---

---

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

---

---



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

Yes o   No x

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

Yes o   No x

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes x   No o

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

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

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

Item 17 o   Item 18
x

If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act):

Yes o   No x

---

---



Table of Contents

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

2

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

3

---

---



FORWARD-LOOKING STATEMENTS

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

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

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

4

---

---



PART I

ITEM 1: Identity of Directors, Senior
Management and Advisors

Not
Applicable.

ITEM 2: Offer Statistics and Expected
Timetable

Not
Applicable.

ITEM 3: Key Information

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

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

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

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

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

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

5

---

---



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

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

---

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

6

---

---



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

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

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

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

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

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

7

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

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

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

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

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

8

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

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

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

9

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

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

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

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

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

10

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

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

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

11

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

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

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

12

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

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

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

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

13

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

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

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

14

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

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

ITEM 4: Information on NUR

|   |                               
|-- | ------------------------------
|A. | History and Development of NUR

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

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

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

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

15

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Significant Events

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Industry Background

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

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

Traditional Wide
Format and Super Wide Format Printing Methods

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

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

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

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

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Wide Format and
Super Wide Format Digital Printing

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

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

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

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

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

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

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Our Strengths and Strategy

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

NURs
strategy is to:

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

Products

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

Printers

UV-Ink Based Roll-Fed Printers

NUR Expedio
5000

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

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

NUR Expedio
Revolution

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

NUR Expedio
3200

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

NUR Expedio
Inspiration

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

NUR Expedio
3200 / Expedio Inspiration Flatbed Module

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

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UV-Flatbed
Digital Printers

NUR Tempo

In
September 2003, we commercially released the NUR Tempo flatbed digital printer.
The NUR Tempo uses UV-curable inks that give it the flexibility to print on
almost any type of substrate. These include corrugated board, foam-core
paperboard, acrylic sheets, PVC, polycarbonate, fluted polypropylene, glass,
wood and standard rolled media. It also features a large format table (10 1⁄2 ft.
x 6 1⁄2 ft. or 3.2m x 2m) to accommodate a wide variety of applications and job
formats. It can handle both rigid and rolled substrates with fast and easy
changeover between the two for ultimate flexibility. The printer offers 4 and 8
color printing modes, delivering a combination of high speed and
photo-realistic image quality. The printers fully encapsulated construction
ensures a comfortable working environment. The NUR Tempo is designed to
eliminate the extra steps involved in lamination and cutting/trimming processes
common to other traditional methods of printing graphics on rigid surfaces.

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

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

NUR Tempo L

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

NUR Tempo II

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

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NUR Tempo Q

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

Solvent-ink based Digital Printers

NUR Fresco

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

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

NUR Fresco
HiQ 8C

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

NUR Fresco
X-Press 100

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

NUR Fresco II

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

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NUR Fresco
III

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

NUR Tango

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

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

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

NUR Printers - General

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

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

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

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

Consumables

Inks

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

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

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

Sales and Marketing

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

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

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

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

Production and Sources of Supply

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

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

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

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

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

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

Service and Support

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

Research and Development

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

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

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

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

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

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

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

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Competition

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

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

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

Trade Secrets, Patents and Proprietary Rights

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

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

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Insurance

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

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

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

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

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

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

Israel

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

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

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

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United States

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

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

Europe

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

Asia Pacific

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

Japan

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

We believe
that our facilities worldwide are fully utilized.

Environmental Matters

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

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

ITEM 4A: Unresolved Staff Comments

Not
applicable.

ITEM 5: Operating and Financial Review and
Prospects

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

General

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

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

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

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

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

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

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

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

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

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

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

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

Certain Critical Accounting Policies and
Estimates

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

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

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

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

Revenue Recognition

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

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

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

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

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

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

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

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

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

Allowance for Doubtful Accounts

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

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Inventory Valuation

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

Deferred Income Taxes

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

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Litigation

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

Stock-Based Compensation

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

# Adoption of New
Accounting Standards

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

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

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

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

38

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Recently Issued Accounting Guidance

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

Geographic Breakdown of Revenues

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

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

39

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

Results of Operations

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

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

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

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

40

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

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

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

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

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

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

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

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

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

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

41

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

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

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

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

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

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

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

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

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

42

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

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

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

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

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

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

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

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

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

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

43

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

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

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

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

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

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

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

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

44

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

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

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

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

Impact of Inflation,
Devaluation and Fluctuation of Currencies

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

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

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

45

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

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

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

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

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

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

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

Operating activities

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

46

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

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

Investing activities

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

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

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

Financing activities

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

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

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

47

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---



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

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

In
the beginning of 2007 we raised $6.3 million through the private placement of
11,734,950 of our ordinary shares to various investors at a price of $0.54 per
share. The investors also received warrants to purchase additional 3,520,485
ordinary shares at an exercise price of $0.65 per share, exercisable for a
period of five years following the closing of the private placement. The
private placement included two stages, an initial closing resulting in gross
proceeds in the amount of $3.8 million in January 2007 and a follow-on
investment resulting in gross proceeds of $2.5 million in February 2007. In
connection with the private placement, we paid our adviser, Meitav Underwriting
Ltd., a cash fee of $0.25 million.

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

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

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



---

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

48

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

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

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

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

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

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

49

---

---



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

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

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

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

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

50

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---



Outstanding Warrants

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

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

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

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

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

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

Losses

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

51

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Printers Sales

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

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

Consumables Sales

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

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

Gross Margins

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

Industry

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

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

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

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

52

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|   |                        
|-- | -----------------------
|F. | Contractual obligations

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

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



---

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

|                                                   | 
|-------------------------------------------------- | 
|ITEM 6: Directors, Senior Management and Employees

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

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

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

53

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

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



---

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

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

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

54

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---



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Terms of Directors

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

External Directors

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

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

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

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

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

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

Alternate Directors

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

Approval of Certain Transactions Under the
Israeli Companies Law

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

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

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

Committees of the Board of Directors

Audit Committee

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

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

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

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

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

Stock Option and Compensation Committee

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

65

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

Non-Employee Director Share Option Plan
Committee

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

Indemnification and Exculpation of Executive
Officers and Directors

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

Indemnification

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

66

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

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

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

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

Exemption

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

67

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

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

Insurance

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

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

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

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

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

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

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

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

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

Beneficial Ownership of Executive Officers
and Directors

The
following table sets forth certain information regarding the beneficial
ownership of NURs ordinary shares as of June 15, 2007, of (i) each director of
NUR and (ii) each

member of senior management

of NUR. All of the information with respect
to beneficial ownership of the ordinary shares is given to the best of NURs
knowledge and has been furnished in part by the respective directors and
executive officers.

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

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

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

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

Outstanding Options

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

1995 Israel Stock Option Plan

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

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

1997 Stock Option Plan

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

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

1998 Non-Employee Director Share Option Plan

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

2000 Stock Option Plan

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

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

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

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

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

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

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

72

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ITEM 7: Major Shareholders and Related Party
Transactions

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

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

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

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

73

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

74

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Significant Changes in the Ownership of Major
Shareholders

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

Record Holders

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

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

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

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

75

---

---



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

|   |                                 
|-- | --------------------------------
|C. | Interests of Experts and Counsel
|   |                                 
|   | Not
  Applicable.               

76

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---



ITEM 8: Financial Information

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

Consolidated Statements

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

Export Sales

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

Legal Proceedings

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

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

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

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

77

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---



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

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

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

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

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

78

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

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

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

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

Dividends

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

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

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

79

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ITEM 9: The Offer and Listing

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

Not
applicable other than Item 9.A.4.

Stock Price History

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

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

80

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|   |                     
|-- | --------------------
|B. | Plan of Distribution

Not
Applicable.

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

Markets

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

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

|   |         
|-- | --------
|D. | Dilution

Not
Applicable.

|   |                      
|-- | ---------------------
|E. | Expenses of the Issue

Not
Applicable.

ITEM 10: Additional Information

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

Not
applicable.

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

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

81

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Authorized Share Capital

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

Purpose and Objective

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

Board of Directors

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

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

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

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

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

Rights of Shareholders

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

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

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

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

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Changing Rights Attached to Shares

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

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

Dividends and Profits

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

Redemption Provisions

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

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Certain Transactions with Controlling Persons

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

Anti-takeover Provisions; Mergers and
Acquisitions under Israeli Law

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

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

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

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

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

Duties of Shareholders

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

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

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

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

Fortissimo Private Placement

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

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

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

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

Debt Restructuring Agreement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2007 Private Placement

In the
beginning of 2007 we raised $6.3 million through the private placement of
11,734,950 of our ordinary shares to various investors at a price of $0.54 per
share. The investors also received warrants to purchase additional 3,520,485
ordinary shares at an exercise price of $0.65 per share, exercisable for a
period of five years following the closing of the private placement. The
private placement included two stages, an initial closing resulting in gross
proceeds in the amount of $3.8 million in January 2007 and a follow-on
investment resulting in gross proceeds of $2.5 million in February 2007. In
connection with the private placement, we paid our adviser, Meitav Underwriting
Ltd., a cash fee of $0.25 million.

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

Dan Purjes Voting Agreement and Voting Trust
Agreement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Israeli Taxation and Investment Programs

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

General Corporate
Tax Structure

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

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Special Provisions
Relating to Taxation under Inflationary Conditions

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

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

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

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

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

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

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

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

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

Law for the
Encouragement of Capital Investments, 5719-1959

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

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

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

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

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

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

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

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

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

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

Capital Gains Tax on
Sales of Our Ordinary Shares

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

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Taxation of Israeli
Residents

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

Taxation of Non-Israeli
Residents

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

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

Tax Benefits for
Research and Development

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

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U.S. Tax Considerations Regarding Ordinary
Shares

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

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

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

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

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

Taxation of U.S. Holders

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Taxation of Non-U.S. Holders

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

100

---

---



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

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

Backup Withholding and Information Reporting

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

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

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

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

101

---

---



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

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

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

Not
applicable.

ITEM 11: Quantitative and Qualitative
Disclosures About Market Risk

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

Inflation, Deflation and Fluctuation of
Currencies

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

Interest Rate

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

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

ITEM 12: Description of Securities Other Than
Equity Securities

Not
Applicable.

PART
II

ITEM 13: Defaults, Dividend Arrearages and
Delinquencies

Not
Applicable.

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

Not
Applicable.

102

---

---



ITEM 15: Controls and Procedures

(a) Disclosure Controls and Procedures

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

(b) Managements Annual Report on Internal
Control over Financial Reporting

Not applicable.

(c) Changes in Internal Control over
Financial Reporting

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

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

The
material weaknesses identified by management and noted by our independent
auditors were also identified as material weaknesses following the restatement
of NURs financial results for 2002 through 2004,

reported during 2005,

 and the preparation of the
financial reports for the year ended December 31, 2005. Following the
identification of such material weaknesses, NURs management evaluated them and
began implementation of corrective actions in 2005.

103

---

---



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

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

ITEM 16: Reserved

ITEM 16A: Audit Committee Financial Expert

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

ITEM 16B: Code of Ethics

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

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

ITEM 16C: Principal Accountant Fees and
Services

Fees paid
to the Independent Accountants

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

104

---

---



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

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

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

Audit Committees pre-approval policies and
procedures

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

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

Not
Applicable.

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

Not
Applicable.

PART
III

ITEM 17: Financial Statements

Not
Applicable.

105

---

---



ITEM 18: Financial Statements

See
Financial Statements included at the end of this report.

ITEM 19: Exhibits

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

106

---

---



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

107

---

---



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

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

108

---

---



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

109

---

---



SIGNATURES

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

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

110

---

---



NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2006

IN U. S. DOLLARS

INDEX

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

---

---

---



REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders ofNUR MACROPRINTERS LTD.

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

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

We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting.
Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.

In
our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2005 and 2006 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2006, in conformity with U.S. generally accepted accounting
principles.

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

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

F  2

---

---



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

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

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

F  3

---

---



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

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

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

F  4

---

---



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

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

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

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

F  5

---

---



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

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

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

F  6

---

---



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

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

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

F  7

---

---



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

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

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

F  8

---

---



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

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

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

F  9

---

---



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

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

F  10

---

---



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

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

F  11

---

---



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

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

F  12

---

---



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

|            |                                         |                                                                                                                                                                                      
|----------- | --------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                        
|            |                                         | Cost is
  determined as follows:                                                                                                                                                     
|            |                                         |                                                                                                                                                                                      
|            |                                         | Raw materials
  - using the average cost method.                                                                                                                                     
|            |                                         |                                                                                                                                                                                      
|            |                                         | Work-in-progress
  and finished products - raw materials as above with the addition of direct
  manufacturing costs and indirect manufacturing costs allocated on an average
  basis.
|            |                                         |                                                                                                                                                                                      
|            |                                         | Changes in
  the Groups inventory provision are as follows:                                                                                                                         

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

| |    |                                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | h. | Property,
  plant and equipment, net:                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                
| |    | Property,
  plant and equipment are stated at cost, net of accumulated depreciation.
  Depreciation is calculated using the straight-line method over the estimated
  useful lives of the assets at the following annual rates:

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

F  13

---

---



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

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

F  14

---

---



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

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

F  15

---

---



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

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

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

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

F  16

---

---



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

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

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

F  17

---

---



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

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

F  18

---

---



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

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

F  19

---

---



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

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

| |                            |  |                         |       |      |  |       |  |  |       | 
| | -------------------------- |  | ----------------------- | ----- | ---- |  | ----- |  |  | ----- | 
| |                            |  | Year ended December 31,
| |                            |  |                        
| |                            |  | 2004                    |       | 2005 |  | 2006 
| |                            |  |                         |       |      |  |      
|
| | Dividend
  yield           |  |                         | 0%    |      |  | 0%    |  |  | 0%   
| | Expected
  volatility      |  |                         | 0.8   |      |  | 1.19  |  |  | 1.12 
| | Risk-free
  interest       |  |                         | 3.25% |      |  | 3.99% |  |  | 4.67%
| | Expected
  life (in years) |  |                         | 2     |      |  | 3     |  |  | 3.5  

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

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

F  20

---

---



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

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

F  21

---

---



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

|            |                                        
|----------- | ---------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)

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

|            |                                               
|----------- | ----------------------------------------------
|NOTE 3:    | OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

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

|            |            
|----------- | -----------
|NOTE 4:    | INVENTORIES

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

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

F  22

---

---



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

|            |                              
|----------- | -----------------------------
|NOTE 5:    | PROPERTY, PLANT AND EQUIPMENT

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

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

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

|            |                             
|----------- | ----------------------------
|NOTE 6:    | OTHER INTANGIBLE ASSETS, NET

| |    |                                          
| | -- | -----------------------------------------
| | a. | Composition
  of other intangible assets:

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

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

F  23

---

---



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

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

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

|            |                                 
|----------- | --------------------------------
|NOTE 7:    | SHORT TERM BANK CREDIT AND LOANS

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

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

F  24

---

---



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

|            |                
|----------- | ---------------
|NOTE 8:    | LONG-TERM LOANS

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

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

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

F  25

---

---



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

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

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

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

F  26

---

---



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

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

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

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

F  27

---

---



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

|            |                                             | 
|----------- | ------------------------------------------- | 
|NOTE 9:    | OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

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

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

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

F  28

---

---



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

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

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

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

F  29

---

---



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

|            |                                                |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                             
|----------- | ---------------------------------------------- | ---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 11:   | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|            |                                                |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                             
|            | b.                                             | Royalty
  commitments:
|            |                                                |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                             
|            |                                                | 1.                     | The Company
  entered into several project plans with the OCS. Under the terms of grants
  awarded in prior years by the OCS to the Company, the Company was obligated
  to pay royalties at the rate of 2% - 3% of the sales derived from the
  applicable products developed within the framework of such research and
  development projects, up to an amount equal to 100% - 150% of the grant
  received, linked to the U.S. dollar and for grants received after January 1,
  1999, accrued for interest at the rate of LIBOR. The Company had no obligation
  to repay this amount if sales are not sufficient to satisfy the royalty
  obligations. The Company reached a settlement agreement with the OCS in
  connection to a previous dispute regarding payment of certain royalties,
  refer to Note 10. Following the settlement agreement as described in Note 10,
  all the contingent commitment for amounts received in the past from the OCS
  was converted into and recorded as an outstanding debt in the amount of $597
  and $357 as of December 31, 2005 and 2006, respectively.
|            |                                                |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                             
|            |                                                |                        | According to
  the Encouragement of Industrial Research and Development Law, 1984, the
  Companys technologies are subject to transfer of technology and
  manufacturing rights restrictions. The discretionary approval of the OCS
  committee is required for any transfer of technology developed with OCS
  funding. OCS approval is not required for the export of any products
  resulting from the research or development, or for licensing of the
  technology in the ordinary course of business. There is no assurance that the
  Company will receive the required approvals for any proposed transfer. Such
  approvals, if granted, could be subject to the following conditions:                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                                |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                             
|            |                                                |                        | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | The Company
  will be required to pay the OCS a portion of the consideration received upon
  any sale of such technology or upon an acquisition of the Company by an
  entity that is not Israeli; or                                                                                                                                                                       
|            |                                                |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                             
|            |                                                |                        | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | The transfer
  of manufacturing rights could be conditioned upon an increase in the royalty
  rate and payment of increased aggregate royalties (up to 300% of the amount
  of the grant plus interest, depending on the percentage of foreign
  manufacture) or a transfer of manufacturing rights into Israel of another
  product of similar or more advanced technology.

F  30

---

---



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

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

F  31

---

---



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

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

F  32

---

---



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

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

F  33

---

---



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

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

F  34

---

---



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

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

F  35

---

---



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

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

F  36

---

---



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

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

F  37

---

---



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

|            |                                 
|----------- | --------------------------------
|NOTE 13:   | SHAREHOLDERS DEFICIENCY (Cont.)

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

F  38

---

---



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

|            |                                  |    |                                                                                                            
|----------- | -------------------------------- | -- | -----------------------------------------------------------------------------------------------------------
|NOTE 13:   | SHAREHOLDERS DEFICIENCY (Cont.)
|            |                                 
|            |                                  | 2. | A summary of
  the Companys share option activity through December 31, 2006 for the Plans
  is as follows:

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

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

F  39

---

---



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

|            |                                  |    |                                                                                                                   
|----------- | -------------------------------- | -- | ------------------------------------------------------------------------------------------------------------------
|NOTE 13:   | SHAREHOLDERS DEFICIENCY (Cont.)
|            |                                 
|            |                                  | 3. | The options
  outstanding as of December 31, 2006 have been separated into ranges of
  exercise price, as follows:

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

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

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

F  40

---

---



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

|            |                                  |                                                                              
|----------- | -------------------------------- | -----------------------------------------------------------------------------
|NOTE 13:   | SHAREHOLDERS DEFICIENCY (Cont.)
|            |                                 
|            | h.                               | The
  Companys outstanding warrants as of December 31, 2006, are as follows:

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

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

F  41

---

---



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

|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- | ----------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14:   | TAXES ON INCOME (Cont.)
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                         |  | According to
  the provisions of this law, the Company elected to enjoy alternative
  benefits which provide tax benefits in exchange for waiver of grants.
  Accordingly, the Companys income from the Approved Enterprise will be
  tax-exempt for a period of two, four and four years, for the first, second
  and third plan, respectively, commencing with the year it first earns taxable
  income. Based on the percentage of foreign ownership of the Company, income
  derived during the remaining periods of five, three and three years,
  respectively of benefits is taxable at the rate of 15%-25%.                                                                                             
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                         |  | The period
  of tax benefits detailed above is subject to limits of 12 years from the
  commencement of production, or 14 years from receiving the approval,
  whichever is earlier. Given the above mentioned conditions, the period of
  benefits for the first and second plans commenced in 1994 and 1999,
  respectively. The first plan was terminated in 2001 and the second plan was
  terminated in 2004. The period of benefits for the third plan has not yet
  commenced.                                                                                                                                                                                                                                
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                         |  | The
  entitlement to the above benefits is conditional upon the Company fulfilling
  the conditions stipulated by the above law, regulations published hereunder
  and the letters of approval for the specific investments in Approved
  Enterprises. In the event of failure to comply with these conditions, the
  benefits may be canceled and the Company may be required to refund the amount
  of the benefits, in whole or in part, including interest. As of the balance
  sheet date, the Company complies with all these conditions.                                                                                                                                                                    
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                         |  | The
  tax-exempt profits earned by the Companys Approved Enterprise can be
  distributed to shareholders, without imposing a tax liability on the Company,
  only upon the complete liquidation of the Company. If these retained
  tax-exempt profits are distributed in a manner other than upon the complete
  liquidation of the Company, they would be taxed at the corporate tax rate
  applicable to such profits as if the Company had not elected the alternative
  tax benefits.                                                                                                                                                                                                                        
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                         |  | The Company
  has decided to permanently reinvest the tax exempt profits resulting from the
  Approved Enterprise status and not to distribute such profits as dividends.
  Accordingly, no deferred income taxes have been provided in respect of the
  said tax exempt profits. As of December 31, 2006, the Company has no such
  retained tax exempt profits.                                                                                                                                                                                                                                                                                                                                                  
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                         |  | The law also
  entitles the Company to claim accelerated rates of depreciation on equipment
  used by the Approved Enterprise during five tax years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                         |  | Income from
  sources other than the Approved Enterprise during the benefit period will
  be subject to tax at the regular corporate tax rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                         |  | On April 1,
  2005, an amendment to the Investment Law came into effect (the Amendment)
  and has significantly changed the provisions of the Investment Law. The
  Amendment limits the scope of enterprises which may be approved by the
  Investment Center by setting criteria for the approval of a facility as a
  Privileged Enterprise, such as provisions generally requiring that at least
  25% of the Privileged 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.

F  42

---

---



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

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

F  43

---

---



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

|            |                         |                                                                                                                                                                                        | 
|----------- | ----------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|NOTE 14:   | TAXES ON INCOME (Cont.)
|           
|            | c.                      | Theoretical
  tax expenses:                                                                                                                                                           
|            |                         |                                                                                                                                                                                       
|            |                         | A
  reconciliation of the theoretical tax expense, assuming all income is taxed
  at the statutory rate applied to corporations in Israel and the actual tax
  expense, is as follows:

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

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

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

F  44

---

---



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

|            |                         |                                                                                                                                                                                                                                                                                                   
|----------- | ----------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14:   | TAXES ON INCOME (Cont.)
|            |                        
|            | e.                      | Deferred
  income taxes:                                                                                                                                                                                                                                                                          
|            |                         |                                                                                                                                                                                                                                                                                                   
|            |                         | Deferred
  income taxes reflect the net tax effects of temporary differences between the
  carrying amounts of assets and liabilities for financial reporting purposes
  and the amounts used for income tax purposes. Significant components of the
  Groups deferred tax assets are as follows:

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

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

F  45

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

|            |                         |                                                          | 
|----------- | ----------------------- | -------------------------------------------------------- | 
|NOTE 14:   | TAXES ON INCOME (Cont.)
|            |                        
|            | g.                      | Loss before
  taxes on income consists of the following:

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

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

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

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

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

F  46

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

|            |                                                    |                                                                                                                                  | 
|----------- | -------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | 
|NOTE 15:   | MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)
|            |                                                   
|            | c.                                                 | Major
  customer data as a percentage of total revenues:                                                                        
|            |                                                    |                                                                                                                                  | 
|            |                                                    | The Group
  does not have any major customers that represent 10% or more of the
  consolidated revenues for 2004, 2005 and 2006.

|            |                                       
|----------- | --------------------------------------
|NOTE 16:   | SELECTED STATEMENTS OF OPERATIONS DATA

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

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

---

F  47

---

---

[BDO McCable Lo Limited
Letterhead]

# Report of Independent
Registered Public Accounting Firm

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

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

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits include consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting. Accordingly, we express no
such opinion. Our audit also includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

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

| | /s/ BDO McCabe Lo Limited
BDO McCabe Lo Limited
| | -----------------------------------------------

Hong Kong, June 28, 2007



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