 1978,
provided that Israeli income tax has been withheld with respect to amounts that are being
repatriated to the extent applicable or an exemption has been obtained. Israeli residents
are eligible, subject to reporting requirements, to purchase securities in foreign
currencies.

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|E. | Taxation
|-- | --------

# U.S. Federal Income Tax
Considerations

Subject
to the limitations  described herein,  this discussion  summarizes  material U.S. federal
income tax  consequences  of the purchase,  ownership  and  disposition  of our ordinary
 shares to a U.S. holder. A U.S. holder is a holder of our ordinary shares who is:

| |  | an
individual citizen or resident of the United States for U.S. federal income tax purposes;
| | - | --------------------------------------------------------------------------------------------

| |  | a
corporation (or another entity taxable as a corporation  for U.S.  federal income tax
purposes)               created or organized  under the laws of the United  States,  any
political               subdivision thereof, or the District of Columbia;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | an
estate,  the income of which may be  included  in gross  income  for U.S.  federal
 income tax               purposes regardless of its source; or
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a
trust  (i) if,  in general,  a U.S.  court is able to  exercise  primary  supervision
 over its               administration  and one or more U.S. persons have the authority
to control               all of its  substantial  decisions,  or  (ii) that  has in
 effect a valid               election under  applicable  U.S.  Treasury  Regulations to
be treated as a               U.S. person.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Unless
otherwise specifically indicated, this discussion does not consider the U.S. tax
consequences to a person that is not a U.S. holder (a non-U.S. holder) and
considers only U.S. holders that will own the ordinary shares as capital assets
(generally, for investment).

This
discussion is based on current provisions of the Internal Revenue Code of 1986, as amended
(the Code), current and proposed Treasury Regulations promulgated under the
Code and administrative and judicial interpretations of the Code, all as currently in
effect and all of which are subject to change, possibly with retroactive effect. This
discussion does not address all aspects of U.S. federal income taxation that may be
relevant to any particular U.S. holder based on the U.S. holders particular
circumstances. In particular, this discussion does not address the U.S. federal income tax
consequences to U.S. holders who are broker-dealers, insurance companies, tax-exempt
organizations, financial institutions or financial services entities, grantor trusts, real
estate investment trusts, regulated investment companies, certain former citizens or
former long-term residents of the United States, or U.S. holders who own, directly,
indirectly or constructively, 10% or more of our outstanding voting shares, U.S. holders
who have elected mark-to-market accounting, U.S. holders holding the ordinary shares as
part of a hedging, straddle or conversion transaction, U.S. holders that received ordinary
shares as a result of exercising employee stock options or otherwise as compensation, U.S.
holders whose functional currency is not the U.S. dollar, and U.S. holders who are subject
to the alternative minimum tax.

If
a partnership (or any other entity treated as a partnership for U.S. federal income tax
purposes) holds our ordinary shares, the tax treatment of the partnership and a partner in
such partnership will generally depend on the status of the partner and the activities of
the partnership. Such a partner or partnership should consult its tax advisor as to its
tax consequences.

You
are advised to consult your tax advisor with respect to the specific U.S. federal, state,
local and foreign income tax consequences of purchasing, holding or disposing of our
ordinary shares.

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# Taxation of
Distributions on the Ordinary Shares

Subject
to the discussion below under Tax Consequences if we are a Passive Foreign
Investment Company, the amount of a distribution with respect to the ordinary shares
will equal the amount of cash and the fair market value of any property distributed and
will also include the amount of any non-U.S. taxes withheld from such distribution. A
distribution paid by us with respect to the ordinary shares to a U.S. holder will be
treated as dividend income to the extent that the distribution does not exceed our current
and accumulated earnings and profits, as determined for U.S. federal income tax purposes.
Dividends that are received by U.S. holders that are individuals, estates or trusts will
be taxed at the rate applicable to long-term capital gains (currently a maximum rate of
15% for taxable years beginning on or before December 31, 2010), provided that such
dividends meet the requirements of qualified dividend income. For this
purpose, qualified dividend income generally includes dividends paid by a non-U.S.
corporation if certain holding period and other requirements are met and either (a) the
stock of the non-U.S. corporation with respect to which the dividends are paid is
readily tradable on an established securities market in the U.S. (e.g., the
NASDAQ Global Market) or (b) the non-U.S. corporation is eligible for benefits of a
comprehensive income tax treaty with the U.S. which includes an information exchange
program and is determined to be satisfactory by the U.S. Secretary of the Treasury. The
United States Internal Revenue Service (IRS) has determined that the
U.S.-Israel income tax treaty is satisfactory for this purpose. Dividends that fail to
meet such requirements, and dividends received by corporate U.S. holders, are taxed at
ordinary income rates. No dividend received by a U.S. holder will be a qualified dividend
(1) if the U.S. holder held the ordinary share with respect to which the dividend was
paid for less than 61 days during the 121-day period beginning on the date that is
60 days before the ex-dividend date with respect to such dividend, excluding for this
purpose, under the rules of Code Section 246(c), any period during which the U.S.
holder has an option to sell, is under a contractual obligation to sell, has made and not
closed a short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified
option to buy, or has otherwise diminished its risk of loss by holding other positions
with respect to, such ordinary share (or substantially identical securities); or
(2) to the extent that the U.S. holder is under an obligation (pursuant to a short
sale or otherwise) to make related payments with respect to positions in property
substantially similar or related to the ordinary share with respect to which the dividend
is paid. If we were to be a passive foreign investment company (as such term is
defined in the Code) for any taxable year, dividends paid on our ordinary shares in such
year or in the following taxable year would not be qualified dividends. See discussion
below regarding our PFIC status at Tax Consequences If We Are a Passive Foreign
Investment Company. In addition, a non-corporate U.S. holder will be able to take a
qualified dividend into account in determining its deductible investment interest (which
is generally limited to its net investment income) only if it elects to do so; in such
case the dividend will be taxed at ordinary income rates.

The
amount of any distribution which exceeds the amount treated as a dividend will be treated
first as a non-taxable return of capital, reducing the U.S. holders tax basis in its
ordinary shares to the extent thereof, and then as capital gain from the deemed
disposition of the ordinary shares. Corporate holders will not be allowed a deduction for
dividends received in respect of the ordinary shares.

Dividends
paid by us in NIS will be included in the income of U.S. holders at the dollar amount of
the dividend (including any non-U.S. taxes withheld there from), based upon the spot rate
of exchange in effect on the date the distribution is included in income. U.S. holders
will have a tax basis in the NIS for U.S. federal income tax purposes equal to that dollar
value. Any subsequent gain or loss in respect of the NIS arising from exchange rate
fluctuations will generally be taxable as U.S. source ordinary income or loss.

Subject
to the limitations set forth in the Code and the Treasury Regulations there under, U.S.
holders may elect to claim as a foreign tax credit against their U.S. federal income tax
liability for non-U.S. income taxes withheld from dividends received in respect of the
ordinary shares. The conditions and limitations on claiming a foreign tax credit include,
among others, computation rules under which foreign tax credits allowable with respect to
specific classes of income cannot exceed the U.S. federal income taxes otherwise payable
with respect to each such class of income. In this regard, dividends paid by us generally
will be foreign source passive income for U.S. foreign tax credit purposes.
U.S. holders that do not elect to claim a foreign tax credit may instead claim a deduction
for the non-U.S. income taxes withheld if such U.S. holders itemize their deductions for
U.S. federal income tax purposes. The rules relating to foreign tax credits are complex,
and you should consult your tax advisor to determine whether and to what extent you would
be entitled to this credit. A U.S. holder will be denied a foreign tax credit for non-U.S.
income taxes withheld from a dividend received on the ordinary shares (i) if the U.S.
holder has not held the ordinary shares for at least 16 days of the 31-day period
beginning on the date which is 15 days before the ex-dividend date with respect to
such dividend or (ii) to the extent the U.S. holder is under an obligation to make
related payments with respect to positions in substantially similar or related property.
Any days during which a U.S. holder has substantially diminished its risk of loss on the
ordinary shares are not counted toward meeting the required 16-day holding period.

The
discussion above is subject to the discussion below entitled Tax Consequences if we
are a Passive Foreign Investment Company.

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# Taxation of the
Disposition of Ordinary Shares

Subject
to the discussion below under Tax Consequences if We are a Passive Foreign
Investment Company, upon the sale, exchange or other disposition of our ordinary
shares, a U.S. holder will recognize capital gain or loss in an amount equal to the
difference between the amount realized on the disposition and the U.S. holders tax
basis in such ordinary shares. The gain or loss recognized on the disposition of such
ordinary shares will be long-term capital gain or loss if the U.S. holder held the
ordinary shares for more than one year at the time of the disposition. Long-term capital
gains of certain non-corporate shareholders are subject to a maximum rate of 15% for
taxable years beginning on or before December 31, 2010. Gain or loss recognized by a U.S.
holder on a sale, exchange or other disposition of ordinary shares generally will be
treated as U.S. source income or loss for U.S. foreign tax credit purposes.

A
U.S. holder that uses the cash method of accounting calculates the dollar value of the
proceeds received on the sale as of the date that the sale settles. However, a U.S. holder
that uses the accrual method of accounting is required to calculate the value of the
proceeds of the sale as of the trade date and may therefore realize foreign currency gain
or loss. A U.S. holder may avoid realizing foreign currency gain or loss by electing to
use the settlement date to determine the proceeds of sale for purposes of calculating the
foreign currency gain or loss. In addition, a U.S. holder that receives foreign currency
upon disposition of ordinary shares and converts the foreign currency into dollars after
the settlement date or trade date (whichever date the U.S. holder is required to use to
calculate the value of the proceeds of sale) may have foreign exchange gain or loss based
on any appreciation or depreciation in the value of the foreign currency against the
dollar, which will generally be U.S. source ordinary income or loss.

# Tax Consequences if we
are a Passive Foreign Investment Company

For
U.S. federal income tax purposes, we will be a passive foreign investment company, or
PFIC, if either (1) 75% or more of our gross income in a taxable year is passive
income, or (2) 50% or more of the value (determined on the basis of a quarterly
average) of our assets in a taxable year produce or are held for the production of passive
income. If we own (directly or indirectly) at least 25% by value of the stock of another
corporation, we will be treated for purposes of the foregoing tests as owning our
proportionate share of that other corporations assets and as directly earning our
proportionate share of that other corporations income. If we are a PFIC, a U.S.
holder must determine under which of three alternative taxing regimes it wishes to be
taxed:

| |  | The
QEF regime applies if the U.S. holder elects to treat us as a qualified
electing fund (QEF) for the first taxable year in which the U.S. holder
owns our ordinary shares or in which we are a PFIC, whichever is later, and if we comply
with certain reporting requirements. A U.S. holder may not make a QEF election with
respect to warrants. If the QEF regime applies, then, for each taxable year that we are a
PFIC, such U.S. holder will include in its gross income a proportionate share of our
ordinary earnings (which is taxed as ordinary income) and net capital gain (which is
taxed as long-term capital gain), subject to a separate election to defer payment of
taxes, which deferral is subject to an interest charge. These amounts would be included
in income by an electing U.S. holder, whether or not such amounts are actually
distributed to the U.S. holder. A U.S. holders basis in our ordinary shares for
which a QEF election has been made would be increased to reflect the amount of any taxed
but undistributed income. Generally, a QEF election allows an electing U.S. holder to
treat any gain realized on the disposition of his ordinary shares as capital gain.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Once
made, the QEF election applies to all subsequent taxable years of the U.S. holder in
which it holds our ordinary shares and for which we are a PFIC and can be revoked only
with the consent of the IRS. A shareholder makes a QEF election by attaching a completed
IRS Form 8621, including the information provided in the PFIC annual information
statement, to a timely filed United States federal income tax return. Even if a QEF
election is not made, a U.S. person who is a shareholder in a PFIC must file a
completed IRS Form 8621 every year.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If
a QEF election is made after the first taxable year in which a U.S. holder holds our
ordinary shares and we are a PFIC, then special rules would apply.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | A
second regime, the mark-to-market regime, may be elected so long as our
ordinary shares are marketable stock (e.g., regulatory traded on
the NASDAQ Global Market). Under current law, a mark-to-market election cannot be made
with respect to warrants. Pursuant to this regime, an electing U.S. holders
ordinary shares are marked-to-market each taxable year and the U.S. holder recognizes as
ordinary income or loss an amount equal to the difference as of the close of the taxable
year between the fair market value of our ordinary shares and the U.S. holders
adjusted tax basis in our ordinary shares. Losses are allowed only to the extent of net
mark-to-market gain previously included by the U.S. holder under the election for prior
taxable years. An electing U.S. holders adjusted basis in our ordinary shares is
increased by income recognized under the mark-to-market election and decreased by the
deductions allowed under the election.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the mark-to-market election, in a taxable year that we are a PFIC, gain on the sale of
our ordinary shares is treated as ordinary income, and loss on the sale of our ordinary
shares, to the extent the amount of loss does not exceed the net mark-to-market gain
previously included, is treated as ordinary loss. The mark-to-market election applies to
the taxable year for which the election is made and all later taxable years, unless the
ordinary shares cease to be marketable stock or the IRS consents to the revocation of the
election.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | If
the mark-to-market election is made after the first taxable year in which a U.S. holder
holds our ordinary shares and we are a PFIC, then special rules would apply.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | A
U.S. holder making neither the QEF election nor the mark-to-market election is subject to
the excess distribution regime. Under this regime, excess distributions are
subject to special tax rules. An excess distribution is either (1) a distribution
with respect to our ordinary shares that is greater than 125% of the average
distributions received by the U.S. holder from us over the shorter of either the
preceding three taxable years or such U.S. holders holding period for our ordinary
shares prior to the distribution year or (2) gain from the disposition of our
ordinary shares.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Excess
distributions must be allocated ratably to each day that a U.S. holder has held our
ordinary shares. A U.S. holder must include amounts allocated to the current taxable year
and any taxable year prior to the first taxable year in which we were a PFIC, its gross
income as ordinary income for that year. All amounts allocated to other taxable years of
the U.S. holder would be taxed at the highest tax rate for each such year applicable to
ordinary income and the U.S. holder also would be liable for interest on the deferred tax
liability for each such year calculated as if such liability had been due with respect to
each such year. The portions of gains and distributions that are not characterized as
excess distributions are subject to tax in the current taxable year as
ordinary income under the normal tax rules of the Code.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
U.S. person who inherits shares in a foreign corporation that was a PFIC in the hands of
the decedent, is generally denied the otherwise available step-up in the tax basis of
such shares to fair market value at the date of death. Instead, such U.S. holders
basis would be equal to the lesser of the decedents basis or the fair market value
of the ordinary shares on the date of death.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Based
on an analysis of our assets and income, we believe that we were not a PFIC for our
taxable year ended December 31, 2008. We currently expect that we will not be a PFIC
in 2009. However, PFIC status is determined as of the end of the taxable year and is
dependent on a number of factors, including the relative value of our passive assets and
our non-passive assets, our market capitalization and the amount and type of our gross
income. There can be no assurance that we will not become a PFIC for the current taxable
year ending December 31, 2009 or in a future taxable year. Furthermore, if the
current price of our ordinary shares does not increase in 2009, there is a risk that we
could be a PFIC in 2009. We will notify U.S. holders in the event we conclude that we
will be treated as a PFIC for any taxable year to enable U.S. holders to consider whether
or not to elect to treat us as a QEF for U.S. federal income tax purposes to mark-to-market the
ordinary shares or to become subject to the excess distribution regime, and
we expect that in such event we will provide U.S. holders with the information needed to
make a QEF election.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

U.S.
          holders are urged to consult their tax advisors regarding the application of
the           PFIC rules, including eligibility for and the manner and advisability of
making,           the QEF election or the mark-to-market election.

60

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# Non-U.S. Holders of
Ordinary Shares

Except
as described below, a non-U.S. holder of ordinary shares will not be subject to U.S.
federal income or withholding tax on the receipt of dividends on, and the proceeds from
the disposition of, an ordinary share, unless, in the case of U.S. federal income taxes,
that item is effectively connected with the conduct by the non-U.S. holder of a trade or
business in the United States and, in the case of a resident of a country which has an
income tax treaty with the United States, that item is attributable to a permanent
establishment in the United States or, in the case of an individual, a fixed place of
business in the United States. In addition, gain recognized by an individual non-U.S.
holder on the disposition of ordinary shares will be subject to tax in the United States
if the non-U.S. holder is present in the United States for 183 days or more in the
taxable year of the sale and certain other conditions are met.

# Information Reporting
and Backup Withholding

A
U.S. holder (except for certain exempt recipients, such as corporations) generally is
subject to information reporting and may be subject to backup withholding at rate of up to
28% with respect to dividends paid in the United States on, and the receipt of the
proceeds from the disposition of, the ordinary shares. A U.S. holder of our ordinary
shares who does not provide a correct taxpayer identification number may be subject to
penalties imposed by the IRS Backup withholding will not apply if a U.S. holder provides a
correct tax payer identification number certifies that such holder is not subject to
backup withholding or otherwise establishes an exemption.

Non-U.S.
          holders generally will not be subject to information reporting or backup
          withholding with respect to the payment of dividends on, or proceeds from the
          distribution of, our ordinary shares provided the non-U.S. holder provides its
          taxpayer identification number, certifies to its foreign status or otherwise
          establishes an exemption.

Backup
withholding is not an additional tax and may be claimed as a credit against the U.S.
federal income tax liability of a holder, or alternatively, the holder may be eligible for
a refund of any excess amounts withheld under the backup withholding rules, in either
case, provided that the required information is furnished to the IRS.

# ISRAELI TAXATION

The
following summary describes the current tax structure applicable to companies in Israel,
with special reference to its effect on us. It also discusses Israeli tax consequences
material to persons purchasing our ordinary shares. We recommend that you consult your tax
advisor as to the particular tax consequences of an investment in our ordinary shares.

# General Corporate Tax
Structure

Until December 31, 2003, the regular
tax rate applicable to income of companies (which are not entitled to benefits due to
investments in approved enterprise, as described below) was 36%. In June 2004
and in July 2005, the Knesset (Israeli parliament) passed amendments to the
Income Tax Ordinance (No. 140 and Temporary Provision), 2004 and (No. 147), 2005
respectively, which determine, among other things, that the corporate tax rate is to be
gradually reduced to the following tax rates: 2004  35%, 2005  34%, 2006
 31%, 2007  29%, 2008  27%, 2009  26% and 2010 and thereafter
 25%.

However,
the effective tax rate payable by a company that derives income from an approved
enterprise, discussed further below, may be considerably less. See Law for
the Encouragement of Capital Investments, 1959.

Taxation Under Inflationary
Conditions

The
Income Tax Law (Inflationary Adjustments), 1985, or the Inflationary Adjustments
Law, was intended to neutralize the erosion of capital investments and to prevent
tax benefits resulting from deduction of inflationary expenses. This law applied a
supplementary set of inflationary adjustments to the normal taxable profits and losses
computed under the regular cost principles.

61

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On
February 26, 2008, the Israeli Income Tax Law (Inflationary Adjustments) (Amendment No.
20) (Restriction of Period of Application)  2008 (the Amendment) was
passed by the Knesset. According to the Amendment, the Inflationary Adjustments Law is no
longer applicable subsequent to the 2007 tax year, except for certain transitional
provisions.

Further,
according to the Amendment, commencing with the 2008 tax year, the adjustment of income
for the effects of inflation for tax purposes is no longer calculated. Additionally,
depreciation on fixed assets and tax loss carry forwards is no longer linked to future
changes in the CPI, such that these amounts will continue to be linked only to the CPI as
of the end of the 2007 tax year and will not be linked to CPI changes after this date.

Tax benefits under the Law for
Encouragement of Capital Investments, 1959 (the Investment Law)

The
Companys production facility has been granted Approved Enterprise status
under the Investment Law. The Company participates in the Alternative Benefits Program
and, accordingly, income from its approved enterprises will be tax exempt for a period of
10 years, commencing in the first year in which the approved enterprise first generates
taxable income; this is due to the fact that the Company operates in
Zone A in Israel.

On
April 1, 2005, an amendment to the Investment Law came into effect (the
Amendment) and has significantly changed the provisions of the Investment Law.
The Amendment limits the scope of enterprises which may be approved by the Investment
Center by setting criteria for the approval of a facility as a Beneficiary
Enterprise, such as provisions generally requiring that at least 25% of the
Beneficiary Enterprises income will be derived from export. Additionally, the
Amendment enacted major changes in the manner in which tax benefits are awarded under the
Investment Law so that companies no longer require Investment Center approval in order to
qualify for tax benefits.

In
addition, the Investment Law provides that terms and benefits included in any certificate
of approval already granted will remain subject to the provisions of the law as they were
on the date of such approval. Therefore, the Companys existing Approved Enterprise
will generally not be subject to the provisions of the Amendment. As a result of the
Amendment, tax-exempt income generated under the provisions of the Amendment, as part of a
new Beneficiary Enterprise, will subject the Company to taxes upon distribution or
liquidation.

The
Company has been granted the status of Approved Enterprise, under the Investment Law, for
investment programs for the periods ending in 2007 and 2010, and the status of Beneficiary
Enterprise according to the Amendment, for the period ending in 2014
(Programs).

Out
of the Companys retained earnings as of December 31, 2008, approximately $19.6
million are tax-exempt earnings attributable to its Approved Enterprise programs and
approximately $2.8 million are tax-exempt earnings attributable to its Beneficiary
Enterprise program. The tax-exempt income attributable to the Approved and Beneficiary
Enterprise cannot be distributed to shareholders without subjecting the Company to taxes.
If these retained tax-exempt profits are distributed, the Company will be taxed at the
reduced corporate tax rate applicable to such profits (currently  25% according to
the implementation of the Investment Law; effectively 33%). According to the Amendment,
tax-exempt income generated under the Beneficiary Enterprise status will be taxed upon
dividend distribution or complete liquidation, whereas tax exempt income generated under
the Approved Enterprise status will be taxed only upon dividend distribution .As of
December 31, 2008, if the income attributed to the Approved Enterprise was distributed as
dividend, the Company would incur a tax liability of approximately $4.9 million. If income
attributed to the Beneficiary Enterprise was distributed as dividend, including upon
liquidation, the Company would incur a tax liability in the amount of approximately
$ 0.7 million.

These
amounts will be recorded as an income tax expense for the period in which the Company
declares the dividend.

62

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The
Company intends to reinvest the amount of its tax-exempt income and not distribute any
amounts of its undistributed tax exempt income as dividend. Accordingly, no deferred
income taxes have been provided on income attributable to the Companys Approved and
Beneficiary Enterprise programs, as the undistributed tax exempt income is essentially
permanent in duration.

The
entitlement to the above benefits is conditional upon the Companys fulfilling the
conditions stipulated by the Investment Law, regulations published there under and the
certificates of approval for the specific investments in approved enterprises.

Should
the Company fail to meet such requirements in the future, income attributable to its
Programs could be subject to the statutory Israeli corporate tax rate and the Company
could be required to refund a portion of the tax benefits already received, with respect
to such program. The Companys management believes that the Company is meeting the
aforementioned conditions.

# Law for the
Encouragement of Industrial Research and Development, 1984

Under
the Law for the Encouragement of Industrial Research and Development, 1984, research and
development programs approved by a governmental committee of the Office of the Chief
Scientist (OCS) are eligible for grants, in exchange for payment of royalties
from revenues generated by the products developed in accordance with the programs. Once a
project is approved, the OCS will award grants between 20-50% of the projects
approved budget, in exchange for royalties at a rate of 2% to 6%, depending on the date
of approval of the project, of the proceeds from the sales of the products that are
developed from projects funded by the OCS. These royalties must be paid starting from
commencement of sales of those products and ending when 100% of the dollar value of the
grant was repaid or, for projects approved after January 1, 1999, the dollar amount
of the grant plus interest at the rate LIBOR for dollar deposits in a twelve-month
period.

The
terms of this Israeli governmental participation also require that the products developed
with government grants be manufactured in Israel, unless a special governmental
committee, in its discretion, consents to manufacturing abroad. In addition, in the event
that any of the manufacturing rights are sold or transferred to parties or performed
outside of Israel, if approved by the special governmental committee, a company may be
required to pay royalties at a higher rate and be liable to an increased aggregate pay
back amount depending on the portion of manufacturing performed outside of Israel, up to
a maximum of 300% of the dollar amount of the grant, unless the amount of production
outside Israel is less than 10% of the original rate of production of the products
developed with these grants. In this particular case, although the OCS may resist to the
transfer of production within 30 days from the receipt of an announcement to that effect,
this law does not impose obligation to pay enlarged royalties to the OCS. Prior to the
recent amendment of this law, the technology developed pursuant to the terms of these
grants could not have been sold or transferred outside of Israel under any circumstances,
and could not have been sold or transferred to third parties within Israel without the
prior approval of the governmental committee. However, pursuant to an amendment of this
law, which entered into force on March 30th, 2005, the special governmental
committee may, in special cases, approve the transfer or sale of the technology outside
of Israel. Such sale or transfer, even if approved, may impose on a company a substantial
payment, which generally may be as high as the amount of the grants received by a
company, increased in proportion to the increase of the value of the technology or the
company less any royalty payments already paid to the government. This approval is not
required for the export of any products resulting from that research development.
Approval of the sale or transfer of technology within Israel may be granted only if the
recipient abides by all of the provisions of this law and the regulations promulgated
there under, including the restrictions on the sale or transfer of know-how and the
obligation to pay royalties in an amount that may be increased. There can be no assurance
that this consent, if requested, will be granted.

Each
application to the OCS is reviewed separately, and grants are based on the programs
approval by the research committee of the OCS. Expenditures supported under other
incentive programs of the State of Israel are not eligible for OCS grants.

In
March 2001, we reached an arrangement with the OCS whereby we were to repay the
outstanding balance of the grants we received, not including grants received by
Inspectech prior to its merger into us, at a quarterly rate equal to 4.5% of the revenues
derived in connection with products we develop as a result of research and development
funded by OCS participations, up to a maximum amount of $250,000 per quarter. We have not
received any additional grants from the OCS since 2000, and As of June 1, 2005 we
had no additional payment obligations in connection with these grants. In January 2009 we
submitted 3 research and development plans to the approval of the OCS. We can not assure
you that such plans will be approved by the OCS and that we will be granted with funds
for our research and developments plans.

63

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# Net Operating Loss
Carryover

As
of December 31, 2008, we had a net operating loss, or NOL, of $12.7 million carry
forward for Israeli tax purposes. In addition, we had a net operating tax loss from
Approved Enterprise and Beneficiary Enterprise which will be available for offset versus
income derived from these enterprises only in the amount of $24.2 million.

# Law for the
Encouragement of Industry (Taxes), 1969

We
believe that we currently qualify as an Industrial Company within the meaning
of the Law for the Encouragement of Industry (Taxes), 1969, or the Industry Encouragement
Law. According to the Industry Encouragement Law, an Industrial Company is a
company resident in Israel, 90% or more of the income of which in any tax year, other
than of income from defense 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.

The
following corporate tax benefits are available to Industrial Companies:

| |  | amortization
 of the cost of purchased  know-how and patents  over an  eight-year  period for tax
purposes;
| | - | -----------------------------------------------------------------------------------------------------------

| |  | amortization
 of  expenses  incurred  in some  cases  in  connection  with a public  issuance  of
 publicly traded securities over a three-year period; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | accelerated
depreciation rates on equipment and buildings.
| | - | ----------------------------------------------------------

Eligibility
for the benefits under the Industry Encouragement Law is not subject to receipt of prior
approval from any governmental authority. No assurance can be given that we qualify or
will continue to qualify as an Industrial Company or that the benefits
described above will be available in the future.

# Taxation of
Shareholders Capital Gains

Israeli
law imposes a capital gains tax on the sale of capital assets. The law distinguishes
between the Real Gain and the Inflationary Surplus. The Real Gain
is the difference between the total capital gain and the Inflationary Surplus. The
Inflationary Surplus is computed on the basis of the difference between the Israeli
consumer price index in the month of sale and the month of purchase. The Inflationary
Surplus accumulated after January 1, 1994 is exempt from capital gains tax. A foreign
resident may reduce the tax rate used for the Inflationary Surplus to zero if calculated
according to the exchange rate of the foreign currency lawfully invested in shares of the
Israeli resident company, instead of the Israeli consumer price index. Real Gains accrued
after January 1, 2003 are subject to capital gains tax of 25%, whereas assets
acquired before January 1, 2003 are subject to a blended tax rate based on the
relative periods of time that the assets were held before and after January 1, 2003.
Real Gains derived on or after January 1, 2003 from the sale of ordinary shares
traded on the Tel Aviv Stock Exchange or on a foreign stock exchange recognized by the
Israeli Ministry of Finance are subject to capital gains tax of 15%. According to the 2006
Tax Reform, an individual will subject to a 20% tax on real capital gains on the sales of
securities, including debentures, warrants and shares, so long the individual is not a
controlling shareholder (generally a shareholder with 10% or more in the right to profits,
right to nominate a director and voting rights) in the company issuing the securities.
This implies an increase in the tax rate on the gains from publicly traded securities from
15%, which was applicable to sales before January 1, 2006 to 20%. Non-residents are
generally exempt from tax on gains from the sale of such shares, provided that the Real
Gains are not derived by a non-residents permanent establishment in Israel. We note
that Nasdaq was recognized by the Israeli Ministry of Finance as a foreign stock exchange.

64

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# Application of the
U.S.-Israel Tax Treaty to Capital Gains Tax

Subject
to the U.S.-Israel Tax Treaty, the sale, exchange or disposition of the ordinary shares by
a person who qualifies as a resident of the United States and who is entitled to claim the
benefits afforded to that resident, which is called a Treaty U.S. Resident, generally will
not be subject to Israeli capital gains tax unless (i) that Treaty U.S. Resident held,
directly or indirectly, shares representing 10% or more of our voting power during any
part of the 12-month period preceding the sale, exchange or disposition; (ii) the U.S.
resident is present in Israel for a total of 183 days or more during the tax years; or
(iii) the capital gains from such sale can be allocated to a permanent establishment in
Israel. However, under the U.S.-Israel Tax Treaty, this Treaty U.S. Resident should be
permitted to claim credit for these taxes against U.S. income tax imposed with respect to
such sale, exchange or disposition, subject to the complex limitations set in U.S. laws
applicable to foreign tax credits.

# Taxation of
Non-Residents on Receipt of Dividends

Nonresidents
of Israel are subject to Israeli income tax on the receipt of dividends paid on the
ordinary shares at the rate of 25%, which tax will be withheld at source, unless the
dividends are paid from income derived from an Approved Enterprise during the applicable
benefit period, or a different rate is provided in a treaty between Israel and the
shareholders country of residence. Under the U.S.-Israel Tax Treaty, the maximum tax
on dividends paid to a holder of the ordinary shares who is a Treaty U.S. Resident will be
25%. However, when dividends are paid from income derived during any period for which the
Israeli company is not entitled to the reduced tax rate applicable to an Approved
Enterprise under Israels Law for the Encouragement of Capital Investments-1959, the
maximum tax will be 12.5% if the holder is a company holding shares representing 10% or
more of the voting power during the part of the taxable year preceding the date of payment
of dividends and during the whole of its prior taxable year, if any, and, if the company
has not derived more then 25% of its revenues from passive income. When dividends are paid
from income derived during any period for which the Israeli company is entitled to the
reduced tax rate applicable to an Approved Enterprise, then the tax will be 15%.

|F. | Dividends
and Paying Agents.
|-- | ----------------------------

Not
applicable.

|G. | Statement
by Experts.
|-- | ---------------------

Not
applicable.

|H. | Documents
on Display.
|-- | ---------------------

We
file annual and special reports and other information with the SEC. You may inspect and
copy such material at the public reference facilities maintained by the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549. You may also obtain copies of such material from the
SEC at prescribed rates by writing to the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room.

The
SEC maintains an Internet Web site at http://www.sec.gov that contains reports and other
material that are filed through the SECs Electronic Data Gathering, Analysis and
Retrieval, or EDGAR, system.

Our
ordinary shares are quoted on the NASDAQ Global Market. You may inspect reports and other
information concerning us at the offices of the National Association of Securities
Dealers, Inc., 9513 Key West Avenue, Rockville, Maryland 20850. Information about us is
also available on our site at http://www.camtek.co.il. Such information on our site is not
part of this Annual Report.

65

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As
a foreign private issuer, we are exempt from the rules under the Securities Exchange Act
of 1934, as amended, or Exchange Act, prescribing the furnishing and content of proxy
statements, and our officers, directors and principal shareholders are exempt from the
reporting and short-swing profit recovery provisions contained in Section 16
of the Exchange Act. In addition, we are not required under the Exchange Act to file
periodic reports and financial statements with the SEC as frequently or as promptly as
United States companies whose securities are registered under the Exchange Act. A copy of
each report submitted in accordance with applicable United States law is available for
public review at our principal executive offices.

|I. | Subsidiary
Information.
|-- | -----------------------

Not
applicable.

|Item 11. |  | Quantitative and Qualitative Disclosures About Market Risk
|-------- |  | ----------------------------------------------------------

Interest
Rate Risk

As
of December 31, 2008, we had a short-term loan bearing interest based on LIBOR in the sum
of $1.5 million (repaid in March 2009). Therefore, no significant interest rate risk
exists.

Foreign
Currency Rate Fluctuations

The
currency of the primary economic environment in which our operations are conducted is the
dollar, as most of our revenues are derived in dollars, and the prices of part of our
materials and components are purchased in dollars or are linked to changes in the
dollar/NIS exchange rate effective on the date of delivery of the goods to our factory.
Also, most of our marketing expenses are denominated in dollars or are dollar linked, and
our product prices in most countries outside of Europe and Japan are denominated in
dollars. However, most of our service income is denominated in local currency. In Europe
or Japan, if there is a significant devaluation in the local currency as compared to the
dollar, which was the case in Europe in 2006, 2007 and 2008, the prices of our products
will decrease relative to that local currency and negatively affect our revenues and
income. As the majority of our revenues are denominated in dollars, we believe that
inflation and fluctuations in the NIS/dollar exchange rate have no material effect on our
revenues. However, a major portion of the costs of our Israeli operations, such as
personnel, subcontractors, materials and facility-related, are incurred in NIS. As a
result, we bear the risk that our NIS costs, as expressed in dollars, increase to the
extent by which the continued appreciation of the NIS in relation to the dollar, as
experienced in 2008 and 2007, will increase our costs expressed in NIS and have an effect
on our net income. In order to secure part of the risk, we are engaged from time to time
in hedging transactions.

66

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The opened hedging transactions as of
December 31, 2008, are displayed in the following table:

|                      | Sum of notional
amount in dollars | Sum of fair market
value
in dollars
|--------------------- | --------------------------------- | -----------------------------------
|
|
|
|
|Forward (dollars/NIS) |                                   |                                    
|                      |                                   |                                    
|Options               |                                   |                                    
|Buy dollars and Sell  |                                   |                                    
|NIS(Put options)      |                                   |                                    
|                      |                                   |                                    
|Sell dollars and Buy  |                                   |                                    
|NIS (call options):   |                                   |                                    

In
our consolidated financial statements, transactions and balances originally denominated in
dollars are presented at their original amounts. Gains and losses arising from non-dollar
transactions and balances are included in the determination of net income as part of
financial expenses, net.

Our
balance sheet exposure to fluctuations in the exchange rate between the U.S. dollar and
other currencies are primarily from NIS denominated balances. As of December 31, 2008, we
had net liabilities of approximately $4.8 million, denominated in NIS. Any fluctuation in
the exchange rate between the NIS and the U.S. dollar of 1% will cause us expenses of
$48,000 or income for the same amount in case of increase or decrease in rates,
respectively.

|Item 12. |  | Description of Securities Other than Equity Securities.
|-------- |  | -------------------------------------------------------

Not
applicable.

# PART II

|Item 13. |  | Defaults, Dividend Arrearages and Delinquencies.
|-------- |  | ------------------------------------------------

None.

|Item 14. |  | Material Modifications to the Rights of Security Holders and Use of Proceeds.
|-------- |  | -----------------------------------------------------------------------------

Not
Applicable.

|Item 15T. |  | Controls and Procedures
|--------- |  | -----------------------

|a. | Disclosure
Controls and Procedures
|-- | ----------------------------------

Our
management, including our chief executive officer and chief 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, or the Exchange Act) as
of December 31, 2008, and have concluded that, as of such date, our disclosure
controls and procedures were effective to ensure that information required to be disclosed
by us in reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our chief executive officer and chief financial
officer, to allow timely decisions regarding required disclosure and is recorded,
processed, summarized and reported within the time periods specified by the SECs
rules and forms.

67

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|b. | Managements
Annual Report on Internal Control over Financial Reporting
|-- | -----------------------------------------------------------------------

Our management, under the supervision of
our chief executive officer and chief financial officer, is responsible for establishing
and maintaining adequate internal control over our financial reporting as defined in Rules
13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.

Because
of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Therefore, even those systems determined to be effective can provide
only reasonable assurances with respect to financial statement preparation and
presentation. Also, 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 decline.

Our
management evaluated the effectiveness of our internal control over financial reporting
based on the framework established in Internal Control  Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based
on this evaluation, management has assessed the effectiveness of our internal control over
financial reporting, as at December 31, 2008, and concluded that such internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
is effective.

This
Annual Report does not include an attestation report of our registered public accounting
firm regarding internal control over financial reporting. Managements report was not
subject to attestation by our registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only managements report in this Annual
Report.

|c. | Changes
In Internal Control Over Financial Reporting
|-- | ----------------------------------------------------

There
have been no changes in our internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)of the Exchange Act) during the period covered
by this report that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

|Item 16A. |  | Audit Committee Financial Expert
|--------- |  | --------------------------------

Our
Board of Directors has determined that each of Mr. Eran Bendoly and Ms. Gabriela Heller is
qualified as an audit committee financial expert as defined in Item 401(h) of
Regulation S-K.

|Item 16B. |  | Code of Ethics
|--------- |  | --------------

On
May 3, 2004, we adopted a Code of Ethics, which is applicable to all of our directors,
officers and employees, including our principal executive, financial and accounting
officers and persons performing similar functions. During 2007, the Code of Ethics was
updated and signed by all of our directors, officers and employees.

A
copy of the Code of Ethics is available on our website,
www.camtek.co.il. We will also provide a copy of the Code of Ethics
to any person, without charge, upon written request addressed to our Chief Financial
Officer at our corporate headquarters in Israel: Camtek Ltd., Ramat Gavriel
Industrial Zone, P.O. BOX 544, Migdal HaEmek, Israel.

68

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|Item 16C. |  | Principal Accountant Fees and Services
|--------- |  | --------------------------------------

Our
Audit Committee maintains a policy of approving and recommending only those services to be
performed by our external auditors which are permitted under the Sarbanes-Oxley Act of
2002 and the applicable rules of the SEC relating to auditors independence, and
which are otherwise consistent with and will encourage, and are remunerated at levels that
accord with, the basic principles of auditor independence.

The
following table presents the aggregate amount of fees for professional services rendered
to the Company by our principal accountant Somekh Chaikin, a member firm of KPMG
International, for the years ended December 31, 2008 and 2007:

|Fee Category | For Services Rendered
during 2008 | For Services
Rendered during 2007
|------------ | --------------------------------- | ---------------------------------
|
|
|
|
|Audit Fees   |                                   |                                  
|             |                                   |                                  
|Other        |                                   |                                  

Audit Fees: Consist of the
aggregate fees billed for professional services rendered for the audit of our annual
financial statements and services that are normally provided by independent registered
public accounting firm in connection with statutory and regulatory filings or engagements.

Other fees:Consist of fees
billed for professional services rendered with respect to potential acquisition that we
have pursued but decided to abort during the third quarter of 2008.

Our Audit Committee has adopted a
policy for pre-approval of audit and permitted non-audit services. Under the policy, the
Audit Committee will pre-approve all auditing services and permitted non-audit services
(including the fees and other terms) to be performed for the Company by its independent
auditor to the extent required by law. In addition, the Audit Committee may adopt policies
and procedures to permit delegation of authority to subcommittees consisting of one or
more members when appropriate, including the authority to grant pre-approvals of audit and
permitted non-audit services. Decisions of the subcommittee to grant pre-approvals will be
presented to the full Audit Committee at its next scheduled meeting.

|Item 16D. |  | Exemptions from the Listing Standards for Audit Committees.
|--------- |  | -----------------------------------------------------------

Not
applicable.

|Item 16E. |  | Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
|--------- |  | -----------------------------------------------------------------------

On August 12, 2008, our Board of Directors authorized a share repurchase program,
involving the repurchase from time to time of our ordinary shares, in a sum not to exceed
a total aggregate price of $2 million. The timing and exact number of shares purchased
will be at the Companys discretion. The buyback of shares may occur in open market,
negotiated or block transactions. We do not intend to purchase any shares from our
management team or other insiders. This share repurchase program does not obligate us to
acquire any specific number of shares and may be suspended or discontinued at any time.
Until the date of this Annual Report, we have purchased 1,080,757 ordinary shares for the
aggregate amount of $0.95 million (see details in the table below). In order to keep our
cash resources during the current economic recession, as of the date of this Annual
Report, there is no intention to continue and buy additional shares.

69

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Issuer Purchases of Equity Securities

|Period                              | (a) Total number of
Shares (or Units)
purchased | (b) Average Price
paid per Share (or
Units) | (c) Total number of
Shares (or Units)
purchased as part of
publicly announced
plans or programs | approximate Dollar value
that may be purchased under
the plans or programs
|----------------------------------- | ----------------------------------------------- | ------------------------------------------- | ----------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------
|
|
|
|
|January 1 through  January 31, 2008 |                                                 |                                             |                                                                                                 | 0                                                                         
|February 1                          |                                                 |                                            
|through February                    |                                                 |                                            
|29, 2008                            |                                                 |                                             |                                                                                                 | 0                                                                         
|March 1 through                     |                                                 |                                            
|March 31, 2008                      |                                                 |                                             |                                                                                                 | 0                                                                         
|                                    |                                                 |                                             |                                                                                                 |                                                                           
|April 1 through                     |                                                 |                                            
|April 30, 2008                      |                                                 |                                             |                                                                                                 | 0                                                                         
|                                    |                                                 |                                             |                                                                                                 |                                                                           
|May 1 through May                   |                                                 |                                            
|31, 2008                            |                                                 |                                             |                                                                                                 | 0                                                                         
|                                    |                                                 |                                             |                                                                                                 |                                                                           
|June 1 through                      |                                                 |                                            
|June 30, 2008                       |                                                 |                                             |                                                                                                 | 0                                                                         
|                                    |                                                 |                                             |                                                                                                 |                                                                           
|July 1 through                      |                                                 |                                            
|July 31, 2008                       |                                                 |                                             |                                                                                                 | 0                                                                         
|                                    |                                                 |                                             |                                                                                                 |                                                                           
|August 1 through                    |                                                 |                                            
|August 31, 2008                     |                                                 |                                             |                                                                                                 | 0                                                                         
|                                    |                                                 |                                             |                                                                                                 |                                                                           
|September 1                         |                                                 |                                            
|through September                   |                                                 |                                            
|30, 2008                            |                                                 |                                             |                                                                                                 | 812,900                                                                   
|                                    |                                                 |                                             |                                                                                                 |                                                                           
|October 1 through                   |                                                 |                                            
|October 31, 2008                    |                                                 |                                             |                                                                                                 | 267,857                                                                   
|November 1                          |                                                 |                                            
|through November                    |                                                 |                                            
|30, 2008                            |                                                 |                                             |                                                                                                 | 0                                                                         
|                                    |                                                 |                                             |                                                                                                 |                                                                           
|December 1                          |                                                 |                                            
|through December                    |                                                 |                                            
|31, 2008                            |                                                 |                                             |                                                                                                 | 0                                                                         
|                                    |                                                 |                                             |                                                                                                 |                                                                           
|                                    |                                                 |                                             |                                                                                                 |                                                                           
|Total                               |                                                 |                                             |                                                                                                 | 1,080,757                                                                 

|Item 16F. |  | Change in Registrants Certifying Accountant.
|--------- |  | ---------------------------------------------

Not
applicable.

70

---

---

|Item 16G. |  | Corporate Governance.
|--------- |  | ---------------------

Pursuant
to Rule 4350(a)(1) of the NASDAQ Marketplace Rules, we are relying on our home country
practice in lieu of the requirements set out in Rule 4350(l) that all securities listed on
Nasdaq be eligible for a direct registration program operated by a registered clearing
agency. Our procedures regarding the issuance of stock certificates comply with Israeli
law and practice. According to the Israeli Companies Law, a share certificate is
defined as a certificate in which the name of the owner registered in the company
registers is stated, stating the number of shares he owns. In the event that what is
registered in the companys shareholders register conflicts with a share certificate,
then the evidentiary value of the shareholder register outweighs the evidentiary
value of the share certificate. A shareholder registered in the
companys shareholders register is entitled to receive from the company
a certificate evidencing his ownership of the share.

The
Company has also opted out of the shareholder approval requirements regarding stock option
plans and other equity based compensation arrangements as set forth in Nasdaq Rule
4350(i)(1)(A).

Thus, as required under Israeli
Companies Law, special shareholder voting procedures were followed for the approval of
compensation of office holders or employees who are controlling shareholders or any
relative thereof. In accordance with Israeli law requirements, equity based compensation
arrangements with office holders or employees who are not controlling shareholders or any
relative thereof, as well as equity plans, are approved by our Board of Directors.

Further,
the Company has opted out of the annual meeting requirement, as set forth in NASDAQ
Marketplace Rule 4350(e), which requires Camtek to hold its annual meetings of
shareholders within twelve months of the end of a companys fiscal year end. Instead,
Camtek is following home country practice and law in this respect. Israeli law requires
that an annual meeting of the shareholders be held every year, and not later than
15 months following the last annual meeting (see above in Voting,
Shareholders Meetings and Resolutions). Our 2009 annual general
meeting of shareholders is scheduled to be held on April 20, 2009.

# PART III

|Item 17. |  | Consolidated Financial Statements.
|-------- |  | ----------------------------------

The Company has furnished financial
statements and related information specified in Item 18.

|Item 18. |  | Consolidated Financial Statements.
|-------- |  | ----------------------------------

Our consolidated financial statements
and report of independent registered public accounting firm in connection therewith, as
appear below, are hereby incorporated into this Annual Report.

71

---

---

CAMTEK LTD.and its subsidiaries

Consolidated Financial Statements
As of and for the year 
ended December 31, 2008

---

---



CAMTEK
LTD. and its subsidiaries

INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS

|                                                         |                
|-------------------------------------------------------- | ---------------
|                                                         | Page           
|                                                         |                
|                                                         |                
|Report of Independent Registered Public
 Accounting Firm | F - 2          
|                                                         |                
|Consolidated Balance Sheets                              | F - 3          
|                                                         |                
|Consolidated Statements of Operations                    | F - 4          
|                                                         |                
|Consolidated Statements of Comprehensive
 Income (Loss)  | F - 5          
|                                                         |                
|Consolidated Statements of Shareholders
 Equity         | F - 6          
|                                                         |                
|Consolidated Statements of Cash Flows                    | F - 7 to F - 8 
|                                                         |                
|Notes to Consolidated Financial Statements               | F - 9 to F - 37

---

---



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

We have audited the
accompanying consolidated balance sheets of Camtek Ltd. and subsidiaries (the
Company) as of December 31, 2008 and 2007, and the related consolidated statements of
operations, comprehensive income (loss), shareholders equity and cash flows
for each of the years in the three-year period ended December 31, 2008. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Camtek Ltd. and subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their cash
flows for for each of the years in the three-year period ended December 31,
2008 in conformity with U.S. generally accepted accounting principles.

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

As discussed in note 1 (B)
and 13 (D) (3) to the consolidated financial statements, a recent verdict has
been rendered in favor of a competitor in its patent infringement case against
the Company.

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

Tel Aviv, Israel
April 7, 2009

---

---



CAMTEK
 LTD. and its subsidiaries

|                           
|---------------------------
|Consolidated Balance Sheets
|                           

(In thousands)


|                                                                                                                                                                             |  |                             |        |      |  |        |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | ---- |  | ------ | -
|                                                                                                                                                                             |  | December 31,                |       
|                                                                                                                                                                             |  |                             |       
|                                                                                                                                                                             |  | 2008                        |        | 2007 | 
|                                                                                                                                                                             |  |                             |        |      | 
|                                                                                                                                                                             |  | U.S. Dollars (In thousands) |       
|                                                                                                                                                                             |  |                             |       
|                                                                                                                                                                             |  |                             |       
|Assets                                                                                                                                                                       |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Current assets                                                                                                                                                               |  |                             |        |      |  |        |  
|Cash and cash equivalents (Note 3)                                                                                                                                           |  |                             | 15,949 |      |  | 18,601 |  
|Marketable securities (Note 4)                                                                                                                                               |  |                             |       |      |  | 1,395  |  
|Accounts receivable, net (Note 13B,C)                                                                                                                                        |  |                             | 18,156 |      |  | 23,500 |  
|Inventories (Note 5)                                                                                                                                                         |  |                             | 9,792  |      |  | 34,243 |  
|Due from affiliates                                                                                                                                                          |  |                             | 414    |      |  | 251    |  
|Other current assets (Note 6)                                                                                                                                                |  |                             | 1,929  |      |  | 2,616  |  
|Deferred tax asset (Note 19)                                                                                                                                                 |  |                             | 39     |      |  | 124    |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Total current assets                                                                                                                                                         |  |                             | 46,279 |      |  | 80,730 |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Fixed assets (Note 7)                                                                                                                                                        |  |                             |        |      |  |        |  
|Cost                                                                                                                                                                         |  |                             | 23,624 |      |  | 21,632 |  
|Less - Accumulated depreciation                                                                                                                                              |  |                             | 7,976  |      |  | 6,307  |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Fixed assets, net                                                                                                                                                            |  |                             | 15,648 |      |  | 15,325 |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Marketable securities (Note 4)                                                                                                                                               |  |                             |       |      |  | 1,075  |  
|Long term inventory (Note 5)                                                                                                                                                 |  |                             | 21,653 |      |  |       |  
|Deferred tax asset (Note 19)                                                                                                                                                 |  |                             | 127    |      |  | 612    |  
|Other assets, net (Note 8)                                                                                                                                                   |  |                             | 1,028  |      |  | 723    |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             | 22,808 |      |  | 2,410  |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Total assets                                                                                                                                                                 |  |                             | 84,735 |      |  | 98,465 |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Liabilities and
 shareholders equity                                                                                                                                        |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Current liabilities                                                                                                                                                          |  |                             |        |      |  |        |  
|Short term loan (Note 9)                                                                                                                                                     |  |                             | 1,500  |      |  |       |  
|Accounts payable trade                                                                                                                                                      |  |                             | 5,240  |      |  | 7,960  |  
|Due to affiliates                                                                                                                                                            |  |                             | 294    |      |  | 866    |  
|Convertible loan  current portion                                                                                                                                           |  |                             | 1,667  |      |  | 1,667  |  
|Other current liabilities (Note 10)                                                                                                                                          |  |                             | 11,382 |      |  | 11,465 |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Total current liabilities                                                                                                                                                    |  |                             | 20,083 |      |  | 21,958 |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Long term liabilities                                                                                                                                                        |  |                             |        |      |  |        |  
|Convertible loan (Note 11), net of current
 portion                                                                                                                          |  |                             | 1,666  |      |  | 3,333  |  
|Liability for employee severance benefits
 (Note 12)                                                                                                                         |  |                             | 271    |      |  | 268    |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Total liabilities                                                                                                                                                            |  |                             | 22,020 |      |  | 25,559 |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Commitments and
 contingencies (Note 13)                                                                                                                                     |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Shareholders equity                                                                                                                                                         |  |                             |        |      |  |        |  
|Ordinary shares NIS 0.01 par value,
 authorized 100,000,000 shares, issued 31,227,484 in 2008 and 31,145,334 in 2007, outstanding
 29,135,108 in 2008 and 30,133,715 in 2007 |  |                             | 132    |      |  | 132    |  
|Additional paid-in capital                                                                                                                                                   |  |                             | 60,149 |      |  | 59,878 |  
|Retained earnings                                                                                                                                                            |  |                             | 4,332  |      |  | 13,889 |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             | 64,613 |      |  | 73,899 |  
|Treasury stock, at cost (2,092,376 shares in 2008 and 1,011,619 in
 2007)                                                                                                    |  |                             | (1,898 | )    |  | (993   | )
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Total shareholders equity                                                                                                                                                   |  |                             | 62,715 |      |  | 72,906 |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  
|Total liabilities and
 shareholders equity                                                                                                                                  |  |                             | 84,735 |      |  | 98,465 |  
|                                                                                                                                                                             |  |                             |        |      |  |        |  

See accompanying notes to consolidated financial statements

F - 3

---

---



CAMTEK
 LTD. and its subsidiaries

|                                     
|-------------------------------------
|Consolidated Statements of Operations
|                                     

|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|-------------------------------------------------------- |  | --------------------------------------------------- | ------ | ---- |  | ------ | - |  | ------- | -
|                                                         |  | Year Ended December 31,                             |       
|                                                         |  |                                                     |       
|                                                         |  | 2008                                                |        | 2007 |  | 2006   |  
|                                                         |  |                                                     |        |      |  |        |  
|                                                         |  | U.S. Dollars (In thousands,
 except per share data) |       
|                                                         |  |                                                     |       
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Revenues:                                                |  |                                                     |        |      |  |        |   |  |         |  
|Sales of products                                        |  |                                                     | 62,135 |      |  | 59,654 |   |  | 92,470  |  
|Service fees                                             |  |                                                     | 13,328 |      |  | 11,315 |   |  | 7,585   |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Total revenues (Note 17, 18A)                            |  |                                                     | 75,463 |      |  | 70,969 |   |  | 100,055 |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Cost of revenues:                                        |  |                                                     |        |      |  |        |   |  |         |  
|Cost of products sold                                    |  |                                                     | 37,073 |      |  | 32,769 |   |  | 42,600  |  
|Cost of services                                         |  |                                                     | 10,542 |      |  | 9,171  |   |  | 5,842   |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Total cost of revenues                                   |  |                                                     | 47,615 |      |  | 41,940 |   |  | 48,442  |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Gross profit                                             |  |                                                     | 27,848 |      |  | 29,029 |   |  | 51,613  |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Research and development costs                           |  |                                                     | 12,801 |      |  | 12,111 |   |  | 11,831  |  
|Selling, general and
 administrative expenses (Note 18B) |  |                                                     | 24,834 |      |  | 24,119 |   |  | 27,850  |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Total operating expenses                                 |  |                                                     | 37,635 |      |  | 36,230 |   |  | 39,681  |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Operating (loss) income                                  |  |                                                     | (9,787 | )    |  | (7,201 | ) |  | 11,932  |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Financial income (expenses),
 net (Note 18C)             |  |                                                     | 1,000  |      |  | (128   | ) |  | (288    | )
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Income (loss) before income
 taxes                       |  |                                                     | (8,787 | )    |  | (7,329 | ) |  | 11,644  |  
|Income tax expense (Note 19)                             |  |                                                     | (770   | )    |  | (362   | ) |  | (41     | )
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Net income (loss)                                        |  |                                                     | (9,557 | )    |  | (7,691 | ) |  | 11,603  |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Earnings (loss) per ordinary
 share (Note 16):           |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Basic                                                    |  |                                                     | (0.32  | )    |  | (0.25  | ) |  | 0.40    |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Diluted                                                  |  |                                                     | (0.32  | )    |  | (0.25  | ) |  | 0.39    |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Weighted average number of
 ordinary shares outstanding: |  |                                                     |        |      |  |        |   |  |         |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Basic                                                    |  |                                                     | 29,916 |      |  | 30,145 |   |  | 29,176  |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  
|Diluted                                                  |  |                                                     | 29,916 |      |  | 30,145 |   |  | 29,553  |  
|                                                         |  |                                                     |        |      |  |        |   |  |         |  

See accompanying notes to consolidated financial statements

F - 4

---

---



CAMTEK
 LTD. and its subsidiaries

|                                                       
|-------------------------------------------------------
|Consolidated Statements of Comprehensive Income
 (Loss)
|                                                       

|                                                                                                      |  |                             |        |      |  |        |   |  |        |  
|----------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | ---- |  | ------ | - |  | ------ | -
|                                                                                                      |  | Year Ended December 31,     |       
|                                                                                                      |  |                             |       
|                                                                                                      |  | 2008                        |        | 2007 |  | 2006   |  
|                                                                                                      |  |                             |        |      |  |        |  
|                                                                                                      |  | U.S. Dollars (In thousands) |       
|                                                                                                      |  |                             |       
|                                                                                                      |  |                             |        |      |  |        |   |  |        |  
|Net income (loss)                                                                                     |  |                             | (9557  | )    |  | (7,691 | ) |  | 11,603 |  
|                                                                                                      |  |                             |        |      |  |        |   |  |        |  
|Other comprehensive income:                                                                           |  |                             |        |      |  |        |   |  |        |  
|                                                                                                      |  |                             |        |      |  |        |   |  |        |  
|Realization of loss on available for sale securities, net of taxes
 (nil)                             |  |                             |       |      |  | 1      |   |  | 2      |  
|                                                                                                      |  |                             |        |      |  |        |   |  |        |  
|Unrealized holding loss on available for sale securities arising
 during the year, net of taxes (nil) |  |                             |       |      |  |       |   |  | (1     | )
|                                                                                                      |  |                             |        |      |  |        |   |  |        |  
|                                                                                                      |  |                             |        |      |  |        |   |  |        |  
|Comprehensive income (loss)                                                                           |  |                             | (9,557 | )    |  | (7,690 | ) |  | 11,604 |  
|                                                                                                      |  |                             |        |      |  |        |   |  |        |  

See accompanying notes to consolidated financial statements

F - 5

---

---



CAMTEK
 LTD. and its subsidiaries

|                                               
|-----------------------------------------------
|Consolidated Statements of Shareholders Equity
|                                               

|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|-------------------------------------------- |  | --------------------------------- | ---------- | ------------------------- | ------------ | -------------------------- |  | ------------------------------------ | ---------- | ------------------------------------------------ |  | ---------------- | - | --------------- | ---- | ----------------------------- |  | -- | - |  | ------ | - |  | ------ | - |  | ------ | -
|                                             |  | Ordinary SharesNIS 0.01 par value |            | Number of
 treasuryshares |              | Additional
 paid-incapital |  | Deferred
 share
 based
 compensation |            | Accumulated
 other
 comprehensive
 income (loss) |  | Retainedearnings |   | Treasury
 stock |      | Total
 shareholders 
 equity | 
|                                             |  |                                   |            |                           | U.S. Dollars |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   | 
|                                             |  | Shares                            |            | (In Thousands)            |              | Shares                     |  | U.S. Dollars (In thousands)          |           
|                                             |  |                                   |            |                           |              |                            |  |                                      |           
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|Balances at December 31,2005                 |  |                                   | 28,095,516 |                           |              | 125                        |  |                                      | (1,011,619 | )                                                |  | 43,732           |   |                 | (221 | )                             |  | (2 | ) |  | 9,977  |   |  | (993   | ) |  | 52,618 |  
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|Adoption of SFAS 123-R                       |  |                                   |           |                           |              |                           |  |                                      |           |                                                  |  | (221             | ) |                 | 221  |                               |  |   |   |  |       |   |  |       |   |  |       |  
|Share issuance, net of issuance expenses*    |  |                                   | 2,525,252  |                           |              | 6                          |  |                                      |           |                                                  |  | 14,442           |   |                 |     |                               |  |   |   |  |       |   |  |       |   |  | 14,448 |  
|Exercise of share options                    |  |                                   | 431,706    |                           |              | 1                          |  |                                      |           |                                                  |  | 701              |   |                 |     |                               |  |   |   |  |       |   |  |       |   |  | 702    |  
|Share based compensation expense             |  |                                   |           |                           |              |                           |  |                                      |           |                                                  |  | 766              |   |                 |     |                               |  |   |   |  |       |   |  |       |   |  | 766    |  
|Realization of loss on marketable securities |  |                                   |           |                           |              |                           |  |                                      |           |                                                  |  |                 |   |                 |     |                               |  | 2  |   |  |       |   |  |       |   |  | 2      |  
|Unrealized loss on marketable securities     |  |                                   |           |                           |              |                           |  |                                      |           |                                                  |  |                 |   |                 |     |                               |  | (1 | ) |  |       |   |  |       |   |  | (1     | )
|Net income                                   |  |                                   |           |                           |              |                           |  |                                      |           |                                                  |  |                 |   |                 |     |                               |  |   |   |  | 11,603 |   |  |       |   |  | 11,603 |  
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|Balances at December 31,2006                 |  |                                   | 31,052,474 |                           |              | 132                        |  |                                      | (1,011,619 | )                                                |  | 59,420           |   |                 |     |                               |  | (1 | ) |  | 21,580 |   |  | (993   | ) |  | 80,138 |  
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|Exercise of share options                    |  |                                   | 92,860     |                           |              | **                         |  |                                      |           |                                                  |  | 32               |   |                 |     |                               |  |   |   |  |       |   |  |       |   |  | 32     |  
|Share based compensation expense             |  |                                   |           |                           |              |                           |  |                                      |           |                                                  |  | 426              |   |                 |     |                               |  |   |   |  |       |   |  |       |   |  | 426    |  
|Realization of loss on marketable securities |  |                                   |           |                           |              |                           |  |                                      |           |                                                  |  |                 |   |                 |     |                               |  | 1  |   |  |       |   |  |       |   |  | 1      |  
|Net Loss                                     |  |                                   |           |                           |              |                           |  |                                      |           |                                                  |  |                 |   |                 |     |                               |  |   |   |  | (7,691 | ) |  |       |   |  | (7,691 | )
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|Balances at December 31,2007                 |  |                                   | 31,145,334 |                           |              | 132                        |  |                                      | (1,011,619 | )                                                |  | 59,878           |   |                 |     |                               |  |   |   |  | 13,889 |   |  | (993   | ) |  | 72,906 |  
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|Exercise of share options                    |  |                                   | 82,150     |                           |              | **                         |  |                                      |           |                                                  |  |                 |   |                 |     |                               |  |   |   |  |        |   |  |       |   |  |       |  
|Share based compensation expense             |  |                                   |           |                           |              |                           |  |                                      |           |                                                  |  | 271              |   |                 |     |                               |  |   |   |  |        |   |  |       |   |  | 271    |  
|Net Loss                                     |  |                                   |           |                           |              |                           |  |                                      |           |                                                  |  |                 |   |                 |     |                               |  |   |   |  | (9,557 | ) |  |       |   |  | (9,557 | )
|Purchase of treasury shares                  |  |                                   |           |                           |              |                           |  |                                      | (1,080,757 | )                                                |  |                 |   |                 |     |                               |  |   |   |  |       |   |  | (905   | ) |  | (905   | )
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  
|Balances at December 31,2008                 |  |                                   | 31,227,484 |                           |              | 132                        |  |                                      | (2,092,376 | )                                                |  | 60,149           |   |                 |     |                               |  |   |   |  | 4,332  |   |  | (1,898 | ) |  | 62,715 |  
|                                             |  |                                   |            |                           |              |                            |  |                                      |            |                                                  |  |                  |   |                 |      |                               |  |    |   |  |        |   |  |        |   |  |        |  

|   |                                           
|-- | ------------------------------------------
|*  | Net of issuance expenses of $560 thousand.
|** | Less than $1 thousand.                    

See accompanying notes to consolidated financial statements

F - 6

---

---



CAMTEK
 LTD. and its subsidiaries

|                                     
|-------------------------------------
|Consolidated Statements of Cash Flows
|                                     

|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|--------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | ---- |  | ------ | - |  | ------- | -
|                                                                                                    |  | Year Ended December 31,     |       
|                                                                                                    |  |                             |       
|                                                                                                    |  | 2008                        |        | 2007 |  | 2006   |  
|                                                                                                    |  |                             |        |      |  |        |  
|                                                                                                    |  | U.S. Dollars (In thousands) |       
|                                                                                                    |  |                             |       
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|Cash flows from operating
 activities:                                                              |  |                             |        |      |  |        |   |  |         |  
|Net income (loss)                                                                                   |  |                             | (9,557 | )    |  | (7,691 | ) |  | 11,603  |  
|Adjustments to reconcile net income (loss) to net cash provided by
 (used in) operating activities: |  |                             |        |      |  |        |   |  |         |  
|Depreciation and amortization                                                                       |  |                             | 1,949  |      |  | 1,307  |   |  | 794     |  
|Loss (gain) on disposal of fixed assets                                                             |  |                             | 11     |      |  | (40    | ) |  | 24      |  
|Gain from marketable securities, net                                                                |  |                             | (8     | )    |  | (25    | ) |  | (6      | )
|Deferred tax expense (benefit)                                                                      |  |                             | 570    |      |  | (59    | ) |  | (434    | )
|Share based compensation expense                                                                    |  |                             | 271    |      |  | 426    |   |  | 766     |  
|Provision for bad debts                                                                             |  |                             | 722    |      |  | 583    |   |  | 778     |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|Changes in operating assets and liabilities:                                                        |  |                             |        |      |  |        |   |  |         |  
|Accounts receivable                                                                                 |  |                             | 4,407  |      |  | 5,148  |   |  | (4,230  | )
|Inventories                                                                                         |  |                             | 1,576  |      |  | 4,522  |   |  | (16,472 | )
|Due to / from affiliates                                                                            |  |                             | (735   | )    |  | (19    | ) |  | 924     |  
|Other current assets                                                                                |  |                             | 694    |      |  | (273   | ) |  | (229    | )
|Accounts payable  trade                                                                            |  |                             | (2,720 | )    |  | (3,841 | ) |  | 3,123   |  
|Other current liabilities                                                                           |  |                             | (83    | )    |  | (1,366 | ) |  | 4,110   |  
|Liability for employee severance benefits                                                           |  |                             | 3      |      |  | 46     |   |  |        |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|Net cash (used in) provided by operating
 activities                                                |  |                             | (2,900 | )    |  | (1,282 | ) |  | 751     |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|Cash flows from investing activities:                                                               |  |                             |        |      |  |        |   |  |         |  
|Purchase of marketable securities                                                                   |  |                             | (397   | )    |  | (6,770 | ) |  | (3,891  | )
|Proceeds from sale of marketable
 securities                                                        |  |                             | 2,875  |      |  | 6,425  |   |  | 3,900   |  
|Purchase of fixed assets                                                                            |  |                             | (1,021 | )    |  | (3,236 | ) |  | (1,582  | )
|Purchase of intangible assets                                                                       |  |                             | (352   | )    |  | (169   | ) |  | (114    | )
|Proceeds from disposal of fixed assets                                                              |  |                             |       |      |  | 40     |   |  |        |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|Net cash provided by (used in) investing
 activities                                                |  |                             | 1,105  |      |  | (3,710 | ) |  | (1,687  | )
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|Cash flows from financing
 activities:                                                              |  |                             |        |      |  |        |   |  |         |  
|Increase in short-term bank credit                                                                  |  |                             | 1,500  |      |  |       |   |  |        |  
|Net proceeds from issuance of ordinary
 shares                                                      |  |                             |       |      |  |       |   |  | 14,448  |  
|Proceeds from exercise of share options                                                             |  |                             |       |      |  | 32     |   |  | 702     |  
|Purchase of treasury stock                                                                          |  |                             | (905   | )    |  |       |   |  |        |  
|Payment of long-term convertible loan                                                               |  |                             | (1,667 | )    |  |       |   |  |        |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|Net cash (used in) provided by financing
 activities                                                |  |                             | (1,072 | )    |  | 32     |   |  | 15,150  |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|Effect of exchange rate
 changes on cash                                                            |  |                             | 215    |      |  | 203    |   |  | 430     |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|Net (decrease) increase
 in cash and cash equivalents                                               |  |                             | (2,652 | )    |  | (4,757 | ) |  | 14,644  |  
|Cash and cash equivalents at beginning of
 the year                                                 |  |                             | 18,601 |      |  | 23,358 |   |  | 8,714   |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  
|Cash and cash equivalents
 at end of the year                                                       |  |                             | 15,949 |      |  | 18,601 |   |  | 23,358  |  
|                                                                                                    |  |                             |        |      |  |        |   |  |         |  

See accompanying notes to consolidated financial statements

F - 7

---

---



CAMTEK
 LTD. and its subsidiaries

|                                     
|-------------------------------------
|Consolidated Statements of Cash Flows
|                                     

|                                      |                                        |  |                             |       |      |   |       |  |  |     | 
|------------------------------------- | -------------------------------------- |  | --------------------------- | ----- | ---- | - | ----- |  |  | --- | 
|                                      |                                        |  | Year ended December 31,     |      
|                                      |                                        |  |                             |      
|                                      |                                        |  | 2008                        |       | 2007 |   | 2006  | 
|                                      |                                        |  |                             |       |      |   |       | 
|                                      |                                        |  | U.S. Dollars (In thousands) |      
|                                      |                                        |  |                             |      
|                                      |                                        |  |                             |       |      |   |       |  |  |     | 
|Supplementary cash flows information: |                                        |  |                             |       |      |   |       |  |  |    
|A.                                    | Cash paid during the year for:         |  |                             |       |      |   |       |  |  |     | 
|                                      | Interest                               |  | $                           | 277   |      | $ | 320   |  |  | 422 | 
|                                      |                                        |  |                             |       |      |   |       |  |  |     | 
|                                      | Income taxes                           |  | $                           | 200   |      | $ | 308   |  |  | 27  | 
|                                      |                                        |  |                             |       |      |   |       |  |  |     | 
|                                      |                                        |  |                             |       |      |   |       |  |  |     | 
|B.                                    | Non-cash transactions:                 |  |                             |       |      |   |       |  |  |     | 
|                                      | Transfer of
 inventory to fixed assets |  | $                           | 1,222 |      | $ | 2,649 |  |  |    | 
|                                      |                                        |  |                             |       |      |   |       |  |  |     | 

See accompanying notes to consolidated financial statements.

F - 8

---

---



CAMTEK LTD.
and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 1  BUSINESS

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Camtek Ltd. (Camtek), an Israeli corporation, is a majority owned
 (63.9%) subsidiary of Priortech Ltd. (Parent), an Israeli corporation
 listed on the Tel-Aviv Stock Exchange. Camtek designs, develops manufactures
 and markets automatic optical inspection systems (AOI systems) and related
 products. Camteks AOI systems are used for yield enhancement for various
 applications in the electronic supply chain industry. The main applications
 along this supply chain are the production of Microelectronics, Printed
 Circuit Boards (PCB) and Electronic packaging. Camteks
 activities are conducted in one reportable business segment.                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|B. | As noted in note 13 (D)(3), a recent jury verdict has been rendered in favor of
          a competitor in its  patent infringement case against Camtek.  As of
          the date of these financial statements, the court has not entered a judgment on
          the verdict. Camtek intends to aggressively pursue motions to overturn or
          modify the jurys verdict. Should Camtek be unsuccessful at the trial court
          level, it plans to appeal any adverse judgment. The payment of the
          damages set forth in a judgment if and when required, may adversely
          affect Camteks liquidity, therefore, will require Camtek to further reduce
          its expenses and to arrange for additional financing. Management believes that,
          taking into consideration the assets and resources of Camtek, it should be
          able to secure additional financing, if and when required.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Camtek
 anticipates that its existing capital resources and cash flows from
 operations will be adequate to satisfy its liquidity requirements through
 calendar year 2009. If available liquidity is not sufficient to meet Camteks
 operating and loan obligations as they come due, managements plans include
 pursuing alternative financing arrangements or reducing expenditures as
 necessary to meet Camteks cash requirements throughout 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | However, as a result of
 the current global economic and financial crisis and other factors, including
 Camteks operating losses and financial condition, there is no assurance
 that, if and when required, Camtek will be able to raise additional finance
 or reduce discretionary spending to provide the required liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The accompanying consolidated financial
 statements, which include the accounts of Camtek and its subsidiaries
 (collectively the Company), are prepared in accordance with U.S. generally
 accepted accounting principles. All material intercompany balances and
 transactions have been eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|B. | Use of Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The
 preparation of the accompanying consolidated financial statements in
 conformity with accounting principles generally accepted in the United States
 of America requires management to make estimates and assumptions about future
 events. These estimates and the underlying assumptions affect the amounts of
 assets and liabilities reported, disclosures about contingent assets and
 liabilities, and reported amounts of revenues and expenses. Such estimates
 include valuation of accounts receivable, inventories, intangible assets, and
 other long-lived assets, legal contingencies, among others. These estimates
 and assumptions are based on managements best estimates and judgment.
 Management evaluates its estimates and assumptions on an ongoing basis using
 historical experience and other factors, including the current economic
 environment, which management believes to be reasonable under the
 circumstances. It is often difficult to accurately estimate the ultimate
 outcome of a contingent liability. Different variables can affect the timing
 and amount that management provides for certain contingent liabilities.
 Companys assessments are therefore subject to estimates made by management
 and its legal counsel. Adverse revision in management estimates of the
 potential liability could materially impact Companys financial condition,
 results of operations or liquidity.

F - 9

---

---



CAMTEK LTD.
and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 2  SIGNIFICANT
ACCOUNTING POLICIES (Contd)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|B. | Use of Estimates (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company
 adjusts such estimates and assumptions when facts and circumstances dictate.
 Illiquid credit markets and declines in consumer spending have combined to
 increase the uncertainty inherent in such estimates and assumptions. As
 future events and their effects cannot be determined with precision, actual
 results could differ significantly from these estimates. Changes in those
 estimates resulting from continuing changes in the economic environment will
 be reflected in the financial statements in future periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|C. | Foreign currency transactions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The functional currency of the Company is the U.S. Dollar. Revenue
 generated by the Company is primarily generated outside of Israel and a majority
 thereof is received in U.S. Dollars. In addition, materials and components
 purchased and marketing expenses incurred are either paid for in U.S. Dollars
 or in New Israeli Shekels (NIS) linked to changes in the U.S. Dollar/NIS
 exchange rate. A significant portion of the Companys expenses are incurred
 in Israel and paid for in NIS. Transactions not
 denominated in U.S. Dollars are recorded upon their initial recognition according to the
 exchange rate in effect on the date of the transaction. Exchange rate
 differences arising upon the settlement of monetary items or upon reporting
 the Companys monetary items at exchange rates different from that by which
 they were initially recorded during the period, or reported in previous
 financial statements, are charged to financial income (expenses), net.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|D. | Cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | All highly liquid investments purchased with original maturities of
 three months or less are considered to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|E. | Marketable securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company accounts for its investments in marketable securities in
 accordance with Statement of Financial Accounting Standard (SFAS) No. 115
 Accounting for Certain Investments in Debt and Equity Securities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | As of December 31, 2007 all marketable securities are designated as
 available-for-sale and accordingly are recorded at fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Unrealized holding gains and losses, net of the related tax effect,
 on available-for-sale securities are excluded from earnings and are reported
 as a separate component of other comprehensive income (loss) until realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|F. | Allowance for doubtful accounts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The allowance for doubtful accounts
 represents Managements best estimate of the probable loss inherent in
 existing accounts receivable balances as a result of possible non-collection.
 In determining the appropriate allowance, Management bases its estimate on
 information available about specific debtors, including aging of the balance,
 assessment of the underlying security received, the history of write-offs,
 relationships with the customers and the overall creditworthiness of the
 customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F - 10

---

---



CAMTEK LTD.
and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 2  SIGNIFICANT
ACCOUNTING POLICIES (Contd)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|G. | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Inventories consist of completed AOI
 systems, AOI systems partially completed and components, and are recorded at
 the lower of cost or market. Cost is determined by the moving  average cost method basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Inventory write-downs are recorded for damaged, obsolete, excess and
 slow-moving inventory. Management periodically evaluates its inventory
 composition, giving consideration to factors such as the probability and
 timing of anticipated usage and the physical condition of the items, and then
 estimate a charge (reducing the inventory) to be provided for slow moving,
 technological obsolete or damaged inventory. These estimates could vary
 significantly, either favorably or unfavorably, from actual requirements
 based upon future economic conditions, customer inventory levels or
 competitive factors that were not foreseen or did not exist when the
 inventory write-downs were established.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Inventory that is not expected to be converted or consumed in the
 next year is classified as non-current, based upon an analysis of market
 conditions such as sales trends, sales forecast and other factors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|H. | Fixed assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Fixed assets are stated at cost less accumulated depreciation, and
 are depreciated over their estimated useful lives on a straight-line basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Annual rates of depreciation are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                |  |          
|------------------------------- |  | ---------
|Building                        |  | 2%       
|Machinery
 and equipment        |  | 10% - 33%
|Office
 furniture and equipment |  | 6% - 20% 
|Automobiles                     |  | 15%      

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | Leasehold improvements are amortized by the straight-line method over
 the shorter of the lease term or the estimated useful economic life of such
 improvements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|I. | Intangible
 assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Intangible assets,
 comprised of patent registration costs, are capitalized at cost and
 amortized, beginning with the first year of utilization, over its expected
 life of ten years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|J. | Long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company applies SFAS No. 144, Accounting for the Impairment or
 Disposal of Long-Lived Assets. This Statement requires that long-lived
 assets be reviewed for impairment whenever events or changes in circumstances
 indicate that the carrying amount of an asset may not be recoverable.
 Recoverability of assets to be held and used is measured by a comparison of
 the carrying amount of an asset to undiscounted future cash flows expected to
 be generated by the asset. If the carrying amount of the long lived asset
 exceeds its estimated undiscounted future cash flows, an impairment charge is
 recognized as computed by subtracting the fair market value of the asset from
 its carrying value.

F - 11

---

---



CAMTEK LTD.
and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 2  SIGNIFICANT
ACCOUNTING POLICIES (Contd)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|K. | Fair values of financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The carrying amounts for cash and cash equivalents, accounts
 receivable, accounts payable, accrued expenses and amounts due to/from
 affiliates approximate fair value because of the short-term duration of those
 items. Marketable securities are carried at quoted market prices, which
 represent fair value. The carrying amount of the convertible loan and amounts
 due to or from Parent approximate fair value because the interest rates on
 such amounts approximate the market rate.                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The fair value of financial instruments included in working capital
 generally approximate their carrying amounts. The fair value of long-term
 liabilities also approximate the carrying amounts, since they bear floating
 rate interest at rates close to prevailing market rates.                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|L. | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company recognizes revenue from sales in accordance with
 Securities and Exchange Commission Staff Accounting Bulletin No. 104 SAB
 104 and Financial Accounting Standard Boards Emerging Issues Task Force
 (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.
 Accordingly, the Company recognizes revenue from sales of its products when
 the products are installed at the customers premises and are operating in
 accordance with its specifications, signed documentation of the arrangement,
 such as a signed contract or purchase order, has been received, the price is
 fixed or determinable, and collectibility is reasonably assured.                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Service revenues consist mainly of revenues from maintenance
 contracts and are recognized ratably over the contract period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Revenue under multiple element arrangements is recognized in
 accordance with EITF Issue No. 00-21, Revenue Arrangements with Multiple
 Deliverables. Under this method, if an element is determined to be a
 separate unit of accounting, the revenue for the element is based on its fair
 value and determined by vendor objective evidence (VOE). Accordingly,
 non-standard warranty, with determined VOE, is deferred as unearned revenue
 and is recognized ratably as revenue commencing with and over the applicable
 warranty term.                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|L. | Warranty                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company records a liability for product warranty obligations at
 the time of sale based upon historical warranty experience. The term of the
 warranty is generally twelve months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|M. | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company accounts for income taxes in accordance with SFAS No. 109,
 Accounting for Income Taxes (SFAS No. 109). This Statement prescribes the
 use of the asset and liability method whereby deferred tax assets and
 liabilities are recognized for the future tax consequences attributable to
 differences between financial reporting and tax bases of assets and
 liabilities and are measured using the enacted tax rates and laws expected to
 apply to taxable income in the years in which those temporary differences are
 expected to be recovered or settled. The Company provides a valuation
 allowance to reduce deferred tax assets to the amount that is more likely
 than not to be realized.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Beginning with the adoption of FASB Interpretation No. 48,
 Accounting for Uncertainty in Income Taxes (FIN 48) as of January 1,
 2007, the Company recognizes the effect of income tax positions only if those
 positions are more likely than not of being sustained. Recognized income tax
 positions are measured at the largest amount that is greater than 50% likely
 of being realized. Changes in recognition or measurement are reflected in the
 period in which the change in judgment occurs.                                                                                                                                                                                                         

F - 12

---

---



CAMTEK LTD.
and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 2  SIGNIFICANT ACCOUNTING POLICIES (Contd)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|M. | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company records interest and penalties related to unrecognized
 tax benefits as a component of income tax expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|N. | Research and development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Research and development costs are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|O. | Earnings / Loss per ordinary share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Basic
 earnings/loss per ordinary share is calculated using only weighted average
 ordinary shares outstanding. Diluted earnings per share, if relevant, gives
 effect to dilutive potential ordinary shares outstanding during the year.
 Such dilutive shares consist of incremental shares, using the treasury stock
 method, from the assumed exercise of share options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | For
 the years ended December 31, 2008 and 2007 the effect of the exercise of all
 outstanding share options is anti-dilutive
 and has not been included in computing dilutive earnings per ordinary share.
 For the year ended December 31, 2006 the effect of the exercise of
 929,964 outstanding share options is dilutive, and hence was included in
 computing diluted earning per ordinary share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | For the years ended December 31, 2008, 2007 and
 2006, the effects of warrants and conversion of convertible loan are
 anti-dilutive, and have not been included in computing dilutive earnings/loss
 per ordinary share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|P. | Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Effective
 January 1, 2006, the Company adopted
 FASB Statement No. 123R, Share-Based Payment (Statement
 123R). This statement replaces FASB Statement No. 123, Accounting for
 Stock-Based Compensation (Statement 123) and supersedes APB No. 25. Statement
 123R requires that all stock-based compensation be recognized as an expense
 in the financial statements and that such cost be measured at the fair value
 of the award. This statement was adopted using the modified prospective
 method of application, which requires the Company to recognize compensation
 cost on a prospective basis. Therefore, prior years financial statements
 have not been restated. Under this method, the Company recorded stock-based
 compensation expense for awards granted prior to, but not yet vested as of
 January 1, 2006, using the fair value amounts determined for pro forma
 disclosures under Statement 123. For stock-based awards granted after
 January 1, 2006, the Company recognizes compensation expense based on
 estimated grant date fair value using the Black-Scholes option-pricing model.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Q. | Reclassification                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Certain prior years amounts have been reclassified in conformity with
 the current years financial statements presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|S. | Fair Value Measurements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On January
 1, 2008, the Company adopted the provisions FASB Statement No. 157, Fair Value
 Measurements,for fair value measurements of financial assets and
 financial liabilities and for fair value measurements of nonfinancial items
 that are recognized or disclosed at fair value in the financial statements on
 a recurring basis. Statement 157 defines fair value as the price that would
 be received to sell an asset or paid to transfer a liability in an orderly
 transaction between market participants at the measurement date. Statement
 157 also establishes a framework for measuring fair value and expands
 disclosures about fair value measurements. FASB Staff Position FAS 157-2,
 Effective Date of FASB Statement No. 157, delays the effective date of
 Statement 157 until fiscal years beginning after November 15, 2008 for all
 nonfinancial assets and nonfinancial liabilities that are recognized or
 disclosed at fair value in the financial statements on a nonrecurring basis.                                                                                                

F - 13

---

---



CAMTEK LTD.
and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 2  SIGNIFICANT
ACCOUNTING POLICIES (Contd)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|S. | Fair Value Measurements (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Statement
 157 establishes a fair value hierarchy that prioritizes the inputs to
 valuation techniques used to measure fair value. The hierarchy gives the highest
 priority to unadjusted quoted prices in active markets for identical assets
 or liabilities (Level 1 measurements) and the lowest priority to measurements
 involving significant unobservable inputs (Level 3 measurements). The three
 levels of the fair value hierarchy are as follows:         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Level 1
 inputs are quoted prices (unadjusted) in active markets for identical assets
 or liabilities that the Company has the ability to access at the measurement
 date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Level 2
 inputs are inputs other than quoted prices included within Level 1 that are
 observable for the asset or liability, either directly or indirectly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | Level 3
 inputs are unobservable inputs for the asset or liability.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The level in
 the fair value hierarchy within which a fair measurement is based on the
 lowest level input that is significant to the fair value measurement in its
 entirety.                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|T. | Derivative instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company
 enters into option contracts and forward exchange agreements in order to
 reduce its exposure with respect to various commitments in currencies other
 than the dollar, primarily, in connection with expenses in New Israeli
 Shekels.                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company
 does not issue or hold derivative financial instruments for trading purposes,
 but rather to manage its foreign currency exposure. Nevertheless, these
 transactions do not meet all the conditions for hedge accounting pursuant to
 generally accepted accounting principles SFAS No. 133 Accounting for
 Derivative Instruments and Hedging Activities and accordingly, the results
 of such transactions are recorded directly to financial expenses.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|U. | Recently Issued Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | In December 2007, the FASB issued FASB Statement No. 141R, Business
 Combinations (Statement 141R) and FASB Statement No. 160, Noncontrolling
 Interests in Consolidated Financial Statements an amendment to ARB No. 51
 (Statement 160). Statements 141R and 160 require most identifiable assets,
 liabilities, noncontrolling interests, and goodwill acquired in a business
 combination to be recorded at full fair value and require noncontrolling
 interests (previously referred to as minority interests) to be reported as a
 component of equity, which changes the accounting for transactions with
 noncontrolling interest holders. Both Statements are effective for periods
 beginning on or after December 15, 2008, and earlier adoption is prohibited.
 Statement 141R will be applied to business combinations occurring after the
 effective date. Statement 160 will be applied prospectively to all noncontrolling
 interests, including any that arose before the effective date. All of the Companys subsidiaries are
 wholly owned, so the adoption of Statement 160 is not expected to impact its
 financial position and results of operations. No material impact is
 expected of adopting Statement 141(R) on the Companys financial
 position and results of operations.

F - 14

---

---



CAMTEK LTD.
and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 2  SIGNIFICANT
ACCOUNTING POLICIES (Contd)

|   |                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ---------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|U. | Recently Issued Accounting Standards
 (contd)
|   |                                               
|   | 2.                                             | In April 2008, the FASB
 issued FASB Staff Position FAS 142-3, Determination
 of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the
 factors that should be considered in developing renewal or extension
 assumptions used to determine the useful life of a recognized intangible
 asset under Statement 142. FSP FAS 142-3 is effective for fiscal years
 beginning after December 15, 2008. The Company is currently evaluating
 the impact, if any, of adopting FSP FAS 142-3 on its financial position and
 results of operations.    
|   |                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | 2.                                             | In June
 2008, the FASBs Emerging Issues Task Force reached a consensus on EITF Issue
 No. 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed
 to an Entitys Own Stock. This EITF Issue provides guidance on the
 determination of whether such instruments are classified in equity or as a
 derivative instrument. The Company will adopt the provisions of EITF 07-5 on
 January 1, 2009. The Company is currently evaluating the impact, if any, of
 adopting EITF 07-5 on its financial position and results of operations.

NOTE 3  CASH AND CASH EQUIVALENTS

|                                           |  |                                           |                             |              |     |        |  |        |        | 
|------------------------------------------ |  | ----------------------------------------- | --------------------------- | ------------ | --- | ------ |  | ------ | ------ | 
|                                           |  |                                           |                             | December 31, |    
|                                           |  |                                           |                             |              |    
|                                           |  | Interest Rate
 As of December 31, 2008
 % |                             | 2008         |     | 2007   | 
|                                           |  |                                           |                             |              |     |       
|                                           |  |                                           | U.S. Dollars (In thousands) |             
|                                           |  |                                           |                             |              |    
|                                          
|Cash in hand and in banking institutions * |  |                                           |                             |              |     | 15,376 |  |        | 6,129  | 
|Deposits*                                  |  | 0.1  0.9                                 |                             |              | 388 |        |  | 12,472 |       
|Restricted
 cash                           |  |                                           |                             |              |     | 185    |  |        |       | 
|                                           |  |                                           |                             |              |     |        |  |        |        | 
|                                          
|                                           |  |                                           |                             |              |     | 15,949 |  |        | 18,601 | 
|                                           |  |                                           |                             |              |     |        |  |        |        | 

* Predominantly U.S. Dollar denominated.

As of December
31, 2008, approximately $90 thousand were restricted against a credit lines to
banking institutions in Hong-Kong (Denominated in Hong Kong Dollars), and
approximately $95 thousand were restricted against a credit lines to banking
institutions in Belgium (Denominated in Euro).

NOTE 4  MARKETABLE
SECURITIES

|                          |  |                             |   |      |  |       | 
|------------------------- |  | --------------------------- | - | ---- |  | ----- | 
|                          |  | December 31,                |  
|                          |  |                             |  
|                          |  | 2008                        |   | 2007 | 
|                          |  |                             |   |      | 
|                          |  | U.S. Dollars (In thousands) |  
|                          |  |                             |  
|                          |  |                             |   |      |  |       | 
|Available
 for sale:      |  |                             |   |      |  |       | 
|Corporate debt securities |  |                             |  |      |  | 1,195 | 
|Auction rate securities   |  |                             |  |      |  | 1,275 | 
|                          |  |                             |   |      |  |       | 
|                         
|                          |  |                             |  |      |  | 2,470 | 
|                          |  |                             |   |      |  |       | 

F - 15

---

---



CAMTEK
LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 4  MARKETABLE SECURITIES (contd)

The carrying
amount, gross unrealized holding losses, and fair value of available-for-sale
debt securities by major security type and class of security at December
31, 2007 were as follows:

|                           |  |                             |       |                                 |  |            |  |  |       | 
|-------------------------- |  | --------------------------- | ----- | ------------------------------- |  | ---------- |  |  | ----- | 
|                           |  | Carrying
 amount            |       | GrossunrealizedHolding (losses) |  | Fair value | 
|                           |  |                             |       |                                 |  |            | 
|                           |  | U.S. Dollars (In thousands) |      
|                           |  |                             |      
|                           |  |                             |       |                                 |  |            |  |  |       | 
|At December 31, 2007:      |  |                             |       |                                 |  |            |  |  |       | 
|Available for sale:        |  |                             |       |                                 |  |            |  |  |       | 
|Corporate
 debt securities |  |                             | 1,195 |                                 |  |           |  |  | 1,195 | 
|Auction
 rate securities   |  |                             | 1,275 |                                 |  |           |  |  | 1,275 | 
|                           |  |                             |       |                                 |  |            |  |  |       | 
|                           |  |                             |       |                                 |  |            |  |  |       | 
|                           |  |                             | 2,470 |                                 |  |           |  |  | 2,470 | 
|                           |  |                             |       |                                 |  |            |  |  |       | 

Proceeds from
the sale of investment securities available for sale were $2,875 $6,425 and
$3,900 in 2008, 2007 and 2006, respectively; gross realized gains included in
other financial income (expenses), net in 2008, 2007 and 2006 were $8, $25 and
$6, respectively.

The marketable securities are presented in:

|                 |  |                             |   |                   |  |       | 
|---------------- |  | --------------------------- | - | ----------------- |  | ----- | 
|                 |  | December 31, 2008           |   | December 31, 2007 | 
|                 |  |                             |   |                   | 
|                 |  | U.S. Dollars (In thousands) |  
|                 |  |                             |  
|                 |  |                             |   |                   |  |       | 
|Current assets   |  |                             |  |                   |  | 1,395 | 
|Long term assets |  |                             |  |                   |  | 1,075 | 
|                 |  |                             |   |                   |  |       | 
|                 |  |                             |   |                   |  |       | 
|                 |  |                             |  |                   |  | 2,470 | 
|                 |  |                             |   |                   |  |       | 

NOTE 5  INVENTORIES

|                                                                               |  |                             |        |      |  |        | 
|------------------------------------------------------------------------------ |  | --------------------------- | ------ | ---- |  | ------ | 
|                                                                               |  | December 31,                |       
|                                                                               |  |                             |       
|                                                                               |  | 2008                        |        | 2007 | 
|                                                                               |  |                             |        |      | 
|                                                                               |  | U.S. Dollars (In thousands) |       
|                                                                               |  |                             |       
|                                                                               |  |                             |        |      |  |        | 
|Components                                                                     |  |                             | 15,170 |      |  | 14,654 | 
|Systems partially completed                                                    |  |                             | 3,710  |      |  | 3,739  | 
|Completed systems, including systems not
 yet purchased, at customer locations |  |                             | 12,565 |      |  | 15,850 | 
|                                                                               |  |                             |        |      |  |        | 
|                                                                               |  |                             |        |      |  |        | 
|                                                                               |  |                             | 31,445 |      |  | 34,243 | 
|                                                                               |  |                             |        |      |  |        | 

Inventories are presented in:

|                 |  |                             |        |                   |  |        | 
|---------------- |  | --------------------------- | ------ | ----------------- |  | ------ | 
|                 |  | December 31, 2008           |        | December 31, 2007 | 
|                 |  |                             |        |                   | 
|                 |  | U.S. Dollars (In thousands) |       
|                 |  |                             |       
|                 |  |                             |        |                   |  |        | 
|Current assets   |  |                             | 9,792  |                   |  | 34,243 | 
|Long term assets |  |                             | 21,653 |                   |  |       | 
|                 |  |                             |        |                   |  |        | 
|                 |  |                             |        |                   |  |        | 
|                 |  |                             | 31,445 |                   |  | 34,243 | 
|                 |  |                             |        |                   |  |        | 

Inventory
write-offs amounted to $4,446, $2,509 and $3,052 thousand in 2008, 2007 and 2006, respectively.

F - 16

---

---



CAMTEK
LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 5  INVENTORIES (contd)

Long term
Inventory:At December 31, 2008, $21,653 thousands of the Companys inventory is in
excess of requirements for the year 2009 based on Managements estimate and the
recent level of sales. Management believes that this amount will be utilized
according to its forecasted sales. Additionally, Management has developed a
program to reduce this inventory to desired levels over the near term and
believes no loss will be incurred on its disposition. No estimate can be made
of a range of amounts of loss that are reasonably possible should the
forecasted sales and its program to reduce the level of inventory not be
successful.

NOTE 6  OTHER
CURRENT ASSETS

|                                  |  |                             |       |      |  |       | 
|--------------------------------- |  | --------------------------- | ----- | ---- |  | ----- | 
|                                  |  | December 31,                |      
|                                  |  |                             |      
|                                  |  | 2008                        |       | 2007 | 
|                                  |  |                             |       |      | 
|                                  |  | U.S. Dollars (In thousands) |      
|                                  |  |                             |      
|                                  |  |                             |       |      |  |       | 
|Due
 from Government institutions |  |                             | 529   |      |  | 1,265 | 
|Income
 tax receivables           |  |                             | 107   |      |  | 128   | 
|Due
 from employees               |  |                             | 99    |      |  | 146   | 
|Prepaid
 expenses                 |  |                             | 551   |      |  | 485   | 
|Advances
 to suppliers            |  |                             | 66    |      |  | 6     | 
|Deposits
 for operating leases    |  |                             | 195   |      |  | 202   | 
|Other                             |  |                             | 382   |      |  | 384   | 
|                                  |  |                             |       |      |  |       | 
|                                  |  |                             |       |      |  |       | 
|                                  |  |                             | 1,929 |      |  | 2,616 | 
|                                  |  |                             |       |      |  |       | 

NOTE 7  FIXED ASSETS

|                                |  |                             |        |      |  |        | 
|------------------------------- |  | --------------------------- | ------ | ---- |  | ------ | 
|                                |  | December 31,                |       
|                                |  |                             |       
|                                |  | 2008                        |        | 2007 | 
|                                |  |                             |        |      | 
|                                |  | U.S. Dollars (In thousands) |       
|                                |  |                             |       
|                                |  |                             |        |      |  |        | 
|Land                            |  |                             | 863    |      |  | 863    | 
|Building                        |  |                             | 9,789  |      |  | 9,695  | 
|Machinery
 and equipment        |  |                             | 7,332  |      |  | 5,885  | 
|Office
 furniture and equipment |  |                             | 4,602  |      |  | 4,272  | 
|Automobiles                     |  |                             | 149    |      |  | 169    | 
|Leasehold
 improvements         |  |                             | 889    |      |  | 748    | 
|                                |  |                             |        |      |  |        | 
|                                |  |                             |        |      |  |        | 
|                                |  |                             | 23,624 |      |  | 21,632 | 
|Less
 accumulated depreciation  |  |                             | 7,976  |      |  | 6,307  | 
|                                |  |                             |        |      |  |        | 
|                                |  |                             |        |      |  |        | 
|                                |  |                             | 15,648 |      |  | 15,325 | 
|                                |  |                             |        |      |  |        | 

Depreciation
expenses for the years ended December 31, 2008, 2007 and 2006 aggregated to
$1,909 $1,289 and $792 thousand, respectively.

The Company determined that current market conditions indicated that a
triggering event had occurred and accordingly performed step 1 of the
impairment test required by FAS 144. Based the undiscounted cash flow
calculation, the Company determined that there was no impairment.

F - 17

---

---



CAMTEK LTD. and
its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 8  OTHER ASSETS

|                               |  |                             |       |      |  |     | 
|------------------------------ |  | --------------------------- | ----- | ---- |  | --- | 
|                               |  | December 31,                |      
|                               |  |                             |      
|                               |  | 2008                        |       | 2007 | 
|                               |  |                             |       |      | 
|                               |  | U.S. Dollars (In thousands) |      
|                               |  |                             |      
|                               |  |                             |       |      |  |     | 
|Deposits
 for operating leases |  |                             | 453   |      |  | 460 | 
|Intangible
 assets (A)         |  |                             | 575   |      |  | 263 | 
|                               |  |                             |       |      |  |     | 
|                               |  |                             |       |      |  |     | 
|                               |  |                             | 1,028 |      |  | 723 | 
|                               |  |                             |       |      |  |     | 

|   |                           
|-- | --------------------------
|A. | Patents registration costs

|                            |  |                             |     |                            |  |                         |  |                      |     |  |  |    | 
|--------------------------- |  | --------------------------- | --- | -------------------------- |  | ----------------------- |  | -------------------- | --- |  |  | -- | 
|                            |  | December 31, 2008           |    
|                            |  |                             |    
|                            |  | Gross carrying 
 amount     |     | Accumulated 
 amortization |  | Intangible
 Assets, net |  | Amortization
 period |    
|                            |  |                             |     |                            |  |                         |  |                      |    
|                            |  | U.S. Dollars (In thousands) |     | Years                      | 
|                            |  |                             |     |                            | 
|                            |  |                             |     |                            |  |                         |  |                      |     |  |  |    | 
|Patents
 registration costs |  |                             | 635 |                            |  | 60                      |  |                      | 575 |  |  | 10 | 
|                            |  |                             |     |                            |  |                         |  |                      |     |  |  |    | 

|                            |  |                             |     |                            |  |                         |  |                      |     |  |  |    | 
|--------------------------- |  | --------------------------- | --- | -------------------------- |  | ----------------------- |  | -------------------- | --- |  |  | -- | 
|                            |  | December 31, 2007           |    
|                            |  |                             |    
|                            |  | Gross carrying 
 amount     |     | Accumulated 
 amortization |  | Intangible
 Assets, net |  | Amortization
 period |    
|                            |  |                             |     |                            |  |                         |  |                      |    
|                            |  | U.S. Dollars (In thousands) |     | Years                      | 
|                            |  |                             |     |                            | 
|                            |  |                             |     |                            |  |                         |  |                      |     |  |  |    | 
|Patents
 registration costs |  |                             | 283 |                            |  | 20                      |  |                      | 263 |  |  | 10 | 
|                            |  |                             |     |                            |  |                         |  |                      |     |  |  |    | 

Amortization
expense for the years ended December 31, 2008, 2007 and 2006 aggregated to $40,
$18 and
$2 thousand, respectively.

As of
December 31, 2008, the estimated aggregate amortization of intangible
assets for the years 2009 to 2013 is $64 thousands for each of the years.

The Company determined that current market conditions indicated that a
triggering event had occurred and accordingly performed step 1 of the
impairment test required by FAS 144. Based the undiscounted cash flow
calculation, the Company determined that there was no impairment.

NOTE 9  SHORT TERM
LOAN

In November 2008, the Company received a short term loan of $1.5 million.
The loan bears interest of LIBOR + 2.5%. (December 31, 2008  4.875%).

Under this credit line the Company was subject to the following main
covenants:

| |    |                                                                                            
| | -- | -------------------------------------------------------------------------------------------
| | 1. | The shareholders equity should not decrease to below $ 50 million.                        
| |    |                                                                                            
| | 2. | The shareholders equity shall represent at least 60% of the total
 assets of the Company. 
| |    |                                                                                            
| | 3. | The revenues level should not decrease to
 below $60 million.                              
| |    |                                                                                            
| | 4. | The ratio between borrowings from bank institutes to other payables
 should not exceed 70%.

As of December 31, 2008 the Company was in compliance with the
aforementioned covenants.

F - 18

---

---



CAMTEK
LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 10  OTHER CURRENT LIABILITIES

|                                               |  |                             |        |      |  |        | 
|---------------------------------------------- |  | --------------------------- | ------ | ---- |  | ------ | 
|                                               |  | December 31,                |       
|                                               |  |                             |       
|                                               |  | 2008                        |        | 2007 | 
|                                               |  |                             |        |      | 
|                                               |  | U.S. Dollars (In thousands) |       
|                                               |  |                             |       
|                                               |  |                             |        |      |  |        | 
|Accrued
 compensation and related benefits     |  |                             | 3,989  |      |  | 4,330  | 
|Government
 institutions                       |  |                             | 416    |      |  | 315    | 
|Income
 tax payables                           |  |                             | 305    |      |  | 421    | 
|Accrued
 warranty costs                        |  |                             | 783    |      |  | 934    | 
|Commissions                                    |  |                             | 1,779  |      |  | 2,204  | 
|Advances
 from customers and deferred revenues |  |                             | 2,603  |      |  | 2,207  | 
|Accrued
 expenses                              |  |                             | 1,507  |      |  | 1,054  | 
|                                               |  |                             |        |      |  |        | 
|                                               |  |                             |        |      |  |        | 
|                                               |  |                             | 11,382 |      |  | 11,465 | 
|                                               |  |                             |        |      |  |        | 

Changes in the product warranty obligation are as follows:

|                    |  |                             |        |      |  |        |   |  |        |  
|------------------- |  | --------------------------- | ------ | ---- |  | ------ | - |  | ------ | -
|                    |  | December 31,                |       
|                    |  |                             |       
|                    |  | 2008                        |        | 2007 |  | 2006   |  
|                    |  |                             |        |      |  |        |  
|                    |  | U.S. Dollars (In thousands) |       
|                    |  |                             |       
|                    |  |                             |        |      |  |        |   |  |        |  
|Beginning of year   |  |                             | 934    |      |  | 1,057  |   |  | 1,162  |  
|Change in estimates |  |                             |       |      |  |       |   |  | (442   | )
|New warranties      |  |                             | 1,595  |      |  | 1,534  |   |  | 2,020  |  
|Reductions          |  |                             | (1,746 | )    |  | (1,657 | ) |  | (1,683 | )
|                    |  |                             |        |      |  |        |   |  |        |  
|                    |  |                             |        |      |  |        |   |  |        |  
|End of year         |  |                             | 783    |      |  | 934    |   |  | 1,057  |  
|                    |  |                             |        |      |  |        |   |  |        |  

F - 19

---

---



CAMTEK
LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 11  CONVERTIBLE LOAN

|                                                                       |  |                             |       |      |  |       | 
|---------------------------------------------------------------------- |  | --------------------------- | ----- | ---- |  | ----- | 
|                                                                       |  | December 31,                |      
|                                                                       |  |                             |      
|                                                                       |  | 2008                        |       | 2007 | 
|                                                                       |  |                             |       |      | 
|                                                                       |  | U.S. Dollars (In thousands) |      
|                                                                       |  |                             |      
|                                                                       |  |                             |       |      |  |       | 
|U.S. Dollar denominated loan, bearing annual
 interest of Libor + 2.1% |  |                             | 3,333 |      |  | 5,000 | 
|                                                                       |  |                             |       |      |  |       | 

Repayment dates of convertible loan subsequent to December 31, 2008:

|     |  |                              |       | 
|---- |  | ---------------------------- | ----- | 
|     |  | U.S. Dollars
 (In thousands) |      
|     |  |                              |      
|     |  |                              |       | 
|2009 |  |                              | 1,667 | 
|2010 |  |                              | 1,666 | 
|     |  |                              |       | 
|     |  |                              |       | 
|     |  |                              | 3,333 | 
|     |  |                              |       | 

On August 23, 2005 (the closing date) the Company raised $5 million
as a convertible loan from FIMI Opportunity Fund L.P and FIMI Israel
Opportunity Fund, Limited Partnership (FIMI). The loan is payable in three
equal annual payments starting at the third anniversary of the closing date.
The lenders have the right to postpone the repayments to the end of the fifth
anniversary from the closing date. The loan bears annual interest of Libor +
2.1% (December 31, 2008  3.525%). The interest is payable every three months.
Conversion of the loan, in a whole or in part, is at the
lenders option on any given
business day after the closing date.Conversion price per one ordinary share is $5.50, however, in the event
that the average closing price of the Companys shares as reported on Nasdaq
for the sixty consecutive trading days immediately preceding the first and
second anniversary of the loan agreement closing date, is lower than the conversion
price in effect on such date, the conversion price in effect on such date shall
be reduced to equal the higher of the average closing price and $2.00. As of
December 31, 2008 the conversion price per one ordinary share is $3.19.

The Company is subject to the following main covenants:

|   |                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | The shareholders equity should not decrease to below $45 million,
 or, $40 million as a result of dividend distributions. Shareholders equity
 may not decrease by more than 10%, unless such deviation is cured within three
 consecutive financial quarters immediately following the financial quarter in
 which such decrease had occurred.
|   |                                                                                                                                                                                                                                                                                                                                                  
|2. | The shareholders equity shall represent at least 55% of the total
 assets of the Company.                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                  
|3. | The net loss shall not exceed an aggregate
 of $10 million in any single financial quarter or any year.                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                  
|4. | No further borrowings which exceed the aggregate amount of $15
 million (other than the loans and credit lines which were in effect at the
 closing date) and no new transactions with the Companys affiliates.                                                                                                                                 

As of December 31, 2008 the Company was in compliance with the
aforementioned covenants.

There is no assurance that the Company will be able to comply with the
covenants at December 31, 2009.

F - 20

---

---



CAMTEK
LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 12  SEVERANCE PAY

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

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | The liability in respect of most of its employees is discharged by
 participating in a defined contribution pension plan and making regular
 deposits with a pension fund or by individual
 insurance policies. The
 liability deposited with the pension fund is based on salary components as
 prescribed in the existing labor agreement.
 The custody and management of the amounts so deposited are independent
 of the companies and accordingly such amounts funded (included in expenses on
 an accrual basis) and related liabilities are not reflected in the balance
 sheet.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|2. | The liability for severance pay which is not covered by the
 contribution plan, amounted to $271 and $268 thousand as of December 31, 2008
 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|3. | Severance pay expenses were $924, $851 and
 $750 thousand in 2008, 2007 and 2006, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

NOTE 13  COMMITMENTS AND CONTINGENCIES

|   |                                                                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Operating leases                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                               
|   | The Companys subsidiaries have entered into various non cancelable operating
 lease agreements, principally for office space. In May 2007, the Company
 entered into a noncancelable operating lease for vehicles for a period of 36
 months.
|   |                                                                                                                                                                                                                                               
|   | As of December 31, 2008, minimum future rental payments under
 such noncancelable operating leases are as follows:                                                                                                                            

|                           |  |                            |       | 
|-------------------------- |  | -------------------------- | ----- | 
|Year Ending 
 December 31, |  | U.S. Dollars(In thousands) |      
|                           |  |                            |      
|                           |  |                            |       | 
|2009                       |  |                            | 1,712 | 
|2010                       |  |                            | 890   | 
|2011                       |  |                            | 434   | 
|2012                       |  |                            | 85    | 
|Thereafter                 |  |                            |      | 
|                           |  |                            |       | 
|                           |  |                            |       | 
|                           |  |                            | 3,121 | 
|                           |  |                            |       | 

|   |                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------
|   | Aggregate office rent expenses amounted to $854, $730 and $572
 thousand in
 2008, 2007 and 2006, respectively.                   
|   |                                                                                                                                   
|B. | Valuation accounts                                                                                                                
|   |                                                                                                                                   
|   | The following is a summary of the allowance for doubtful accounts
 related to accounts receivable for the years ended December 31:

|     |  |                                   |  |           |     |           |  |                            |   |  |       |  | 
|---- |  | --------------------------------- |  | --------- | --- | --------- |  | -------------------------- | - |  | ----- |  | 
|     |  | Balance at
 beginning 
 of period |  | Provision |     | Write-off |  | Balance at
 end of
 period |  
|     |  |                                   |  |           |     |           |  |                            |  
|     |  | U.S. Dollars (In thousands)       | 
|     |  |                                   | 
|     |  |                                   |  |           |     |           |  |                            |   |  |       |  | 
|2006 |  | 2,206                             |  |           | 778 |           |  | (131                       | ) |  | 2,853 |  | 
|2007 |  | 2,853                             |  |           | 583 |           |  | (167                       | ) |  | 3,269 |  | 
|2008 |  | 3,269                             |  |           | 722 |           |  | (238                       | ) |  | 3,753 |  | 

F - 21

---

---



CAMTEK
LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 13  COMMITMENTS AND CONTINGENCIES
 (contd)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|C. | Factoring of financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The Company
 entered into accounts receivable factoring agreements with two financial
 institutions (the banks). Under the
 terms of the agreements, the Company has the option to factor receivables
 with the banks on a non-recourse basis, provided that the banks approve the
 receivables in advance. In some
 cases, the Company continues to be obligated in the event of commercial
 disputes, (such as product defects) which are not covered under the credit
 insurance policy, unrelated to the credit worthiness of the customer. The
 Company accounts for the factoring of its financial assets in accordance with
 the provisions of SFAS 140 Accounting for Transfers and Servicing of
 Financial Assets and Extinguishments of Liabilities- a replacement of FASB
 Statement No. 125. The Company does not expect any reimbursements
 to take place in the foreseeable future.
|   | The
 factoring fees of the above mentioned agreements aggregate $24 thousand in
 2008. ($52 thousand in 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | As of
 December 31, 2008 trade receivables amounting to approximately $520 thousand,
 were factored. (December 31, 2007 - $560 thousand).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|D. | Litigation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | On May 10, 2004, a lawsuit
 was filed against the Company in the District Court in Nazareth, Israel, by a
 competitor, Orbotech Ltd., alleging that the Companys Dragon and Falcon
 systems infringe upon a patent held by Orbotech Ltd. and requesting an
 injunctive relief and damages. Currently, the issue dealt with by the court
 is the validity of the asserted patent, which expired in February 2008. Also,
 the court advised the parties to turn to mediation. The Company believes that
 it has substantial defenses against the validity of the Orbotechs
 patent and substantial defenses against Orbotechs claim. Accordingly, no provision has been
 recorded by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 2. | On February 23, 2005, a lawsuit was filed against the Company in the District
          Court in Jerusalem by Orbotech Ltd., alleging infringement of a patent held by
          Orbotech Ltd. regarding a specific illumination block, seeking injunctive relief
          and damages. The court ruled, based on a courts scientific advisor opinion
          and prime facie evidence only, that the Company infringed the
          patent, and granted Orbotech a provisional remedy, i.e. interim relief, which
          prevents Camtek from manufacturing the allegedly infringing illumination
          block in suit. The claim is currently in the preliminary stage of discovery
          and only after evidence is presented and cross examinations are conducted will a
          final judgment be rendered by the District Court, subject to the right to
          appeal. Among others, the Company has filed two motions for the lawsuit
          to be dismissed, both still pending. As detailed in section 1 above, the parties
          are due to attend a mediation meeting. The Company believes that any liability
          arising from the law suit is not probable. The Company further believes that it
          has claims with respect to the validity of the asserted patent, as well as other
          defenses such as estoppel and lack of good faith on the part of Orbotech.
          Accordingly, no provision has been recorded by the Company.

F - 22

---

---



CAMTEK
LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 13  COMMITMENTS AND CONTINGENT LIABILITIES (Contd)

|   |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | ------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|D. | Litigation (contd)
|   |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | 3.                  | On July 14,
 2005, a lawsuit was filed against the Company in the United States District
 Court for the District of Minnesota by one of the Companys competitors in
 the field of semiconductor manufacturing and packaging, August Technology
 Corporation (today Rudolph Technologies Inc. together with August Technology
 Corporation), alleging infringement of a patent and seeking injunctive relief
 and damages. The Company has filed an
 answer and counterclaims alleging, inter-alia, non-infringement, invalidity
 and unenforceability of the patent. On December 15, 2006 the Company filed an
 Amended Answer and Counterclaims, alleging that the patent was unenforceable
 due to inequitable conduct.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                     | Trial
 before a jury in Minneapolis, Minnesota began on February 2, 2009, and on
 March 6, 2009 a jury verdict was rendered in favour of Rudolph, awarding
 damages of approximately $6.8 million with regard to sales of Camteks Falcon
 products in the United States. The jury also found that the infringement was
 not wilful. As of the date of these financial statements, no judgement has
 been entered with respect to this verdict. The alleged infringement refers to
 a US patent only, and, therefore, any judgement or injunction, if issued,
 would not have any effect other than in the US.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                     | On
 March 27, 2009, plaintiffs filed a motion for entry of judgement, permanent
 injunction, prejudgement interest and a request for an accounting for
 supplemental damages. The Company believes this motion is premature at least
 until the Companys motions on invalidity and the remaining issues relating
 to inequitable conduct are resolved. As a result, the Company will be filing
 a motion to stay a decision on plaintiffs March 27 motion shortly.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                     | The
 Company intends to aggressively pursue motions for a new trial and/or for
 judgment in its favor notwithstanding the verdict, as well as an appeal, if
 necessary. Although it is difficult
 to estimate the outcome of a patent infringement case, and while estimating
 the outcome of litigation can never be a precise exercise, the Company
 believes that the probability that Plaintiffs Rudolph and August will be
 ultimately successful (after motions and after appeal, if necessary) is less
 than 50%. Accordingly, no provision has been recorded by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | 4.                  | On
 March 7, 2008, a purported class action complaint (the Class Action
 Complaint), Yuval Lapiner v. Camtek, Ltd. et al., was filed in the United
 States District Court for the Northern District of California on behalf of
 purchasers of the Companys common stock between November 22, 2005 and
 December 20, 2006. The Class Action
 Complaint names the Company and certain of its directors and officers as
 defendants. It alleges that the
 defendants violated Sections 10(b) and 20(a) of the Exchange Act, and Rule
 10b-5 promulgated thereunder, and breached fiduciary duties by making false
 and misleading statements in the Companys SEC filings and press
 releases. The plaintiffs seek
 unspecified compensatory damages against the defendants, as well as attorneys
 fees and costs. The Company filed a motion to dismiss the CAC, as amended, on
 February 17, 2009. The hearing on this motion is currently set for June 5,
 2009. Management does not believe that the Class Action Complaint has merit
 and intends to defend itself vigorously. Accordingly, no
 provision has been made in the financial statements in respect of this claim.

F - 23

---

---



CAMTEK
LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 14  CONCENTRATION OF RISK AND FINANCIAL INSTRUMENTS

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

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

The carrying amounts of financial instruments approximate fair value.

Liquidity

The Company
anticipates that its existing resources and cash flows from operations will be
adequate to satisfy its liquidity requirements through calendar year 2009. If
available liquidity is not sufficient to meet the Companys operating and loan
obligations as they come due, Managements plans include pursuing alternative
financing arrangements or reducing expenditures as necessary to meet the
Companys cash requirements throughout 2009. However, there is no assurance
that, if required, the Company will be able to raise additional capital or
reduce discretionary spending to provide the required liquidity.

Derivative
Instruments

The Company
enters into foreign exchange derivatives to manage its U.S. Dollar to NIS
currency exchange risks. The terms of all of these currency derivatives are
less than one year. The notional amounts and fair value of derivatives as of
December 31, 2008 are:

|                                              |  |                             |  |                    |     |   | 
|--------------------------------------------- |  | --------------------------- |  | ------------------ | --- | - | 
|                                              |  | Notional
 amount            |  | Fair market
 value |    
|                                              |  |                             |  |                    |    
|                                              |  | U.S. Dollars (In thousands) | 
|                                              |  |                             | 
|                                              |  |                             |  |                    |     |   | 
|Forward (dollars/NIS)                         |  | 600                         |  |                    | (7  | ) | 
|                                              |  |                             |  |                    |     |   | 
|Options                                       |  |                             |  |                    |     |   | 
|                                              |  |                             |  |                    |     |   | 
|Buy put options (Buy dollars
 and Sell NIS)   |  | 3,900                       |  |                    | 130 |   | 
|                                              |  |                             |  |                    |     |   | 
|Sell call options (Sell dollars and Buy
 NIS) |  | 3,900                       |  |                    | (75 | ) | 

The fair value
of the derivatives generally reflects the estimated amounts that the Company
would receive or pay upon termination of the contracts at the reporting date.

F - 24

---

---



CAMTEK
LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 15  SHAREHOLDERS EQUITY

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | General                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Company shares are traded on the NASDAQ National Market under the
 symbol of CAMT.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In December 2005 the Company registered its shares to be listed and
 traded in the Tel-Aviv stock exchange.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|B. | Private Placement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In April 2006, the Company raised $14.5
 million, net of issuance expenses, by issuing 2,525,252 ordinary shares at a
 price of $5.94 per share in a private placement to Israeli institutional
 investors. The private placement also included warrants that are exercisable
 into 1,262,626 ordinary shares at a price of $6.83 per share during a period
 of four years. The warrants issued in April 2006 have been classified in
 equity.                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|C. | Purchase of Ordinary Shares                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In 2008, the Board of Directors has
 authorized a share repurchase program, involving the repurchase from time to
 time of the Companys Ordinary Shares. Repurchases will not exceed a total
 aggregate price of $2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|D. | Stock Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | As of December 31, 2008, the Company has five stock option plans for
 employees and directors. Future options will be granted only pursuant to the
 2003 Share Option Plan described below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In October 2003, the Company adopted a stock option plan
 (the Plan) pursuant to which the Companys board of directors may grant
 stock options to officers and key employees. The total number of options, which may be granted to directors, officers, employees and consultants
 under this plan, is limited to 998,800 options. Stock options can be granted with an exercise price equal to or less
 than the stocks fair market value at the date of grant. All stock options
 have 10-year terms and vest and become fully exercisable after 4 years
 from the date of grant with 30% to vest at the end of each of the first three
 years and remaining 10% to vest at the end of the fourth year following the
 grant date.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | As of
 December 31, 2008, there are 98,531
 additional options available for grant under the Plan. The fair value
 of each option award is estimated on the date of grant using the
 Black-Scholes option-pricing model that used the weighted average assumptions
 in the following table. The risk-free rate for the expected term of the
 option is based on the U.S. Treasury yield curve in effect at the time
 of grant.                                                                                                                                                                                                                                                                                                        

|                         |  |            |  |            |  | 
|------------------------ |  | ---------- |  | ---------- |  | 
|                         |  | 2007 Grant |  | 2006 Grant
|                         |  |            |  |           
|                         |  |            |  |            |  | 
|Dividend yield           |  | 0          |  | 0         
|Expected volatility *    |  | 83%-84%    |  | 86%-87%   
|Risk-free interest rate  |  | 5%         |  | 5%        
|Expected life (years) ** |  | 6          |  | 6         

|   |                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------
|*  | Historical
 volatility                                                                              
|   |                                                                                                     
|** | The company
 used the simplified method to estimate the expected life as permissible under
 SAB 107.

F - 25

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 15 
SHAREHOLDERS EQUITY (Contd)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|D. | Stock Option Plan (Contd)                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The weighted
 average grant date fair value of options granted during the years ended 2007
 and 2006 was $3.19 and $5.38 respectively, no options were granted during the
 year ended December 31, 2008. The total intrinsic value of options exercised
 during the years ended December 31, 2008, 2007 and 2006 was $97,713,
 $101,128 and $246,756 respectively. The total intrinsic value of options
 vested at December 31, 2008 was $29,250.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Total stock
 option compensation expense amounted to $207, $426 and $766 thousand in 2008,
 2007 and 2006, respectively.                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | As of December 31, 2008, there was $157,831 of total unrecognized
 compensation cost related to
 nonvested share-based compensation arrangements. That cost is expected
 to be recognized over a weighted-average period of 1.22 years.                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Share option activity during the past three years is as follows:                                                                                                                                                                                                                                                                                                                                                                                 

|                         |  |                         |         |                                        |      |                    |  |                                        |         |                    |      |                                        |  |  |           |   |      |  | 
|------------------------ |  | ----------------------- | ------- | -------------------------------------- | ---- | ------------------ |  | -------------------------------------- | ------- | ------------------ | ---- | -------------------------------------- |  |  | --------- | - | ---- |  | 
|                         |  | Year Ended December 31, |        
|                         |  |                         |        
|                         |  | 2008                    |         | 2007                                   |      | 2006               | 
|                         |  |                         |         |                                        |      |                    | 
|                         |  | Number
 of
 shares      |         | Weighted
 average
 exercise
 price US$ |      | Number
 of
 shares |  | Weighted
 average
 exercise
 price US$ |         | Number
 of
 shares |      | Weighted
 average
 exercise
 price US$ | 
|                         |  |                         |         |                                        |      |                    |  |                                        |         |                    |      |                                        | 
|                         |  |                         |         |                                        |      |                    |  |                                        |         |                    |      |                                        |  |  |           |   |      |  | 
|Outstanding at January 1 |  |                         | 807,841 |                                        | 2.78 |                    |  |                                        | 929,964 |                    | 2.46 |                                        |  |  | 1,315,650 |   | 2.06 |  | 
|Granted                  |  |                         |        |                                        | 0.00 |                    |  |                                        | 45,000  |                    | 4.32 |                                        |  |  | 60,000    |   | 5.19 |  | 
|Forfeited                |  |                         | (40,200 | )                                      | 2.82 |                    |  |                                        | (74,263 | )                  | 2.78 |                                        |  |  | (13,980   | ) | 2.37 |  | 
|Exercised                |  |                         | (82,150 | )                                      | 0.00 |                    |  |                                        | (92,860 | )                  | 0.34 |                                        |  |  | (431,706  | ) | 1.63 |  | 
|                         |  |                         |         |                                        |      |                    |  |                                        |         |                    |      |                                        |  |  |           |   |      |  | 
|                         |  |                         |         |                                        |      |                    |  |                                        |         |                    |      |                                        |  |  |           |   |      |  | 
|Outstanding at year end  |  |                         | 685,491 |                                        | 3.12 |                    |  |                                        | 807,841 |                    | 2.78 |                                        |  |  | 929,964   |   | 2.46 |  | 
|                         |  |                         |         |                                        |      |                    |  |                                        |         |                    |      |                                        |  |  |           |   |      |  | 
|                         |  |                         |         |                                        |      |                    |  |                                        |         |                    |      |                                        |  |  |           |   |      |  | 
|Vested at year end       |  |                         | 617,491 |                                        | 2.99 |                    |  |                                        | 670,841 |                    | 2.56 |                                        |  |  | 665,729   |   | 2.22 |  | 
|                         |  |                         |         |                                        |      |                    |  |                                        |         |                    |      |                                        |  |  |           |   |      |  | 

|                                                  |  |                                 |         |                                        |  |                                                         |  |                                                 |      |  |  |         | 
|------------------------------------------------- |  | ------------------------------- | ------- | -------------------------------------- |  | ------------------------------------------------------- |  | ----------------------------------------------- | ---- |  |  | ------- | 
|                                                  |  | Number
 of
 shares
 outstanding |         | Weighted
 average
 exercise
 price US$ |  | Weighted
 average
 remaining
 contractual
 term (years) |  | Aggregate
 intrinsic
 Value (in
 US$ thousands) |     
|                                                  |  |                                 |         |                                        |  |                                                         |  |                                                 |     
|                                                  |  |                                 |         |                                        |  |                                                         |  |                                                 |      |  |  |         | 
|Outstanding as of December 31, 2008               |  |                                 | 685,491 |                                        |  | 3.12                                                    |  |                                                 | 5.70 |  |  | 138,059 | 
|                                                  |  |                                 |         |                                        |  |                                                         |  |                                                 |      |  |  |         | 
|                                                  |  |                                 |         |                                        |  |                                                         |  |                                                 |      |  |  |         | 
|Vested and expected to vest at December
 31, 2008 |  |                                 | 644,362 |                                        |  | 3.12                                                    |  |                                                 | 5.70 |  |  | 129,776 | 
|                                                  |  |                                 |         |                                        |  |                                                         |  |                                                 |      |  |  |         | 
|                                                  |  |                                 |         |                                        |  |                                                         |  |                                                 |      |  |  |         | 
|Exercisable at December 31, 2008                  |  |                                 | 617,491 |                                        |  | 2.99                                                    |  |                                                 | 5.49 |  |  | 99,059  | 
|                                                  |  |                                 |         |                                        |  |                                                         |  |                                                 |      |  |  |         | 

F - 26

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 15  SHAREHOLDERS
EQUITY (Contd)

|   |                                                                                      
|-- | -------------------------------------------------------------------------------------
|D. | Stock Option Plan (Contd)                                                           
|   |                                                                                      
|   | The following table summarizes information about share options at
 December 31, 2008:

|                             |  |                     |         |                                                          |      |                                        |  |                     |  |                                        |  |         |  |      |  | 
|---------------------------- |  | ------------------- | ------- | -------------------------------------------------------- | ---- | -------------------------------------- |  | ------------------- |  | -------------------------------------- |  | ------- |  | ---- |  | 
|Range of
 exercise price US$ |  | Number
 outstanding |         | Weighted
 average
 remaining
 contractual
 life in years |      | Weighted
 average
 exercise
 price US$ |  | Number
 exercisable |  | Weighted
 average
 exercise
 price US$ | 
|                             |  |                     |         |                                                          |      |                                        |  |                     |  |                                        | 
|                             |  |                     |         |                                                          |      |                                        |  |                     |  |                                        |  |         |  |      |  | 
|0.00                         |  |                     | 32,190  |                                                          | 4.55 |                                        |  | 0.00                |  |                                        |  | 32,190  |  | 0.00 |  | 
|2.98-3.29                    |  |                     | 423,301 |                                                          | 4.98 |                                        |  | 2.98                |  |                                        |  | 423,301 |  | 2.98 |  | 
|3.00                         |  |                     | 125,000 |                                                          | 6.74 |                                        |  | 3.00                |  |                                        |  | 112,500 |  | 3.00 |  | 
|5.00                         |  |                     | 50,000  |                                                          | 7.37 |                                        |  | 5.00                |  |                                        |  | 30,000  |  | 5.00 |  | 
|6.15                         |  |                     | 10,000  |                                                          | 7.58 |                                        |  | 6.15                |  |                                        |  | 6,000   |  | 6.15 |  | 
|4.50                         |  |                     | 30,000  |                                                          | 8.06 |                                        |  | 4.50                |  |                                        |  | 9,000   |  | 4.50 |  | 
|3.95                         |  |                     | 15,000  |                                                          | 8.23 |                                        |  | 3.95                |  |                                        |  | 4,500   |  | 3.95 |  | 
|                             |  |                     |         |                                                          |      |                                        |  |                     |  |                                        |  |         |  |      |  | 
|                             |  |                     |         |                                                          |      |                                        |  |                     |  |                                        |  |         |  |      |  | 
|                             |  |                     | 685,491 |                                                          | 5.7  |                                        |  | 3.12                |  |                                        |  | 617,491 |  | 2.99 |  | 
|                             |  |                     |         |                                                          |      |                                        |  |                     |  |                                        |  |         |  |      |  | 

| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | The following table summarizes information about nonvested options at
 December 31, 2008:

|                             |  |         |         |                                         |      |  | 
|---------------------------- |  | ------- | ------- | --------------------------------------- | ---- |  | 
|                             |  | Options |         | Weighted average
grant- date fair value |     
|                             |  |         |         |                                         |     
|                             |  |         |         |                                         |      |  | 
|Balance at January 1, 2008   |  |         | 137,000 |                                         | 3.84 |  | 
|Granted                      |  |         |        |                                         |     |  | 
|Vested                       |  |         | (69,000 | )                                       | 3.28 |  | 
|Forfeited                    |  |         |        |                                         |     |  | 
|                             |  |         |         |                                         |      |  | 
|                             |  |         |         |                                         |      |  | 
|Balance at December 31, 2008 |  |         | 68,000  |                                         | 4.41 |  | 
|                             |  |         |         |                                         |      |  | 

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|E. | Restricted Share Unit Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | In August 2007, the Company adopted a Restricted Share Unit (RSU)
 Plan (the Plan) pursuant to which the Companys board of directors may
 grant shares to officers and key employees. The total number of shares, which may be granted to directors, officers, employees and
 consultants under this Plan, is limited to 300,000 authorized but
 unissued Shares, after it was increased in 2008 by an
 additional 120,000 from 180,000 authorized but unissued shares.                                                                                                                                                         
|   | The exercise
 price for each grantee shall be as determined by the Board and specified in
 the applicable RSU notice of grant; provided, however, that unless otherwise
 determined by the Board (which determination shall not require shareholder
 approval unless so required in order to comply with Mandatory Law), the
 exercise price shall be no more than the underlying shares nominal value.
 For the removal of any doubt, the Board is authorized (without the need for
 shareholder approval unless so required in order to comply with Mandatory
 Law) to determine that the exercise price of an RSU is to be $0.00.

F - 27

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 15 
SHAREHOLDERS EQUITY (Contd)

|   |                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|E. | Restricted Share Unit Plan (contd)                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Unless
 otherwise determined by the Board with respect to any specific grantee or to
 any specific grant, (which determination shall not require shareholder
 approval unless so required in order to comply with Mandatory Law) and
 provided accordingly in the applicable RSU notice of grant, the RSUs shall
 vest (become automatically exercised) according to the following 4-year vesting
 schedule:
|   | a. Upon the
 completion of a full 12 (twelve) months of continuous service  25%.                                                                                                                                                                                                                                                                                                                           
|   | b. Upon the
 lapse of each full additional 3 (three) month(s) of the grantees continuous
 service thereafter, until all the RSU are vested, i.e. 100% of the grant will
 be vested after 4 years.  6.25%.                                                                                                                                                                                                 
|   | Forfeited units are returned to the pool.                                                                                                                                                                                                                                                                                                                                                                   
|   | Total share based awards expense amounted to $64 thousand in 2008.                                                                                                                                                                                                                                                                                                                                          
|   | The total
 unrecognized compensation cost amounted to $212 thousand, which is being
 amortized over the vesting period.                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                             
|   | As of the
 balance sheet date the number of RSUs available for grant was 130,250.                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Activity under the Restricted Share Unit Plan was as follows:                                                                                                                                                                                                                                                                                                                                               

|                                |  |                               |          |                                |  |                                |   |   |      | 
|------------------------------- |  | ----------------------------- | -------- | ------------------------------ |  | ------------------------------ | - | - | ---- | 
|                                |  | Awards
 Available 
 For grant |          | Number of
 awards
 outstanding |  | Weighted-
 average
 fair value |  
|                                |  |                               |          |                                |  |                                |  
|                                |  |                               |          |                                |  |                                |   |   |      | 
|Balance as of January 1, 2007   |  |                               |         |                                |  |                               |   | $ |     | 
|RSU Plan                        |  |                               | 180,000  |                                |  |                               |   |   |     | 
|Awards granted                  |  |                               | (25,200  | )                              |  | 25,200                         |   |   | 1.88 | 
|                                |  |                               |          |                                |  |                                |   |   |      | 
|                                |  |                               |          |                                |  |                                |   |   |      | 
|Balance as of December 31, 2007 |  |                               | 154,800  |                                |  | 25,200                         |   |   | 1.88 | 
|RSU Plan                        |  |                               | 120,000  |                                |  |                               |   |   |     | 
|Awards granted                  |  |                               | (161,300 | )                              |  | 161,300                        |   |   | 1.58 | 
|Forfeited                       |  |                               | 16,750   |                                |  | (16,750                        | ) |   | 1.72 | 
|                                |  |                               |          |                                |  |                                |   |   |      | 
|                                |  |                               |          |                                |  |                                |   |   |      | 
|Balance as of December 31, 2008 |  |                               | 130,250  |                                |  | 169,750                        |   |   | 1.61 | 
|                                |  |                               |          |                                |  |                                |   |   |      | 

F - 28

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 16  EARNINGS (LOSS) PER
ORDINARY SHARE

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

|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|---------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ | - | - | ------ | 
|                                                                                                                 |  | Year ended December 31, |       
|                                                                                                                 |  |                         |       
|                                                                                                                 |  | 2008                    |        | 2007 |   | 2006   |  
|                                                                                                                 |  |                         |        |      |   |        |  
|                                                                                                                 |  | (In thousands)          |       
|                                                                                                                 |  |                         |       
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|Net income (loss) attributable to Ordinary
 Shares                                                               |  | $                       | (9,557 | )    | $ | (7,691 | ) | $ | 11,603 | 
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|Weighted average number of
 Ordinary Shares outstanding
 used in basic earnings per Ordinary Share calculation   |  |                         | 29,916 |      |   | 30,145 |   |   | 29,176 | 
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|Add assumed exercise of outstanding
 dilutive potential Ordinary Shares                                          |  |                         |       |      |   |       |   |   | 377    | 
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|Weighted average number of
 Ordinary Shares outstanding
 used in diluted earnings per Ordinary Share calculation |  |                         | 29,916 |      |   | 30,145 |   |   | 29,553 | 
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|Basic earnings (losses) per Ordinary Share                                                                       |  | $                       | (0.32  | )    | $ | (0.25  | ) | $ | 0.40   | 
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 
|Diluted earnings (losses) per Ordinary
 Share                                                                    |  | $                       | (0.32  | )    | $ | (0.25  | ) | $ | 0.39   | 
|                                                                                                                 |  |                         |        |      |   |        |   |   |        | 

The number of options which were not considered in computing dilutive
earnings (losses) per share because their impact is anti-dilutive aggregated
138,791 and 176,314 in 2008 and 2007, respectively.
The convertible loan which is convertible to 1,044,828 shares,
1,567,398 shares and 909,091 shares in
2008, 2007 and 2006, respectively, was
not considered in computing diluted earnings (losses) because of anti-dilutive
impact.

NOTE 17  GEOGRAPHIC
INFORMATION

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

|                    |  |                            |        |      |  |        |  |  |         | 
|------------------- |  | -------------------------- | ------ | ---- |  | ------ |  |  | ------- | 
|                    |  | Year Ended December 31,    |       
|                    |  |                            |       
|                    |  | 2008                       |        | 2007 |  | 2006   | 
|                    |  |                            |        |      |  |        | 
|                    |  | U.S. Dollars(In thousands) |       
|                    |  |                            |       
|                    |  |                            |        |      |  |        |  |  |         | 
|China and Hong Kong |  |                            | 25,973 |      |  | 30,187 |  |  | 33,713  | 
|Asia- Other         |  |                            | 20,076 |      |  | 12,676 |  |  | 20,413  | 
|United States       |  |                            | 10,759 |      |  | 3,983  |  |  | 15,622  | 
|Taiwan              |  |                            | 7,629  |      |  | 12,935 |  |  | 12,895  | 
|Western Europe      |  |                            | 7,654  |      |  | 8,081  |  |  | 9,170   | 
|Japan               |  |                            | 2,640  |      |  | 2,134  |  |  | 6,716   | 
|Rest of the world   |  |                            | 732    |      |  | 973    |  |  | 1,526   | 
|                    |  |                            |        |      |  |        |  |  |         | 
|                    |  |                            |        |      |  |        |  |  |         | 
|                    |  |                            | 75,463 |      |  | 70,969 |  |  | 100,055 | 
|                    |  |                            |        |      |  |        |  |  |         | 

F - 29

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 18 
SELECTED INCOME STATEMENT DATA

|   |         
|-- | --------
|A. | Revenues

|                                          |  |                            |        |      |  |        |  |  |         | 
|----------------------------------------- |  | -------------------------- | ------ | ---- |  | ------ |  |  | ------- | 
|                                          |  | Year Ended December 31,    |       
|                                          |  |                            |       
|                                          |  | 2008                       |        | 2007 |  | 2006   | 
|                                          |  |                            |        |      |  |        | 
|                                          |  | U.S. Dollars(In thousands) |       
|                                          |  |                            |       
|                                          |  |                            |        |      |  |        |  |  |         | 
|Printed Circuit Boards and IC
 substrates |  |                            | 33,299 |      |  | 39,283 |  |  | 53,028  | 
|Microelectronics                          |  |                            | 28,823 |      |  | 20,371 |  |  | 39,442  | 
|Service fees                              |  |                            | 13,341 |      |  | 11,315 |  |  | 7,585   | 
|                                          |  |                            |        |      |  |        |  |  |         | 
|                                          |  |                            |        |      |  |        |  |  |         | 
|Total Revenues                            |  |                            | 75,463 |      |  | 70,969 |  |  | 100,055 | 
|                                          |  |                            |        |      |  |        |  |  |         | 

|   |                                              
|-- | ---------------------------------------------
|B. | Selling, general and administrative
 expenses

|                                           |  |                            |        |      |  |        |  |  |        | 
|------------------------------------------ |  | -------------------------- | ------ | ---- |  | ------ |  |  | ------ | 
|                                           |  | Year Ended December 31,    |       
|                                           |  |                            |       
|                                           |  | 2008                       |        | 2007 |  | 2006   | 
|                                           |  |                            |        |      |  |        | 
|                                           |  | U.S. Dollars(In thousands) |       
|                                           |  |                            |       
|                                           |  |                            |        |      |  |        |  |  |        | 
|Selling (a1)                               |  |                            | 15,886 |      |  | 17,309 |  |  | 21,000 | 
|General and administrative                 |  |                            | 8,948  |      |  | 6,810  |  |  | 6,850  | 
|                                           |  |                            |        |      |  |        |  |  |        | 
|                                           |  |                            |        |      |  |        |  |  |        | 
|                                           |  |                            | 24,834 |      |  | 24,119 |  |  | 27,850 | 
|                                           |  |                            |        |      |  |        |  |  |        | 
|                                           |  |                            |        |      |  |        |  |  |        | 
|(a1) Including shipping and handling costs |  |                            | 2,036  |      |  | 2,173  |  |  | 2,626  | 
|                                           |  |                            |        |      |  |        |  |  |        | 

|   |                                 
|-- | --------------------------------
|C. | Financial income (expenses), net

|                 |  |                            |       |      |  |      |   |  |      |  
|---------------- |  | -------------------------- | ----- | ---- |  | ---- | - |  | ---- | -
|                 |  | Year Ended December 31,    |      
|                 |  |                            |      
|                 |  | 2008                       |       | 2007 |  | 2006 |  
|                 |  |                            |       |      |  |      |  
|                 |  | U.S. Dollars(In thousands) |      
|                 |  |                            |      
|                 |  |                            |       |      |  |      |   |  |      |  
|Interest expense |  |                            | (277  | )    |  | (320 | ) |  | (422 | )
|Interest income  |  |                            | 181   |      |  | 311  |   |  | 795  |  
|Other, net       |  |                            | 1,096 |      |  | (119 | ) |  | (661 | )
|                 |  |                            |       |      |  |      |   |  |      |  
|                 |  |                            |       |      |  |      |   |  |      |  
|                 |  |                            | 1,000 |      |  | (128 | ) |  | (288 | )
|                 |  |                            |       |      |  |      |   |  |      |  

Other, net includes foreign currency income (expense) resulting from
transactions not denominated in U.S. Dollars amounting to $1,241, $66 and
$(435) thousand in 2008, 2007 and 2006, respectively.

F - 30

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 19  INCOME TAXES

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | Tax under various laws                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company and its subsidiaries are assessed for tax purposes on a
 separate basis. The Company is assessed under the provisions of the Income
 Tax Law (Inflationary Adjustments), 1985 (the Inflationary Adjustments
 Law), pursuant to which the results for tax purposes are measured in Israeli
 currency in real terms in accordance with changes in the Israeli Consumer Price
 Index (CPI) (See Note 19 H). Each of the subsidiaries is subject to the tax
 rules prevailing in the country of incorporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|B. | Tax benefits under the Law for
 Encouragement of Capital Investments, 1959 (the Investment Law)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Companys production facilities have been granted Approved
 Enterprise status under the Investment Law. The Company participates in the
 Alternative Benefits Program and, accordingly, income from its Approved
 Enterprises will be tax exempt for a period of 10 years, commencing in the
 first year in which the Approved Enterprise first generates taxable income
 due to the fact that the Company operates in Zone A in Israel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | On April 1, 2005, an
 amendment to the Investment Law came into effect (the Amendment) and has
 significantly changed the provisions of the Investment Law. The Amendment
 limits the scope of an enterprise, which may be approved by the Investment
 Center by setting criteria for the approval of a facility as a Beneficiating
 Enterprise, such provisions generally require that at least 25% of the
 Beneficiating Enterprises income will be derived from export. Additionally,
 the Amendment enacted major changes in the manner in which tax benefits are
 awarded under the Investment Law so that companies no longer require
 Investment Center approval in order to qualify for the tax benefits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | In addition, the Amendment
 provides that the terms and benefits included in any approval certificate
 issued prior to December 31, 2004 will remain subject to the provisions of
 the Investment Law as they were on the date of such prior approval.
 Therefore, the Companys existing Approved Enterprise will generally not be
 subject to the provisions of the Amendment. As a result of the Amendment,
 tax-exempt income generated under the provisions of the new law, as part of a
 new Beneficiating Enterprise, will subject the Company to taxes upon
 distribution or liquidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The
 Company has been granted the status of Approved Enterprises, under the
 Investment Law, for investment programs for the periods ending in 2007 and
 2010, and the status of Beneficiating Enterprise according to the Amendment,
 for the period ending in 2014 (Programs).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Out of the
 Companys retained earnings as of December 31, 2008 approximately $19.6 million
 are tax-exempt earnings attributable to its Approved Enterprise and
 approximately $2.8 million are tax-exempt earnings attributable to its
 Beneficiating Enterprise. The tax-exempt income attributable to the Approved
 and Beneficiating Enterprises cannot be distributed to shareholders without
 subjecting the Company to taxes. If these retained tax-exempt profits are
 distributed, the Company would be taxed at the reduced corporate tax rate
 applicable to such profits (currently - 25% pursuant to the implementation of
 the Investment Law; effectively 33%). According to the Amendment, tax-exempt
 income generated under the Beneficiating Enterprise will be taxed upon
 dividend distribution or complete liquidation, whereas tax exempt income
 generated under the Approved Enterprise will be taxed only upon dividend
 distribution (but not upon complete liquidation, as the tax liability will be
 incurred by the shareholders). As of December 31, 2008, if the income
 attributed to the Approved Enterprise were distributed as dividend, the
 Company would incur a tax liability of approximately $4.9 million. If income
 attributed to the Beneficiating Enterprise were distributed as dividend, or
 upon liquidation, the Company would incur a tax liability in the amount of
 approximately $0.7 million. These amounts will be recorded as an income tax
 expense in the period in which the Company declares the dividend.

F - 31

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 19  INCOME TAXES (Contd)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|B. | Tax benefits under the Law for
 Encouragement of Capital Investments, 1959 (the Investments Law) (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company intends to
 indefinitely reinvest the amount of its tax-exempt income and not distribute
 any amounts of its undistributed tax exempt income as dividend. Accordingly,
 no deferred tax liabilities have been provided on income attributable to the
 Companys Approved and Beneficiating Enterprise Programs as the undistributed
 tax exempt income is essentially permanent in duration.                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The entitlement to the
 above benefits is conditional upon the Companys fulfilling the conditions
 stipulated by the law and the regulations published thereunder as well as the
 criteria set forth in the approval for the specific investments in the
 Approved Enterprises. In the event of failure to meet such requirements in
 the future, income attributable to its Programs could be subject to the
 statutory Israeli corporate tax rates and the Company could be required to
 refund a portion of the tax benefits already received, with respect to such
 Programs. The Companys management believes that the Company has met the
 aforementioned conditions.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|C. | Tax benefits under the Law for the
 Encouragement of Industry (Taxes), 1969                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | The Company is an industrial company as defined by this law and as
 such is entitled to certain tax benefits, mainly accelerated depreciation as
 prescribed by regulations published under the Inflationary Adjustments Law
 and the right to deduct issuance costs as an expense for tax purposes.                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|D. | Composition of income (loss) before income
 taxes and income tax expense (benefit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

|                                   |  |                            |         |      |  |        |   |  |        |  
|---------------------------------- |  | -------------------------- | ------- | ---- |  | ------ | - |  | ------ | -
|                                   |  | Year Ended December 31,    |        
|                                   |  |                            |        
|                                   |  | 2008                       |         | 2007 |  | 2006   |  
|                                   |  |                            |         |      |  |        |  
|                                   |  | U.S. Dollars(In thousands) |        
|                                   |  |                            |        
|                                   |  |                            |         |      |  |        |   |  |        |  
|Income (loss) before income taxes: |  |                            |         |      |  |        |   |  |        |  
|Israel                             |  |                            | (10,934 | )    |  | (9,515 | ) |  | 10,256 |  
|Non-Israeli                        |  |                            | 2,147   |      |  | 2,186  |   |  | 1,388  |  
|                                   |  |                            |         |      |  |        |   |  |        |  
|                                   |  |                            |         |      |  |        |   |  |        |  
|                                   |  |                            | (8,787  | )    |  | (7,329 | ) |  | 11,644 |  
|                                   |  |                            |         |      |  |        |   |  |        |  
|                                   |  |                            |         |      |  |        |   |  |        |  
|Income tax expense (benefit):      |  |                            |         |      |  |        |   |  |        |  
|Current:                           |  |                            |         |      |  |        |   |  |        |  
|Israel                             |  |                            | 112     |      |  |       |   |  |       |  
|Non-Israeli                        |  |                            | 88      |      |  | 394    |   |  | 475    |  
|                                   |  |                            |         |      |  |        |   |  |        |  
|                                   |  |                            |         |      |  |        |   |  |        |  
|                                   |  |                            | 200     |      |  | 394    |   |  | 475    |  
|                                   |  |                            |         |      |  |        |   |  |        |  
|Deferred:                          |  |                            |         |      |  |        |   |  |        |  
|Israel                             |  |                            | 478     |      |  | 16     |   |  | (160   | )
|Non-Israeli                        |  |                            | 92      |      |  | (48    | ) |  | (274   | )
|                                   |  |                            |         |      |  |        |   |  |        |  
|                                   |  |                            |         |      |  |        |   |  |        |  
|                                   |  |                            | 570     |      |  | (32    | ) |  | (434   | )
|                                   |  |                            |         |      |  |        |   |  |        |  
|                                   |  |                            |         |      |  |        |   |  |        |  
|                                   |  |                            | 770     |      |  | 362    |   |  | 41     |  
|                                   |  |                            |         |      |  |        |   |  |        |  

F - 32

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 19  INCOME TAXES (Contd)

|   |                                                                                                                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|E. | Income taxes included in the income
 statements:                                                                                                                                                                         
|   |                                                                                                                                                                                                                          
|   | The following is a reconciliation of the theoretical income tax
 expense (benefit), assuming all income is taxed at the statutory tax rate
 applicable to Israeli companies, and the actual income tax expense (benefit):

|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------- | ------ | ---- | - | ------ | - | - | ------ | -
|                                                                                                                                                                                           |  | Year Ended December 31,    |       
|                                                                                                                                                                                           |  |                            |       
|                                                                                                                                                                                           |  | 2008                       |        | 2007 |   | 2006   |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |  
|                                                                                                                                                                                           |  | U.S. Dollars(In thousands) |       
|                                                                                                                                                                                           |  |                            |       
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Income (loss) before income taxes                                                                                                                                                          |  |                            | (8,787 | )    |   | (7,329 | ) |   | 11,644 |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Statutory tax rate                                                                                                                                                                         |  |                            | 27     | %    |   | 29     | % |   | 31     | %
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Theoretical income tax expense (benefit)                                                                                                                                                   |  |                            | (2,372 | )    |   | (2,125 | ) |   | 3,610  |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Increase (decrease) in income tax expense
 resulting from:                                                                                                                                 |  |                            |        |      |   |        |   |   |        |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Tax benefits arising from Approved and
 Beneficiating Enterprises and preferential tax rate in China                                                                                     |  |                            | (455   | )    |   | (141   | ) |   | (1,641 | )
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Decrease in tax expense resulting from
 utilization of tax loss carryforwards and
 deductible temporary differences for which deferred tax benefits were not
 recognized in previous years |  |                            | (181   | )    |   | (1,205 | ) |   | (1,337 | )
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Change in valuation allowance from tax
 losses and deductible temporary differences for which deferred tax benefits
 are not recorded in the current year                                  |  |                            | 4,523  |      |   | 6,931  |   |   | 351    |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Permanent differences and nondeductible
 expenses, including differences between Israeli currency adjusted tax returns
 and dollar-adjusted financial statements-net                       |  |                            | (517   | )    |   | (2,560 | ) |   | (1,318 | )
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Nondeductible stock-based compensation                                                                                                                                                     |  |                            | 73     |      |   | 124    |   |   | 237    |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Prior period adjustments                                                                                                                                                                   |  |                            | 39     |      |   | 138    |   |   | 61     |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Other *                                                                                                                                                                                    |  |                            | (340   | )    |   | (800   | ) |   | 78     |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Actual income tax expense                                                                                                                                                                  |  |                            | 770    |      |   | 362    |   |   | 41     |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Per share effect of the tax benefits
 arising from Approved and Beneficiating Enterprises and preferential tax
 rate in China:                                                           |  |                            |        |      |   |        |   |   |        |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Basic                                                                                                                                                                                      |  | $                          | 0.02   |      | $ | 0.00   |   | $ | 0.06   |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  
|Diluted                                                                                                                                                                                    |  | $                          | 0.02   |      | $ | 0.00   |   | $ | 0.06   |  
|                                                                                                                                                                                           |  |                            |        |      |   |        |   |   |        |  

| |                                               
| | ----------------------------------------------
| | * Mainly due to foreign tax rate differential.

F - 33

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 19  INCOME TAXES (Contd)

|   |                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------
|F. | Income taxes included in the balance sheets                                                                                                      
|   | The tax effects of temporary differences that give rise to
 significant portions of the deferred tax assets and liabilities are presented
 below:

|                                                         |  |                            |        |      |  |        |  
|-------------------------------------------------------- |  | -------------------------- | ------ | ---- |  | ------ | -
|                                                         |  | December 31                |       
|                                                         |  |                            |       
|                                                         |  | 2008                       |        | 2007 | 
|                                                         |  |                            |        |      | 
|                                                         |  | U.S. Dollars(In thousands) |       
|                                                         |  |                            |       
|                                                         |  |                            |        |      |  |        |  
|Current:                                                 |  |                            |        |      |  |        |  
|Allowance for doubtful accounts                          |  |                            | 312    |      |  | 294    |  
|Accrued warranty                                         |  |                            | 15     |      |  | 15     |  
|Unearned revenue                                         |  |                            | 268    |      |  | 230    |  
|Accrued expenses                                         |  |                            | 228    |      |  | 215    |  
|Other temporary differences *                            |  |                            | 662    |      |  | 538    |  
|                                                         |  |                            |        |      |  |        |  
|                                                         |  |                            |        |      |  |        |  
|Total gross current deferred tax assets                  |  |                            | 1,485  |      |  | 1,292  |  
|Valuation allowance                                      |  |                            | (1,446 | )    |  | (1,168 | )
|                                                         |  |                            |        |      |  |        |  
|                                                         |  |                            |        |      |  |        |  
|Current deferred tax asset, net of valuation allowance   |  |                            | 39     |      |  | 124    |  
|                                                         |  |                            |        |      |  |        |  
|                                                         |  |                            |        |      |  |        |  
|Long-term:                                               |  |                            |        |      |  |        |  
|Net operating losses (NOL) carryforwards                 |  |                            | 4,708  |      |  | 3,552  |  
|Severance pay                                            |  |                            | 5      |      |  | 5      |  
|Fixed assets                                             |  |                            | (23    | )    |  | (19    | )
|Other temporary differences *                            |  |                            | 340    |      |  | 536    |  
|                                                         |  |                            |        |      |  |        |  
|                                                         |  |                            |        |      |  |        |  
|Total gross long-term deferred tax assets                |  |                            | 5,030  |      |  | 4,074  |  
|Valuation allowance                                      |  |                            | (4,903 | )    |  | (3,462 | )
|                                                         |  |                            |        |      |  |        |  
|                                                         |  |                            |        |      |  |        |  
|Long-term deferred tax asset, net of valuation allowance |  |                            | 127    |      |  | 612    |  
|                                                         |  |                            |        |      |  |        |  
|                                                         |  |                            |        |      |  |        |  
|Net deferred tax assets                                  |  |                            | 166    |      |  | 736    |  
|                                                         |  |                            |        |      |  |        |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * Other temporary differences mainly relate to research and
 development expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Under SFAS No. 109, deferred tax assets are to be recognized for the
 anticipated tax benefits associated with net operating loss carryforwards and
 deductible temporary differences, unless it is more likely than not that some
 or all of the deferred tax assets will not be realized. The adjustment is
 made by a valuation allowance. Since the future realization of the net
 operating loss carryforwards and deductible temporary differences is
 uncertain and not considered more likely than not, a valuation allowance has
 been established to reduce the deferred tax assets to their estimated
 realizable value. The net change in the total valuation allowance was an
 increase of $1,719 and $2,445 thousand for the years ended December 31, 2008
 and 2007, respectively, and a decrease of $501 thousand for the year ended
 December 31, 2006.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | As of December 31, 2008, Camtek has not
 provided for income taxes on the undistributed earnings of approximately
 US$1,500 thousand of one of its foreign subsidiaries since these earnings are
 intended to be indefinitely reinvested. A deferred tax liability will be
 recognized when the Company no longer demonstrates that it plans to
 indefinitely reinvest these undistributed earnings. It is not practicable to
 estimate the amount of additional taxes that might be payable on such
 undistributed earnings.                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | As of December 31, 2008, the Company and
 its subsidiary in Israel have regular NOL carryforwards aggregating
 approximately $12,737 thousand, and NOL available for offset from Approved
 and Beneficiating Enterprises aggregating approximately $24,176 thousand.
 These NOL can be carried forward indefinitely.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F - 34

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 19  INCOME TAXES (Contd)

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|F. | Income taxes included in the balance sheets
 (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | As of December 31, 2008, the major foreign
 subsidiaries have NOL carryforwards aggregating approximately $4,371 thousand, of which approximately $2,508 thousand will expire
 from 2009 to 2023 and approximately $1,863 thousand can be carried forward
 indefinitely.                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|G. | Reduction in corporate income tax rate in
 Israel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On July 25, 2005, an amendment to the Israeli tax law was approved by
 the Israeli parliament, which reduces the tax rates imposed on Israeli
 companies to 31% for 2006. This amendment states that the corporate tax rate
 will be further reduced in subsequent tax years as follows: in 2007 29%, in
 2008 27%, in 2009 26% and thereafter 25%. This change does not have a
 material effect on the Companys financial statements.                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|H. | On February 26, 2008, the
 Israeli Income Tax Law (Inflationary Adjustments) (Amendment No. 20)
 (Restriction of Period of Application)  2008 (the 2008 Amendment) was
 passed by the Knesset. According to the 2008 Amendment, the Inflationary
 Adjustments Law will no longer be applicable subsequent to the 2007 tax year,
 except for certain transitional provisions.                                                                                                                                                                                                                                                                               
|   | Further, according to the
 2008 Amendment, commencing with the 2008 tax year, the adjustment of income
 for the effects of inflation for tax purposes will no longer be calculated.
 Additionally, depreciation on fixed assets and tax loss carryforwards will no
 longer be linked to future changes in the CPI subsequent to the 2007 tax
 year, and the balances that have been linked to the CPI through the end of
 the 2007 tax year will be used going forward.                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|I. | Accounting
 for uncertainty in income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | FIN 48 clarifies the
 accounting for uncertainty in income taxes recognized in an enterprises
 financial statements in accordance with FAS 109. This interpretation
 prescribes a minimum recognition threshold a tax position is required to meet
 before being recognized in the financial statements. FIN 48 also provides
 guidance on derecognition of tax positions, classification on the balance
 sheet, interest and penalties, accounting in interim periods, disclosure, and
 transition. FIN 48 requires significant judgment in determining what constitutes
 an individual tax position as well as assessing the outcome of each tax
 position.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company adopted the
 provisions of FIN 48 as of January 1, 2007, and there was no effect on the
 financial statements. As a result, the Company did not record any cumulative
 effect adjustment related to adopting FIN 48.                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | As of January 1, 2007, and
 for the years ended December 31, 2007, and 2008, the Company did not have any
 unrecognized tax benefits. In addition, the Company does not expect that the
 amount of unrecognized tax benefits will change significantly within the next
 twelve months.                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company accounts for
 interest and penalties related to unrecognized tax benefits as a component of
 income tax expense. As
 of January 1, 2007 and for the years ended December 31, 2007 and 2008, no
 interest and penalties related to unrecognized tax benefits have been
 accrued.                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company files its
 income tax returns in Israel while its principle foreign subsidiaries file
 their income tax returns in Belgium, Hong Kong and United States of America.
 The Israeli tax returns of the Company and its Israeli subsidiary are open to
 examination by the Israeli Tax Authorities for the tax years beginning in
 2004 while the tax returns of its principal foreign subsidiaries remain
 subject to examination for the tax years beginning in 1997 in Belgium, 2001
 in Hong Kong and 2004 in the United States of America.                                                                                                       

F - 35

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 20  BALANCES AND TRANSACTIONS
WITH RELATED PARTIES

|   |                               
|-- | ------------------------------
|A. | balances with related parties:

|                    |  |  |                             |  |                   |     | 
|------------------- |  |  | --------------------------- |  | ----------------- | --- | 
|                    |  |  | December 31, 2008           |  | December 31, 2007
|                    |  |  |                             |  |                  
|                    |  |  | U.S. Dollars (In thousands)
|                    |  |  |                            
|                    |  |  |                             |  |                   |     | 
|Accounts receivable |  |  | 256                         |  |                   |    | 
|Due from affiliates |  |  | 414                         |  |                   | 251 | 
|Due to affiliates   |  |  | 294                         |  |                   | 866 | 

|   |                                   
|-- | ----------------------------------
|B. | Transactions with related parties:

|                                      |  |  |                            |   |      |       |      |  |       | 
|------------------------------------- |  |  | -------------------------- | - | ---- | ----- | ---- |  | ----- | 
|                                      |  |  | Year Ended December 31,   
|                                      |  |  |                           
|                                      |  |  | 2008                       |   | 2007 |       | 2006
|                                      |  |  |                            |   |      |       |     
|                                      |  |  | U.S. Dollars(In thousands)
|                                      |  |  |                           
|                                      |  |  |                            |   |      |       |      |  |       | 
|Purchases from Parent and affiliates  |  |  | 1,804                      |   |      | 1,876 |      |  | 3,244 | 
|Interest income (expense) from Parent |  |  | (34                        | ) |      | (33   | )    |  | 16    | 
|Sales to Parent and affiliates        |  |  | 467                        |   |      | 27    |      |  | 407   | 

Registration Rights Agreement with
Parent

On
March 1, 2004, the Company entered into a registration rights agreement
providing for the Company to register with the SEC certain of its ordinary
shares held by Parent. This registration rights agreement may be used in
connection with future offerings of our ordinary shares, and includes, among
others, the following terms: (a) Parent is entitled to make up to three demands
that we register our ordinary shares held by Parent, subject to delay due to
market conditions; (b) Parent will be entitled to participate and sell the
Companys ordinary shares in any future registration statements initiated by
the Company, subject to delay due to market conditions; (c) the Company will
indemnify Parent in connection with any liabilities incurred in connection with
such registration statements due to any misstatements or omissions other than
information provided by Parent, and Parent will indemnify the Company in
connection with any liabilities incurred in connection with such registration
statements due to any misstatements or omissions in written statements by
Parent made for the purpose of their inclusion in such registration statements;
and (d) the Company will pay all expenses related to registrations which the
Company has initiated, except for certain underwriting discounts or commissions
or legal fees, and Parent will pay all expenses related to a registration initiated
at its demand in which the Company is not participating.

On
December 30, 2004, the Registration Rights Agreement with Parent was amended.
The amendment concerns primarily the grant of unlimited shelf registration
rights thereunder to Parent with respect to its holdings in the Company, and
the assignability of those shelf registration rights to its transferees.

F - 36

---

---



CAMTEK LTD. and its subsidiaries

|                                          
|------------------------------------------
|Notes to Consolidated Financial Statements
|                                          

NOTE 20  BALANCES AND
TRANSACTIONS WITH RELATED PARTIES (contd)

Employment Agreements with the CEO
and the COO

Effective
January 1, 1998, the Company entered into an employment agreement with its
Chief Executive Officer (CEO). Pursuant to his employment agreement, the CEO
may dedicate up to 20% of his time to work for Parent or any of the Parents
entities.

Also
effective January 1, 1998, the Company entered into an employment agreement
with its Executive Vice President, Business & Strategy (EVP). Pursuant to
his employment agreement, the EVP may dedicate up to 40% of his time to work
for Parent or any of the Parents entities.

The
CEO works on a full time basis for the Company and therefore receives a full
time salary, while the EVP receives from the Company 60% of a full time salary.
The EVP is compensated directly by each of the Parent entities for which he
works. The CEO also serves as the Chairman of Parent, and the EVP also serves
as the Chief Executive Officer and as a director of Parent.

The
CEO and EVP do not receive any additional compensation for their service as the
Companys directors.

NOTE 21  SUBSEQUENT EVENTS

|   |                                                                                                                                                                                                                                                                        
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|A. | On February 17, 2009, the
Company has implemented an additional reduction of its global work force by 68
employees. This reduction represented about 14% of the Companys current total
workforce of 480.                                                              
|  
|B. | On February 1, 2009, 14,000 RSU were granted to employees. In addition, on March
12, 2009, 7,560 RSU were granted to the chairman of the board of directors and
to a director, are subject to the approval of the Annual General Meeting of the
Companys shareholders.

F - 37

---

---

|Item 19. |  | Exhibits.
|-------- |  | ---------

|Exhibit No. | Exhibit
|----------- | -------

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

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

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

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

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

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

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

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

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

| | 4.8 | 2007
Restricted Share Unit Plan (incorporated herein by reference to Exhibit 4.8 to the
Registrants Registration Statement on Form 20-F File No.000-30664 filed with the
Securities and Exchange Commission on June 30, 2008).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.9 | Form
of Indemnification Agreement (incorporated herein by reference to Exhibit 10.10 to
Amendment No. 1 to the Registrants Registration Statement on Form F-1, File No.
333-12292, filed with the Securities and Exchange Commission on July 21, 2000).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.10 | Registration
Rights Agreement, by and between the Registrant and Priortech Ltd., dated March 1,
2004 (incorporated herein by reference to Exhibit 10.9 to Amendment No. 1 to the
Registrants Registration Statement on Form F-1, File No. 333-113208, filed with the
Securities and Exchange Commission on April 5, 2004).
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.11 | Registration
Rights Amended and Restated Agreement by and between the Registrant and Priortech Ltd.,
dated December 30, 2004. (incorporated herein by reference to Exhibit 4.10 to the
Registrants Registration Statement on Form 20-F File No.000-30664 filed with the
Securities and Exchange Commission on June 30, 2005).
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.12 | Convertible
Loan Agreement, by and between the Registrant and FIMI Opportunity Fund, L.P., and FIMI
Israel Opportunity Fund, dated August 8, 2005 (incorporated herein by reference to
Exhibit 4.11 to the Registrants Registration Statement on Form 20-F File
No.000-30664 filed with the Securities and Exchange Commission on June 29, 2006).
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 8.1 | Subsidiaries
of the Registrant.*
| | --- | --------------------------------

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

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

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

| | 15.1 | Consent
of Somekh Chaikin, a member firm of KPMG International.*
| | ---- | ----------------------------------------------------------------

---

| | English
translations from Hebrew original.
|- | ------------------------------------------

|* | Filed
herewith.
|- | ---------------

72

---

---

# SIGNATURES

The
Company 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.

| |  | CAMTEK LTD.By: /s/ Rafi Amit
Rafi AmitChief Executive Officer
| |  | ---------------------------------------------------------------------------

Date: April 7, 2009

73

---

---