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# UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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Form 20-F

# (Mark One)

| | o | REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------------

# OR

| | x | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ------------------------------------------------------------------------------------

# For the fiscal year
ended December 31, 2008

# OR

| | o | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | ----------------------------------------------------------------------------------------

# OR

| | o | SHELL
COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| | - | -------------------------------------------------------------------------------------------

# Date of event requiring
this shell company report ..............................................

# For the transition
period from ______ to ______

# Commission File Number
000-26498

ELLOMAY CAPITAL LTD. (Exact Name of Registrant as specified in its charter)

ISRAEL(Jurisdiction of incorporation or organization)

Ackerstein Towers
11 Hamenofim St.
P.O.Box 2148
Herzliya 46120, Israel(Address of principal executive offices)
Ran Fridrich, Interim CEO
Tel: +972-9-971-5613; Facsimile: +972-9-950-2942
Ackerstein Towers, 11 Hamenofim St.
Herzliya 46120, Israel(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act: None
Securities registered or to be registered pursuant to Section 12(g) of the Act:

Ordinary Shares
NIS 1.00 par value per shareTitle of Class



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Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

NoneTitle of Class

Indicate
the number of outstanding shares of each of the issuers classes of capital or common
stock as of December 31, 2008: 73,786,428 ordinary shares, NIS 1.00 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 basis of
accounting the registrant has used to prepare the financial statements included in this
filing:

|            |                                                         |        
|----------- | ------------------------------------------------------- | -------
|
|
|
|
|U.S. GAAP x | International Financial Reporting Standards as issued o | Other o
|            | by the International Accounting Standards Board        

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

Item 17 o  Item 18 o

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

Yes x   No o



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# Table of Contents

|                            |                                                         | Page
|--------------------------- | ------------------------------------------------------- | ----
|
|
|
|
|Introduction                | 4                                                      
|Forward-Looking Statements: | 4                                                      
|                            |                                                         |     
|Part I                      |                                                         |     
|                           
|Item 1:                     | Identity of Directors, Senior Management and Advisers   | 6   
|                           
|Item 2:                     | Offer Statistics and Expected Timetable                 | 6   
|                           
|Item 3:                     | Key Information                                         | 6   
|                            | Selected Financial Data                                 | 6   
|                            | Risk Factors                                            | 8   
|                           
|Item 4:                     | Information on Ellomay                                  | 16  
|                            | History and Development of Ellomay                      | 16  
|                            | Business Overview                                       | 18  
|                            | Organizational Structure                                | 29  
|                            | Property, Plants and Equipment                          | 29  
|                           
|Item 4A:                    | Unresolved Staff Comments                               | 29  
|                           
|Item 5:                     | Operating and Financial Review and Prospects            | 30  
|                            | Operating Results                                       | 30  
|                            | Liquidity and Capital Resources                         | 42  
|                            | Research and Development, Patents and Licenses, Etc     | 46  
|                            | Trend Information                                       | 47  
|                            | Off-Balance Sheet Arrangements                          | 47  
|                            | Contractual Obligations                                 | 47  
|                           
|Item 6:                     | Directors, Senior Management and Employees              | 48  
|                            | Directors and Senior Management                         | 48  
|                            | Compensation                                            | 52  
|                            | Board Practices                                         | 54  
|                            | Employees                                               | 62  
|                            | Share Ownership                                         | 63  
|                           
|Item 7:                     | Major Shareholders and Related Party Transactions       | 68  
|                            | Major Shareholders                                      | 68  
|                            | Related Party Transactions                              | 72  
|                           
|Item 8:                     | Financial Information                                   | 72  
|                            | Consolidated Statements and Other Financial Information | 72  
|                            | Significant Changes                                     | 75  

2

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|Item 9:   | The Offer and Listing                                                        | 75
|--------- | ---------------------------------------------------------------------------- | --
|          | Offer and Listing Details                                                    | 75
|          | Markets                                                                      | 76
|         
|Item 10:  | Additional Information                                                       | 77
|          | Memorandum of Association and Second Amended and Restated Articles           | 77
|          | Material Contracts                                                           | 84
|          | Exchange Controls                                                            | 87
|          | Taxation                                                                     | 87
|          | Documents on Display                                                         | 95
|         
|Item 11:  | Quantitative and Qualitative Disclosures about Market Risk                   | 95
|         
|Item 12:  | Description of Securities Other than Equity Securities                       | 96
|         
|Part II   |                                                                              |   
|         
|Item 13:  | Defaults, Dividend Arrearages and Delinquencies                              | 96
|         
|Item 14:  | Material Modifications to the Rights of Security Holders and Use of Proceeds | 96
|         
|Item 15:  | Controls and Procedures                                                      | 96
|         
|Item 16:  | [Reserved]                                                                   | 97
|         
|Item 16A: | Audit Committee Financial Expert                                             | 97
|         
|Item 16B: | Code of Ethics                                                               | 98
|         
|Item 16C: | Principal Accountant Fees and Services                                       | 98
|         
|Item 16D: | Exemptions from the Listing Standards for Audit Committees                   | 99
|         
|Item 16E: | Purchases of Equity Securities by the Company and Affiliated Purchasers      | 99
|         
|Item 16F: | Change in Registrant's Certifying Accountants                                | 99
|         
|Item 16G: | Corporate Governance                                                         | 99
|         
|Part III  |                                                                             
|         
|Item 17:  | Financial Statements                                                         | 99
|         
|Item 18:  | Financial Statements                                                         | 99
|         
|Item 19:  | Exhibits                                                                     | 99

3

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INTRODUCTION

The
following is the Annual Report on Form 20-F for the fiscal year ended December 31, 2008 of
Ellomay Capital Ltd. Unless the context in which such terms are used would require a
different meaning, all references to Ellomay, us, we,
our or the Company refer to Ellomay Capital Ltd. and its
consolidated subsidiaries.

All
references to $, dollar, US$ or U.S.
dollar are to the legal currency of the United States of America, references to
NIS or New Israeli Shekel are to the legal currency of Israel and
references to Euro or EUR are to the legal currency of the
European Union.

All
trademarks, service marks, trade names and registered marks used in this report are
trademarks, trade names or registered marks of their respective owners.

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 Ellomay, 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:

| | our
ability to identify, evaluate and consummate suitable business opportunities and
strategic alternatives;
|- | ------------------------------------------------------------------------------------------------------------

| | the
price and market liquidity of our ordinary shares;
|- | ------------------------------------------------------

| | the
fact that we may be deemed to be an investment company under the Investment
Company Act of 1940 under  certain circumstances (including as a result of the
investments of assets following the sale of  our business), and/or the risk that we
may be required to take certain actions with respect to the  investment of our
assets or the distribution of cash to shareholders in order to avoid being  deemed
an investment company;
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | our
plans with respect to the management of our financial and other assets;
|- | ---------------------------------------------------------------------------

| | our
exposure to indemnity claims from Hewlett-Packard Company following the sale of our
business; and
|- | -----------------------------------------------------------------------------------------------------

| | the
possibility of future litigation.
|- | -------------------------------------

4

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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).

To
the extent that this Annual Report contains forward-looking statements (as distinct from
historical information), we desire to take advantage of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 and we are therefore including this
statement for the express purpose of availing ourselves of the protections of the safe
harbor with respect to all forward-looking statements.

5

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# PART I

# ITEM 1: Identity of
Directors, Senior Management and Advisers

Not
Applicable.

# ITEM 2: Offer Statistics
and Expected Timetable

Not
Applicable.

# ITEM 3: Key Information

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

The selected consolidated statements
of income (operations) data for the years ended December 31, 2006, 2007 and 2008, and the
selected consolidated balance sheet data as of December 31, 2007 and 2008, have been
derived from the audited consolidated financial statements of Ellomay Capital Ltd. set
forth in Item 18: Financial Statements. The selected consolidated statement of
operations data for the years ended December 31, 2004 and 2005 and the selected
consolidated balance sheet data as of December 31, 2004, 2005 and 2006 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.

In
February 2008 we sold our business to Hewlett-Packard Company (HP) pursuant to
an assets purchase agreement executed on December 9, 2007 (the Asset Purchase
Agreement), as more fully described below under Item 10.C Material
Contracts. As we have not to date purchased an operating business since the sale of
our business to HP, the results of operations relating to the business sold continue to be
reported in our consolidated financial statements in full detail, rather than reported as
discontinued operations in accordance with SFAS 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. See Note 1b to our consolidated financial
statements included in this Annual Report. As part of the HP Transaction, we sold our
holdings in three wholly owned subsidiaries (NUR Europe, NUR Japan and NUR Do Brazil) to
several of HPs subsidiaries. Following the consummation of the HP Transaction, we
wholly own, directly and indirectly, several subsidiaries that are currently inactive and
we are in the process of dissolving, or have already arranged for the dissolution of, a
number of such inactive subsidiaries.

The
following tables present the financial data for Ellomay together with its subsidiaries as
of the periods presented, some of which were sold to HP and some of which have been
dissolved during 2008: Salsa Digital Printers (dissolved in 2008), NUR America (dissolved
in 2008), NUR Europe (sold to HP), NUR DO Brazil Ltda. (sold to HP), NUR Japan (sold to
HP), NUR Shanghai, NUR Asia Pacific, NUR Media Solutions, NUR Hungary Trading and Software
Licensing Limited Liability Company, Encre Consumables B.V., NUR Italy, NUR UK, Excite Ink
and NUR Pro Engineering.

6

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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 Ellomay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.

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

|                                            | Year ended December 31,
|------------------------------------------- | -----------------------
|
|
|
|
|Revenues:                                   |                        
|Products                                    |                        
|Services                                    |                        
|                                            |                        
|                                            |                        
|Total revenues                              |                        
|                                            |                        
|Cost of revenues:                           |                        
|Products                                    |                        
|Inventory write-off                         |                        
|                                            |                        
|                                            |                        
|Services                                    |                        
|                                            |                        
|                                            |                        
|Total cost of revenues                      |                        
|                                            |                        
|                                            |                        
|Gross profit                                |                        
|                                            |                        
|                                            |                        
|Operating expenses:                         |                        
|Research and development, net               |                        
|Selling and marketing                       |                        
|General and administrative                  |                        
|Doubtful accounts expenses (income)         |                        
|Amortization of other intangible assets     |                        
|                                            |                        
|                                            |                        
|Total operating expenses                    |                        
|                                            |                        
|                                            |                        
|Operating loss                              |                        
|Gain on sale of Company's business, net     |                        
|Financial income (expenses), net            |                        
|                                            |                        
|                                            |                        
|Income (loss) before taxes on income        |                        
|Taxes on income                             |                        
|                                            |                        
|                                            |                        
|Net Income (loss)                           |                        
|                                            |                        
|                                            |                        
|Basic earnings (loss) per share             |                        
|                                            |                        
|Diluted earnings (loss) per share           |                        
|                                            |                        
|                                            |                        
|Weighted average number of shares used for  |                        
|computing basic earnings (loss) per share   |                        
|                                            |                        
|                                            |                        
|Weighted average number of shares used for  |                        
|computing diluted earnings (loss) per share |                        
|                                            |                        

7

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

|                                        | At December 31,
|--------------------------------------- | ---------------
|
|
|
|
|Working capital (deficiency)            |                
|Total assets                            |                
|Total liabilities                       |                
|Total shareholders' Equity (deficiency) |                
|Capital stock                           |                
|Ordinary shares outstanding             |                

|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.

We
have sold our business and currently conduct no business activities.In February 2008,
we sold our wide-format printing business, through the sale of substantially all of our
assets and liabilities relating to such business, to HP. We have since held our assets,
which currently mainly consist of the cash consideration received from HP, in cash and
cash equivalents. Since the consummation of the sale of our business, we have concentrated
on activities relating to the investment of our funds and handling the winding up of the
operations that were not transferred to HP and the remaining aspects relating to the
transfer of the business to HP, as well as pursuing our current plan of operation, which
is to identify and evaluate suitable business opportunities and strategic alternatives,
including through the acquisition of all or part of an existing business, pursuing
business combinations or otherwise. Other than activities relating to the transfer of our
business to HP, attempting to locate such business opportunities and activities relating
to the investment of our funds, we do not currently conduct any operations.

8

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We
are exposed to potential liabilities in connection with the sale of our business to HP. In connection with the sale of our business to HP, we have agreed to indemnify HP and
its subsidiaries that purchased our assets, and their respective officers, directors,
employees and affiliates, for certain breaches of the Asset Purchase Agreement, including,
among others, any breach or inaccuracy of the representations and warranties, any
liabilities that were not assumed by HP and certain environmental matters. Our
indemnification liability pursuant to the Asset Purchase Agreement is generally limited to
amounts deposited in an escrow account pursuant to such Agreement ($9.5 million deposited
in an indemnity escrow account for a period of 18 months and $5 million deposited for a
period of 24 months). However, we agreed that claims for indemnity relating to certain
liabilities, including, among others, fraud, willing and intentional breach of warranties,
liabilities arising in connection with assets or liabilities that were not purchased by
HP, failure to comply with certain restrictive covenants and environmental issues, will
not be limited to the amounts deposited in escrow. A claim against us could result in
substantial cost, that may, if it relates to certain issues, be paid from sources other
than the funds deposited in escrow, which would have a negative impact on our financial
condition. The representations and warranties made by us in the Asset Purchase Agreement
survive for a period of 18 months following the closing date of the transaction, which
occurred on February 29, 2008.

We
may not be successful in identifying and evaluating suitable business opportunities or in
consummating a business combination. We do not have an agreement or understanding with
any third party with respect to the future operations of the Company. There can be no
assurance that we will be successful in identifying and evaluating suitable business
opportunities or in consummating a business combination and we expect to incur expenses in
connection with this identification and evaluation process, whether or not such process
results in an investment of our funds. While we are actively exploring strategic
transactions and opportunities, we have not targeted any particular industry or specific
business within an industry in which to pursue such opportunities. We may enter into a
business combination with a business entity having no significant operating history or
other negative characteristics such as having limited earnings or no potential for
immediate earnings, limited assets and negative net worth. We may also pursue a business
combination that will not necessarily provide us with significant financial benefits in
the short or long term. In the event that we complete a business combination, the success
of our operations will be dependent upon the performance of management of the target
company and our ability to retain such management and numerous other factors, some of
which are beyond our control. There is no assurance that we will be able to negotiate a
business combination on terms favorable to us, or at all.

If
we do not conduct an adequate due diligence investigation of a target business, we may be
required to subsequently take write-downs or write-offs, restructuring, and impairment or
other charges that could have a significant negative effect on our financial condition,
results of operations and our stock price, which could cause you to lose some or all of
your investment. We must conduct a due diligence investigation of the target
businesses we intend to acquire. Intensive due diligence is time consuming and expensive
due to the operations, accounting, finance and legal professionals who must be involved in
the due diligence process. Even if we conduct extensive due diligence on a target
business, we cannot assure you that this due diligence will reveal all material issues
that may affect a particular target business, or that factors outside the control of the
target business and outside of our control will not later arise. If our due diligence
review fails to identify issues specific to a target business, industry or the environment
in which the target business operates, we may be forced to later write-down or write-off
assets, restructure our operations, or incur impairment or other charges that could result
in losses. Even though these charges may be non-cash items and not have an immediate
impact on our liquidity, the fact that we report charges of this nature could contribute
to negative market perceptions about us or our ordinary shares.

9

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The
current general economic and business condition around the world and any subsequent
economic downturn may adversely affect our ability to consummate a business combination,
the prospects of any business we may acquire and the trading price of our ordinary shares. During the past two years, and particularly since September 2008, due to the severity
of the crisis affecting financial institutions in the United States and in Europe, the
rising costs of various commodities, the lack of growth and economic development in the
United States and Europe (and, beginning in late 2008, in the rest of the developed world
and emerging economies as well) and the developing recession, the general economic and
business condition in many countries around the world has worsened, affecting, among other
things, credit ratings of borrowers, the perceived and actual credit risks faced by
lenders and purchasers of debt securities, the spending habits of consumers, and the
ability to procure financing. Although this current crisis may present certain
opportunities to companies such as Ellomay that are seeking prospective business
combinations, if this current crisis continues, or any further economic downturns ensue,
it may adversely affect our ability to procure financing required for prospective business
combinations, the value of businesses we acquire and our financial condition and results
of operations. In addition, this economic downturn also affects the trading prices of
securities in various capital markets around the world and may significantly and adversely
affect the trading price of our ordinary shares.

We
may not be able to consummate a business combination that will be beneficial to our
shareholders. We expect to encounter intense competition from entities having a
business objective similar to ours, including venture capital funds, private equity funds,
special purpose acquisition companies, operating businesses competing for acquisitions,
and blank check companies, especially as the prices of potential targets decrease due to
the current global financial crisis. Many of these potential acquirers are well
established and have extensive experience in identifying and effecting business
combinations directly or through affiliates. Such entities may possess greater technical,
human and other resources than we do and our financial resources may be relatively limited
when contrasted with those of many of these competitors. In addition, our history of
operations and potential exposures relating to our previous operations may limit our
ability to consummate a business combination that will be beneficial to our current
shareholders.

When
we do select a prospective target business or business in which to invest or with which to
complete a business combination, we may be unable to ascertain the merits or risks of
any particular target businesss operations.To the extent we complete a business
combination or investment transaction, we may be affected by numerous risks inherent in
the business operations of the acquired business or businesses. Although our management
will endeavor to evaluate the risks inherent in a particular target business, we cannot
assure you that we will properly ascertain or assess all of the significant risk factors,
or that we will have adequate resources to perform a complete due diligence process.

The
consummation of a business combination may lead to the dilution of the value of our
shares, and may involve the issuance of additional shares of our capital stock or the
issuance of debt securities. Issuance of our capital stock would have a dilutive effect
over the interests of our shareholders. In the event we enter into a business
combination or similar arrangement, it may involve the allocation of a significant amount
of cash held by us as a result of the sale of our business to HP. Depending upon the value
of the assets acquired in such business combination or investment, the per share value of
our ordinary shares may increase or decrease, possibly significantly. In addition, we may
need to raise additional financing by issuing our ordinary shares to investors, issuing
debt securities or incurring bank or other debt in order to consummate business
combinations or acquisitions, and the difficulty of raising capital in the current capital
markets environment makes it possible that such ordinary shares or debt securities may be
issued at discounts from prevailing market prices. Our second amended and restated
articles authorize the issuance of up to 170,000,000 ordinary shares. There are currently
54,893,379 ordinary shares available for issuance (after appropriate reservation for the
issuance of the shares upon full exercise of our outstanding stock options and warrants).
The issuance of additional ordinary shares may significantly reduce your equity interest
in Ellomay and may adversely affect prevailing market prices for our ordinary shares. The
incurrence of bank debt or the issuance of debt securities may place restrictions on our
ability to operate our business, including leading to default and foreclosure on our
assets, subjecting us to restrictive covenants and limiting our ability to obtain
additional financing.

10

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---

Our
ability to successfully effect business combinations or acquisitions and to be successful
thereafter will be significantly dependent upon the efforts of our key personnel. Several
of our key personnel allocate their time to other businesses. Our ability to
successfully effect a business combination or acquisition is dependent upon the efforts of
our key personnel, including Shlomo Nehama, our chairman of the board, and other members
of our board of directors. Although we have entered into a Management Services Agreement
with entities affiliated with three of our board members, including Mr. Nehama, these and
our other directors are not required to commit their full time to our affairs, which could
create a conflict of interest when allocating their time between our operations and their
other commitments. If our directors other business affairs require them to devote
more substantial amounts of time to such affairs, it could limit their ability to devote
time to our affairs and could have a negative impact on our ability to consummate a
business combination.

If
we acquire a business or effect a business combination with a company located outside of
Israel or the United States, we would be subject to a variety of additional risks that may
negatively impact our operations. We may acquire or effect a business combination with
a company located outside of Israel or the United States. If we did, we would be subject
to any special considerations or risks associated with companies operating in the target
business home jurisdiction, including rules and regulations or currency conversion
or corporate withholding taxes on individuals, tariffs and trade barriers, regulations
related to customs and import/export matters, longer payment cycles, tax issues, such as
tax law changes and variations in tax laws as compared to Israel and the United States,
currency fluctuations and exchange controls, challenges in collecting accounts receivable,
cultural and language differences, employment regulations, crime, strikes, riots, civil
disturbances, terrorist attacks and wars and deterioration of political relations with
Israel. We cannot assure you that we would be able to adequately address these additional
risks. If we were unable to do so, our operations might suffer.

If
we are characterized as a passive foreign investment company, our U.S. shareholders may
suffer adverse tax consequences. As a result of the sale of our business to HP in
February 2008, our assets mainly consist of cash and cash equivalents producing passive
income. If, for any taxable year, our passive income, or our assets that produce passive
income, exceed specified levels, we may be characterized as a passive foreign investment
company, or PFIC, for U.S. federal income tax purposes. This characterization could result
in adverse U.S. tax consequences for our U.S. shareholders, which may include having gains
realized on the sale of our ordinary shares treated as ordinary income, rather than as
capital gains income, and having potentially punitive interest charges apply to the
proceeds of sales of our ordinary shares and certain distributions. The tests for
determining PFIC status are applied annually and it is difficult to make accurate
predictions of future income and assets, which are relevant to this decision. Although we
believe that for fiscal year 2008 we met the requirements set forth in Section 1298(b)(3)
of the Internal Revenue Code, providing an exception from the PFIC status for a
change of business situation, we cannot assure you, that the Internal Revenue
Service or the courts would agree with our conclusion if they were to consider our
situation. In addition, we cannot use such exception for two years in succession and
therefore if we will meet the criteria of a PFIC, as set forth in the Internal Revenue
Code, for fiscal year 2009, we will lose our exception from PFIC status for fiscal 2008 as
well. The determination of our PFIC status for fiscal year 2009 will depend on the type of
assets we will hold during that year and the income derived from such assets, and if we
were to avoid being classified as a PFIC for this year, this would require the closing of
an acquisition of an operating business to occur within fiscal 2009, an occurrence that
cannot be currently anticipated or in any way assured. Certain elections may be used to
reduce or eliminate the adverse impact of the PFIC rules for holders of our shares, but
these elections may be detrimental to the shareholder under certain circumstances. The
PFIC rules are extremely complex and U.S. investors are urged to consult independent tax
advisers regarding the potential consequences to them of our possible classification as a
PFIC. For a more detailed discussion of the consequences of our being classified as a
PFIC, see Item 10.E: Taxation under the caption U.S. Tax Considerations
Regarding Ordinary Shares.

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We
may be deemed an investment company under the Investment Company Act of 1940,
which could subject us to material adverse consequences. As a result of the sale of
our business to HP, we could be deemed to be an investment company under the
Investment Company Act of 1940 (the Investment Company Act). During the
twelve-month period following the sale of our business to HP, we were not deemed an
investment company under the Investment Company Act, as we relied on an
exemption from that act for transient investment companies for a twelve-month period. As
we have not entered into a business combination or developed an operating business and
such period has expired, unless we limit the nature of our investments and assets and
succeed in making strategic controlling investments, we may be deemed to be an
investment company. If we were deemed to be an investment company,
we would not be permitted to register under the Investment Company Act without an order
from the SEC permitting us to register because we are incorporated outside of the United
States and, prior to being permitted to register, we would not be permitted to publicly
offer or promote our securities in the United States. Such order would subject us to
additional commitments and regulatory compliance. We may be required to restrict our
investments, in the short-term and in the long-term, so as not to fall within the
statutory definition of investment company. Such investments might not be as favorable to
us as the investments we might make if we were not potentially subject to regulation under
the Investment Company Act. We seek to conduct our operations, including by way of
investing our cash and cash equivalents, to the extent possible, so as not to become
subject to regulation under the Investment Company Act. In addition, because we are
actively engaged in exploring and considering strategic investments and business
opportunities we do not believe that we are engaged in investment company
activities or business.

We
have undergone, and may in the future undergo, tax audits and may have to make material
payments to tax authorities at the conclusion of these audits, including in connection
with the sale of our business to HP. Previously to the sale of our business to HP, we
conducted business globally and a substantial part of our operations was conducted in
various countries. 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 and were not assumed or purchased by HP as part of the
business sold. Additionally, the amount of income taxes paid is subject to our
interpretation of applicable laws in the jurisdictions in which we file. Not all of the
tax returns of our operations in other countries and in Israel are final and may be
subject to further audit and assessment by the applicable tax authorities. The
consummation of the transaction with HP may increase the likelihood of additional audits
of our tax returns in the future. 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, as a result of which our
future results may be adversely affected.

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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
EMYCF.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. In addition, if we do not consummate the
acquisition of an operating business in 2009, or if the businesses we do acquire lack
sufficient revenues, our ordinary shares may be deemed penny stock and would
then be subject to the full sales practice requirements of Rule 15g-9. 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.

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We
do not intend to pay cash dividends prior to the completion of a business combination and
may not pay dividends in the future following the completion of a business combination.We have not paid any cash dividends on our ordinary shares to date and do not intend
to pay cash dividends prior to the completion of a business combination. The payment of
dividends after completion of an initial business combination will depend on our revenues
and earnings, if any, capital requirements and general financial condition after a
business combination is completed and will be within the discretion of our then-board of
directors. As a result, any gains on an investment in our securities will need to come
through appreciation of the value of such securities.

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.

Currency
fluctuations may affect the value of our assets and decrease our earnings. Substantially all of the
consideration for the sale of our business to HP was paid to us in US$. Some of our
retained assets and liabilities however are denominated in other currencies. The
devaluation of the US$ against such other currencies and other currency fluctuations may
decrease the value of our assets and could impact our business.

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 there is very limited volume of trading in our ordinary shares
and every transaction performed significantly influences the market price. The market
price for our ordinary shares has generally 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 EMYCF.PK. We are now
subject to price and volume fluctuations that affect trading in the securities of shell
companies, special purpose acquisition companies and other publicly traded investment
vehicles. 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 or attract key employees, many of whom are
generally granted stock options as part of their compensation package, 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.

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If
we fail to maintain effective disclosure controls and procedures and internal controls
over financial reporting in accordance with Sections 302 and 404 of the Sarbanes-Oxley
Act, our business, operating results and share price could be materially adversely
affected.The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our
executives and directors. Our efforts to comply with the requirements of Section 404, have
resulted in increased general and administrative expense and a diversion of management
time and attention, and we expect these efforts to require the continued commitment of
resources. Pursuant to the requirements of Sections 302 and 404 of the Sarbanes-Oxley Act
of 2002, our management is required to design and evaluate the effectiveness of our
disclosure controls and procedures and of our internal control over financial reporting as
of the end of the fiscal year that is the subject of this report. Following its review of
our internal controls for the fiscal years ended December 31, 2006 and 2007, our
management concluded that due to the material weaknesses identified in our internal
controls over financial reporting, our disclosure controls and procedures as of the end of
such fiscal years were not effective. In addition, due to the existence of these material
weaknesses, our management concluded that our internal control over financial reporting
was not effective as of December 31, 2007. Although we have implemented corrective
measures, documented and tested our internal control systems and procedures and have made
improvements in order for us to comply with the requirements of Section 404 and while our
management concluded that our disclosure controls and procedures and our internal control
over financial reporting were effective as of December 31, 2008, we may still be exposed
to claims from regulatory authorities and our shareholders in connection with our
ineffective controls in prior years. In addition, we cannot predict the outcome of our
testing in future periods. See Item 15: Controls and Procedures. Beginning
with our annual report for our fiscal year ending December 31, 2009, our report in
connection with internal control over financial reporting must also contain a statement
that our independent registered public accounting firm have issued an attestation report
on their assessment of the effectiveness of such internal controls. Once we acquire an
operating business, we may be required to implement new internal control procedures over
financial reporting. We may also experience higher than anticipated operating expenses and
fees in this context. If we are unable to implement these changes effectively or
efficiently, or if our internal controls are found to be ineffective in future periods,
whether by our management or by our independent registered accounting firm, it could harm
our financial reporting or financial results, impact the market price of our ordinary
shares, and could result in our being unable to obtain an unqualified report on internal
controls from our independent registered public accounting firm.

We
are controlled by a small number of shareholders, who may make decisions with which you
may disagree.In February and March 2008, a group of investors comprised of Kanir
Joint Investments (2005) Limited Partnership (Kanir) and S. Nechama
Investments (2008) Ltd. (Nechama Investments), acquired a substantial amount
of our securities in a series of private transactions and have also entered into a
shareholders agreement. Consequently, these shareholders currently hold 62% of our
outstanding ordinary shares and, taking into account the convertible securities and other
rights held by them, are currently the beneficial owners of 72.3% of our ordinary shares.
Therefore, acting together, they could exercise significant influence over our business,
including with respect to the election of our directors and the approval of change in
control and other material 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. Moreover, at our general meeting of shareholders held on December 30,
2008, our shareholders adopted our Second Amended and Restated Articles, which were
presented to our shareholders at the request of Kanir and Nechama Investments. Several of
the amendments, including the casting vote provided to our Chairman of the Board under
certain circumstances and the ability of members of our Board to demand that certain
issues be approved by our shareholders, requiring a special majority, all as more fully
described in Item 10.B: Memorandum of Association and Second Amended and Restated
Articles, may have the affect of delaying or preventing certain changes and
corporate actions that would otherwise benefit our shareholders.

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Provisions
of Israeli law may delay, prevent or make difficult an acquisition of Ellomay, 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 Ellomay, which could prevent a
change of control and therefore depress the price of our shares.

# ITEM 4: Information on
Ellomay

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

Our
legal and commercial name is Ellomay Capital Ltd. Our office is located at Ackerstein
Towers, 11 Hamenofim Street, Herzliya 46120, Israel, and our telephone number is
+972-9-971-5613. Our registered agent in the United States is CT Corporation System, 111
Eight Avenue, New York, New York 10011.

We
were incorporated as an Israeli corporation under the name Nur Advertisement Industries
1987 Ltd. on July 29, 1987. On August 1, 1993, we changed our name to NUR Advanced
Technologies Ltd., on November 16, 1997, we again changed our name to NUR Macroprinters
Ltd and on April 7, 2008, in connection with the closing of the sale of our business to
HP, we again changed our name to Ellomay Capital 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. We 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
EMYCF.PK.

Significant Events

On
December 9, 2007, we entered into an Asset Purchase Agreement with HP for the sale of our
business to HP and several of its subsidiaries (the HP Transaction). The Asset
Purchase Agreement contemplated the sale of substantially all of our assets and
liabilities relating to our business, with the exclusion of cash, debt and other specific
assets and liabilities as agreed upon between the parties to the Asset Purchase Agreement.
In connection with the Asset Purchase Agreement, HP and several of its subsidiaries also
agreed to acquire three of our subsidiaries, NUR Europe S.A., a company organized pursuant
to the laws of Belgium, NUR Japan Ltd., a company organized pursuant to the laws of Japan
and NUR Do Brazil Ltda., a company organized pursuant to the laws of Brazil.

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On
February 29, 2008 (the APA Closing Date), the sale of our business to HP was
finalized. The base purchase price pursuant to the Asset Purchase Agreement is $117.5
million. The purchase price was subject to upward or downward adjustment based on the net
debt (bank debt less cash balances) of the Company and its subsidiaries that were not
purchased by HP as of the APA Closing Date. The purchase price adjustment on such date was
approximately $4 million, increasing the total consideration under the Asset Purchase
Agreement from $117.5 million to $121.5 million. Following the APA Closing Date, the
parties reached a mutual resolution to assign NUR Europes facilities and related
capital lease to a third party. Therefore, we were entitled to additional net proceeds
(after deduction of HPs expenses in connection with such capital lease and other
expenses that were to be borne by us pursuant to the Asset Purchase Agreement) in the
amount of $1.1 million as additional consideration for NUR Europes shares,
increasing the aggregate consideration in connection with the HP Transaction to $122.6
million.

Of
the total consideration:

| |  | $103.9
million was transferred to us on the APA Closing Date.
| | - | -------------------------------------------------------------

| |  | $1.6
million was withheld by HP until final calculation of the net debt as of the APA Closing
Date. Based on the final net debt calculation we were entitled only to an amount of
$1.504 million, which was transferred to us on July 30, 2008.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | $1.5
million was withheld by HP until the resolution of NUR Europes obligations with
respect to its capital lease and Government grants. Of the $1.5 million withheld, an
amount of $1 million was transferred to us on December 2, 2008 as a result of the
assignment of NUR Europes facilities and related capital lease to a third party.
The $0.5 million withheld in connection with NUR Europes obligations with respect
to the government grants is still being held by HP.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Of
the additional proceeds in the amount of $1.1 million related to NUR Europes
facilities, a total amount of $0.4 million was transferred to us on December 18, 2008 and
an additional amount of approximately $0.7 million was transferred to us on March 13,
2009.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
remaining $14.5 million was deposited into an escrow account to secure the indemnity
obligations of the Company and its remaining subsidiaries. The escrow funds, net of
amounts distributed to HP in satisfaction of indemnity obligations, are to be distributed
to us in two installments: $9.5 million is to be distributed eighteen months following
the APA Closing Date and $5 million is to be distributed to us twenty-four months
following the APA Closing Date.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
March 2008, following the consummation of the HP Transaction, we repaid our short-term
debt to our lender banks, Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel
Discount Bank Ltd. (the Banks), in the amount of $9.8 million and, in early
April 2008, we fully repaid our long-term debt to the Banks in the amount of $12.1
million.

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Our
current plan of operation is to identify and evaluate suitable business opportunities and
strategic alternatives, including through the acquisition of all or part of an existing
business, pursuing business combinations or otherwise. Following the closing of the HP
Transaction, we have ceased conducting any operating activity and currently substantially
all of our assets consist of cash and cash equivalents. We now only conduct activities
relating to the attempt to locate business opportunities and strategic alternatives,
activities relating to the investment of our funds and activities relating to the winding
up of the operations that were not transferred to HP and the remaining aspects relating to
the transfer of the business to HP.

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.

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.
During 2007, our ERP system and IT infrastructure was upgraded for an aggregate investment
of approximately $0.69 million. During 2008, we did not have any principal capital
expenditures or divestitures and we do not have any principal capital expenditures and
divestitures currently in progress.

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

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

Following
the closing of the HP Transaction and the sale of our operating business to HP and several
of its subsidiaries on February 29, 2008, we ceased substantially all of the operations of
our business as conducted prior thereto. We currently hold substantially all of our assets
in cash and cash equivalents. Our current plan of operation is to identify and evaluate
suitable business opportunities and strategic alternatives, including through the
acquisition of all or part of an existing business, pursuing business combinations or
otherwise. While we are actively exploring strategic transactions and opportunities, we
have not targeted any particular industry or specific business within an industry in which
to pursue such opportunities.

The
following is a description of the business conducted by us prior to the closing of the HP
Transaction:

Prior
to the closing of the HP Transaction, we were a leading supplier of wide format and
super-wide format digital printing systems worldwide. We developed, manufactured, sold and
serviced 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 supplied our customers with ink
and solvent products for use with wide format and super-wide format digital printers.

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

We
offered several lines of printers in the wide and super-wide format categories which were
either solvent-ink based or UV-ink based. In the solvent-ink based printers market we
offered the NUR Fresco series and the NUR Tango. In the UV-ink based printers market, we
offered the NUR Tempo series and the NUR Expedio series. These printers are sometimes referred
to collectively herein as our printers.

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

We
sold 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. As of the consummation of the sale of our business to HP, our printers were
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 during which we were active in such market. 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 used 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 could 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.

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.

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

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

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

Wide Format and
Super-wide Format Digital Printing

The
introduction of digital printing has aided 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. 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. During our operations in the digital printing business, there were
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.

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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.

# Products

Our
revenues were derived primarily from the sale and service of our printers and the sale of
ink and solvent products used with our 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. As previously mentioned, all products detailed
herein have been sold to HP in connection with the HP Transaction and are no longer
manufactured, sold or serviced by us.

Printers

UV-Ink Based Roll-Fed
Printers

NUR Expedio Series

The
NUR Expedio Series included NUR Expedio 5000, a 5-meter/16-feet super-wide inkjet
production printer, NUR Expedio Revolution, a billboard printer using a special
billboard ink, NUR Expedio 3200, a 3.2 meter, UV roll-to-roll printer, , NUR
Expedio Inspiration, a 3.2 meter, wide-format inkjet production printer with the
ability to print on both flexible and rigid materials when combined with the NUR
Expedio 3200 / Expedio Inspiration Flatbed Module, a flatbed add-on module for the
NUR Expedio 3200 and the NUR Expedio Inspiration wide-format UV-inkjet production
printers.

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UV-Flatbed Digital
Printers

NUR Tempo Series

The
NUR Tempo Series included the NUR Tempo, able to print on almost any type of substrate,
NUR Tempo L, a mid-range, four-color flatbed printer, NUR Tempo II, a flatbed wide-format
inkjet printer and NUR Tempo Q, a high quality printer with increased printing capacity.

Solvent-ink based Digital
Printers

NUR Fresco Series

The
NUR Fresco Series included NUR Fresco, a printer that used piezo drop-on-demand inkjet
technology, NUR Fresco HiQ 8C, a printer based on a previous model printer which was
modified to print using eight-color mode instead of the standard four-color mode, NUR
Fresco X-Press 100, a printer that extended the productivity and versatility of the NUR
Fresco photorealistic production printers to accommodate long print runs and high volume
production environments, NUR Fresco II series, a series that replaced the NUR Fresco HiQ
models and NUR Fresco III, a printer with higher speeds and productivity.

NUR Tango

The
NUR Tango printer was manufactured by a third party under an exclusive OEM agreement and
provided high production speeds and additional Color Activator (dryer) and switch-able Ink
system for direct or indirect solvent dye sublimation printing. The OEM agreement was
terminated prior to the consummation of the HP Transaction.

Our Printers 
General

Our
printers required little operator supervision, enabling one operator to run several
machines at once. While the operators must have been specifically trained in the operation
of our printers, unlike conventional methods such as offset printing, no special color
mixing skills are required.

As
compared to traditional methods of wide format and super-wide format printing, our
printers could significantly reduce the set-up and operating costs associated with each
print job. Both the number of personnel and the number of skilled personal that were
required for the operation of our printers were lower than in traditional methods of
wide-format and super-wide format printing. These advantages made wide format and
super-wide format short-run color printing significantly more economical than is possible
using traditional printing methods. Additionally, the relatively quick turnaround for the
printed product enabled our printers to produce more output in a given period, thereby
further 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, our printers allowed 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 could be added to each print in a run.

As
of the end of fiscal 2007, the retail prices of our printers generally ranged from
$120,000 to $450,000 per machine.

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Consumables

Inks

The
NUR Tempo and NUR Expedio printers use specialized UV-curable inks. The ink used was
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. The NUR Expedio also prints on a variety of media. The
ink we sold enabled 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 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 was developed to ensure color-real, long
lasting, color consistent, weather resistant prints. The NUR Blueboard printers that were
in our installed base as of the consummation of the HP Transaction, 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
manufactured ink in our plant in Ashkelon, Israel, and our ink research and development
activities were located in Lod, Israel.

# Sales and Marketing

We
distributed and sold our products directly and through the following wholly owned
subsidiaries: NUR Europe (which was sold to HP), NUR America, NUR Asia Pacific, NUR DO
Brazil (which was sold to HP) and NUR Japan (which was sold to HP).

Our
marketing activities included 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 worked to develop, market and sell a wide range of advanced ink products, all
of which are designed to work with our previously existing range of printers.

The
Israeli Government, through the Fund for the Encouragement of Marketing Activities of the
Ministry of Industry, Trade and Labor (the Marketing Fund), awarded
participation grants for marketing expenses incurred overseas. During 2007 and 2008 we did
not receive grants from the Marketing Fund and we were not eligible to receive such
grants. Under the terms of grants awarded to us in prior years by the Marketing Fund, we
were 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 had been repaid. In connection with
a dispute with the Ministry of Industry, Trade and Labor, we withheld payments owed to the
Marketing Fund. In February 2006, as part of the OCS Settlement Agreement described below,
the District Court in Jerusalem approved a settlement between us and the Ministry of
Industry, Trade and Labor in connection with our outstanding debt to the Marketing Fund.
Under the terms of the approved settlement, we were required to make aggregate payments of
approximately $0.78 million to the Marketing Fund over a three-year period. The liability
to the Marketing Fund was fully paid during 2008. For more details regarding the
settlement agreement see Item 8.A: Legal Proceedings.

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# Production and Sources
of Supply

We
manufactured and assembled our printers at a single, large manufacturing facility located
in the Telrad Campus in Lod, Israel.

Full
system integration, acceptance and quality control testing of the printers were conducted
by our employees at the manufacturing facility. Product quality control tests and
inspections were performed at various steps throughout the manufacturing process, and each
product was subject to a final test prior to delivery. As previously mentioned, NUR Tango
printers were manufactured by a third party under an exclusive OEM agreement which was
terminated prior to the sale of our business to HP.

During
the conduct of our business, we were able to obtain adequate supplies of the components
necessary to produce our printers and did not have any material problems with our
subcontractors. The prices of our principal components did not materially change during
2007 and such portion of 2008 in which we still conducted our business (January 
February).

We
manufactured ink products at our plant in Ashkelon, Israel. The ink for use with the NUR
Blueboard was manufactured by a third party, exclusively for us and under our brand name.
Some of the ink products for use with the NUR Tempo and NUR Expedio were also manufactured
for us by a third party under our previously-owned brand name.

# Service and Support

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

# Research and Development

Our
research and development center, which as of the sale of our business to HP engaged over
50 employees, was 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.

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Total
net research and development expenses were approximately $5.8 million, $7.0 million and
$1.9 million in the years ended December 31, 2006, 2007 and 2008, respectively.

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

Between
1997 and 2003, NUR Media Solutions, our subsidiary and NUR Europe, our former subsidiary
(sold to HP), received three research and development grants in the aggregate amount of
approximately EUR 2.4 million from local authorities in Belgium. The obligation to pay
royalties from the sales of products developed with these grants was retained by NUR Media
Solutions in connection with the HP Transaction and we undertook to release NUR Europe
from its obligations, if any, pursuant to these grants. 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 a
rate of 4% 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 the event that 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.
Our subsidiaries ceased the research and development activities and the exploitation of
certain products for which grants were received but did not submit notification to the
local authorities and instead continued to pay royalties, with a total of EUR 0.659
million remitted through 2005. During the years ended December 31, 2006, 2007 and 2008,
our subsidiaries did not pay any royalties to the local Belgian authorities, other than
the settlement amount paid on December 2, 2008 as noted below.

During
November 2008 NUR Media Solutions reached a settlement with the Belgian authorities by
which the authorities waived the repayment of a portion of the grants and, in return, we
paid back on December 2, 2008 a total of EUR 0.390 million as full and final
settlement.

In
the past, we 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 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 and the
technology developed pursuant to these grants may not be transferred to third parties or
out of Israel without the approval of the OCS. The approval of the OCS, if granted,
generally subject us to additional financial obligations. These restrictions do not
terminate following repayment of the grants. Other than with respect to the MAGNET and
Magneton projects described below, we have 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 up to 100% to 150% of the dollar
value of the original grant. During 2001, we made royalty payments of $0.2 million in
respect of such grants to the OCS. In February 2005, we filed a claim 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 $0.27 million that was previously paid to the OCS. In February 2006, the
court approved a settlement between us and the OCS (the OCS Settlement
Agreement). Under the terms of the OCS Settlement Agreement, we were required to
make aggregate payments of approximately $0.6 to the OCS over a three-year period. We also
agreed to make payments equal to 5% of our operating income in order to accelerate the
repayment of the agreed upon royalties. The amounts required to be paid by us pursuant to
the OCS Settlement Agreement were fully repaid by us during 2008. 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, following our participation in a research and
development consortium of industrial companies and academic institution within the
framework of the MAGNET program of the OCS, we worked on an 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 relationships between industry and academic institutions. Under the
terms of the Magneton program, the OCS contributes 66% of the OCS-approved program
research budget. No royalties are payable to the OCS with respect to this funding,
however, the terms of our agreement with the Technion required us to pay royalties to the
Technion on the proceeds from sales of products resulting from this project when such
sales commenced. 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, without the prior written consent of the OCS. Such
consent may require the refund of the grants awarded. We have not received any monies
relating to the Magneton project, as a majority of the monies due to us in connection with
grants were applied against our debt to the OCS pursuant to the OCS Settlement Agreement.

All
of the intellectual property used in our business was sold to HP in connection with the HP
Transaction, including intellectual property developed with the assistance of the OCS.

HP
has approached the OCS and requested to transfer the technology and manufacturing of
products developed with the assistance of the OCS outside of Israel. Pursuant to the terms
of the Asset Purchase Agreement, we may be required to reimburse HP, out of the amounts
deposited in the escrow account, for payments made to the OCS in connection with such
transfer of manufacturing. It is too early to determine what amounts will be paid by HP to
the OCS or will be required to be paid by us to HP.

# Competition

Prior
to the consummation of the sale of our business to HP, the principal competitive factors
that affected the sales of our products were 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 and
our ability to be flexible in adapting to customers applications of our products.
Other competitive factors included the ability to provide access to product financing, our
reputation and the customers confidence that we would continually develop new
products and product accessories that would help them maintain and grow their business.

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Our
main competitors in the roll-fed arena were 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 were 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. There
were also a growing number of manufacturers in the Asia Pacific region (especially China
and Korea) that began developing, manufacturing and selling inexpensive printers. In the
years prior to the sale of our business to HP, these manufacturers have started to
penetrate the international market.

# Trade Secrets, Patents
and Proprietary Rights

Prior
to the sale of our business to HP, we relied 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 our existing or previously owned patents will not be
challenged, invalidated, or circumvented. There can be no assurance that third parties
will not assert infringement claims against us or HP in the future, in connection with
intellectual property we sold to HP. 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 us or HP, which could have a material effect on our
results or on the amounts deposited in the escrow account in connection with the HP
Transaction.

We
believe that our success was 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 was our policy to have employees sign
confidentiality agreements, and to have third parties sign non-disclosure agreements.
Although we take and have in the past taken precautionary measures to maintain our trade
secrets, no assurance can be given that others have not acquired equivalent trade secrets
or otherwise gained access to or disclosed our proprietary technology.

# Insurance

Following
the consummation of the sale of our business to HP, we terminated all business related
insurance policies and obtained new reduced coverage and certain run-off insurance
policies. We believe that the insurance coverage is adequate and appropriate in light of
our current business and the circumstances resulting from the HP Transaction.

# Government Regulations

Investment Company Act of
1940

Regulation
under the Investment Company Act governs almost every aspect of a registered investment
companys operations and can be very onerous. The Investment Company Act, among other
things, limits an investment companys capital structure, borrowing practices and
transactions between an investment company and its affiliates, and restricts the issuance
of traditional options, warrants and incentive compensation arrangements, imposes
requirements concerning the composition of an investment companys board of directors
and requires shareholder approval of certain policy changes. In addition, contracts made
in violation of the Investment Company Act are void.

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An
investment company organized outside of the United States is not permitted to register
under the Investment Company Act without an order from the SEC permitting it to register
and, prior to being permitted to register, it is not permitted to publicly offer or
promote its securities in the United States.

As a result of the sale of our
business to HP, we could fall within the definition of an investment company
under the Investment Company Act. During the twelve-month period following the sale of our
business to HP, we were not deemed an investment company under the Investment
Company Act, because we relied on an exemption from that act for transient investment
companies for a twelve-month period. As we have not entered into a business combination or
developed an operating business and such period has expired, unless we limit the nature of
our investments and assets and succeed in making strategic controlling
investments, we may be deemed to be an investment company. If we were deemed
to be an investment company, we would not be permitted to register under the
Investment Company Act without an order from the SEC permitting us to register because we
are incorporated outside of the United States and, prior to being permitted to register,
we would not be permitted to publicly offer or promote our securities in the United
States. Such order would subject us to additional commitments and regulatory compliance.
We may be required to restrict our investments, in the short-term and in the long-term, so
as not to fall within the statutory definition of investment company. Such investments
might not be as favorable to us as the investments we might make if we were not
potentially subject to regulation under the Investment Company Act. We seek to conduct our
operations, including by way of investing our cash and cash equivalents, to the extent
possible, so as not to become subject to regulation under the Investment Company Act. In
addition, because we are actively engaged in exploring and considering strategic
investments and business opportunities we do not believe that we are engaged in
investment company activities or business.

Shell Company Status

Following
the consummation of the HP Transaction, we have ceased conducting any operating activity
and substantially all of our assets currently consist of cash and cash equivalents.
Accordingly, we may be deemed to be a shell company, defined by Rule 12b-2
promulgated under the Securities Exchange Act of 1934 as (1) a company that has no or
nominal operations; and (2) either: (i) no or nominal assets; (ii) assets consisting
solely of cash and cash equivalents; or (iii) assets consisting of any amount of cash and
cash equivalents and nominal other assets.

Our
characterization as a shell company subjects us to various restrictions and
requirements under the U.S. Securities Laws. In the event we consummate a transaction that
causes us to cease being a shell company, we are required to file a report on
Form 20-F within four business days of the closing of such transaction. The Form 20-F is
required to include full disclosure with respect to the acquired business and our
post-transaction status, including financial statements reflecting the affect of the
transaction on our financial position. This requirement may delay the closing of a
prospective business combination or limit our ability to consummate certain business
combinations.

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During
the period in which we are deemed to be a shell company and for a period of
sixty days following the filing of the Form 20-F reflecting the change in our status as
described above, we may not use any Form S-8 we have on file in order to enable the
issuance of our shares and the resale of such shares by our employees. In addition, the
provisions of Rule 144 promulgated under the Securities Exchange Act of 1934 may not be
used for resale of shares issued by us at the time we were deemed to be a shell
company for as long as we are deemed to be a shell company and for a period of
one-year thereafter. These restrictions may limit our ability to compensate our employees
and attract new key personnel and may also restrict our ability to raise capital via the
private placement of our shares.

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

Prior
to the consummation of the HP Transaction, we operated our business through wholly-owned
subsidiaries that conducted sales and marketing activities in pre-defined geographical
regions.

As
part of the HP Transaction, we sold our holdings in three wholly owned subsidiaries (NUR
Europe, NUR Japan and NUR Do Brazil) to several of HPs subsidiaries. Following the
consummation of the HP Transaction, we wholly own, directly and indirectly, several
subsidiaries that are currently inactive and we are in the process of dissolving, or have
already arranged for the dissolution of, a number of such inactive subsidiaries.

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

Prior
to the consummation of the HP Transaction, our production facilities were located in Lod,
Israel and Ashkelon, Israel and our main office was located in Lod, Israel. We also leased
additional premises (offices, demo centers and storage spaces) in Europe, the United
States, Asia Pacific and Japan. Following the consummation of the HP Transaction, most of
our operating and capital lease commitments were assumed by HP or its subsidiaries or
terminated. We have retained a lease of premises of our US subsidiary, NUR America, which
is fully sub-leased to a third party.

We
currently lease temporary office space in Herzliya, Israel, until we locate an office
space that will suit our new operations and requirements.

# ITEM 4A: Unresolved
Staff Comments

Not
applicable.

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# ITEM 5: Operating and
Financial Review and Prospects

Our
discussion and analysis of our financial condition and results of operation are based upon
our consolidated financial statements and accompanying notes, 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.

Our
consolidated financial statements reflect the results of the sale of our wide-format
printing business to HP, consummated on February 29, 2008. As we have not acquired a new
operating business during the year ended December 31, 2008, the results of our operations
prior to the consummation of the sale of our business to HP are not reported as
discontinued operations in our consolidated financial statements in accordance
with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Therefore, the data presented in our consolidated financial statements and in our
discussion below are not indicative of our future operating results or financial position.

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

# General

Prior
to the consummation of the HP Transaction, we were a world leader in the market for the
sale of wide format and super-wide format digital printing systems. We developed,
manufactured, sold and serviced digital, inkjet color printing systems for on-demand,
production, wide format and super-wide format printing. We also supplied ink products that
are consumable products for the operation of our printers.

Our
total revenues increased from $78.0 million in the year ended December 31, 2006 to $85.6
million in the year ended December 31, 2007 and amounted to $11.4 million during January
and February 2008, prior to the consummation of the HP Transaction. Our net loss for the
years ended December 31, 2006 and 2007 was $1.9 million and $6.4 million, respectively and
our net income for the year ended December 31, 2008 was $87 million.

The
decrease in revenues in 2008 was primarily due to the sale of our business to HP and the
cessation of our wide-format printing business at the end of February 2008.

Up
to the consummation of the HP Transaction on February 29, 2008:

| |  | Our
revenues were 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 included materials, labor, overhead, and other
direct or allocated costs involved in the manufacture, warehousing, delivery, support,
and maintenance of products.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Net
research and development expenses were comprised primarily of labor costs, materials
consumed and payments to subcontractors, consultants and others. Research and development
expenses are carried to the statement of operations as incurred.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Sales
and marketing expenses were comprised primarily of salaries and commissions, advertising
and promotion costs, trade shows and other marketing activities.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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 our 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 most important for the fair portrayal of our financial condition and results
of operations and are those that require our management to make difficult, subjective and
complex judgments, estimates 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. Actual results could differ from these estimates.

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.

Our
management believes that the significant accounting policies which affected
managements more significant judgments and estimates used in the preparation of our
consolidated financial statements and which are, following the sale of our business to HP
as described above, the most critical to aid in fully understanding and evaluating our
reported financial results include those in respect to: income tax and litigation. During
the period prior to the sale of our business to HP, the most critical accounting policies
in our managements view include those with respect to: revenue recognition,
allowance for doubtful accounts, inventory valuation, income taxes, litigation and
stock-based compensation.

Income Taxes

On
January 1, 2007, we adopted Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement No. 109 (FIN 48). FIN 48 contains a
two-step approach to recognizing and measuring uncertain tax positions accounted for in
accordance with SFAS 109. The first step is to evaluate the tax position taken or expected
to be taken in a tax return by determining if the weight of available evidence indicates
that it is more likely than not that, on an evaluation of the technical merits, the tax
position will be sustained on audit, including resolution of any related appeals or
litigation processes. The second step is to measure the tax benefit as the largest amount
that is more than 50% likely to be realized upon ultimate settlement. We accrue interest
and penalties related to unrecognized tax benefits in the provision for income tax.

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Although
we believe we have adequately reserved for our uncertain tax positions, no assurance can
be given that the final tax outcome of these matters will not be different. We adjust
these reserves in light of changing facts and circumstances, such as the closing of a tax
audit or the refinement of an estimate. To the extent that the final tax outcome of these
matters is different than the amounts recorded, such differences will impact the provision
for income taxes in the period in which such determination is made. The provision for
income taxes includes the impact of reserve provisions and changes to reserves that are
considered appropriate, as well as the related net interest.

Litigation

Our
management accrues 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, we assess the allegations made and the likelihood that we will successfully defend
ourselves. When we believe that it is probable that we will not prevail in a particular
matter, we 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

We
account for equity-based compensation in accordance with SFAS No. 123(R),
Share-Based Payment. Under the fair value recognition provisions of this
statement, stock-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 stock-based awards at the grant date requires the exercise
of judgment, including the amount of stock-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. We estimate the fair value of employee stock
options using a Black-Scholes-Merton valuation model. The fair value of an award is
affected by our stock price on the date of grant as well as other assumptions including
the estimated volatility of our stock price over the term of the awards and the estimated
period of time that we expect employees to hold their stock options. The risk-free
interest rate assumption is based upon United States treasury interest rates appropriate
for the expected life of the awards. We use the historical volatility of our publicly
traded stock options in order to estimate future stock price trends. In order to determine
the estimated period of time that we expect employees to hold their stock options, we have
used historical behavioral patterns rates of employee groups by job classification. Our
expected dividend rate is zero since we do not currently pay cash dividends on our
ordinary shares and do not anticipate doing so in the foreseeable future.

32

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Revenue Recognition

During
the periods covered by the consolidated financial statements prior to the consummation of
the HP Transaction, we generated revenues from the sale of printers, inks and consumable
products and from servicing our products. We generated revenues from the sale of our
products directly to end-users and indirectly through independent distributors. Revenues
from these independent distributors were deferred until our products were installed in
their customers premises, provided that all other revenue recognition criteria were
met.

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

When
a sale involved multiple elements, such as sales of printers that included a right to
receive specified upgrades or an extended warranty agreement, the entire fee from the
arrangement was evaluated under Emerging Issues Task Force No. 00-21, Revenue
Arrangements with Multiple Deliverables. In such arrangements Ellomay accounted for
the separate elements as different units of accounting, provided that the delivered
element had value to the customer on a standalone basis and there was 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, Ellomay
accounted for the total arrangement as one unit of accounting. As such, we recognized
revenue for the arrangement only when all revenue recognition criteria were met for the
undelivered element.

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

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

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

In
cases where we accepted a trade-in of an old printer as part of a sale of a new printer,
the fair value of the old printer was recorded as revenue, provided that such value could
be determined. If such value could not be determined, the old printer was recorded at a
zero value. The amount of revenues recognized for the transaction equaled the fair value
of the old printer plus any monetary consideration received.

We
followed 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.

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Our
revenue recognition policy took 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 required the exercise of judgment,
which affected our revenue recognition. If we determined that collection of a fee was not
probable, we deferred the revenue recognition.

Allowance for Doubtful
Accounts

We
maintained an allowance for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. Our management periodically
performed evaluations of the composition of accounts receivable and expected credit
trends, established an allowance for doubtful accounts on the basis of an aging key and in
respect to specific balances whose collection was considered to be in doubt and
charged-off receivables deemed uncollectible. The past due status of accounts receivable
was determined primarily based upon contractual terms. Our customers included commercial
printing companies, sign printers, screen printers, billboard and media companies,
professional photo labs, and digital printing service providers. Among our customers,
there were small and medium size businesses, which were 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. As part of the HP Transaction, all of
our accounts receivable were acquired by HP.

Inventory Valuation

At
each balance sheet date, we evaluated our inventory balance for excess quantities and
obsolescence. This evaluation included an analysis of sales levels by product line and
projections of future demand. In addition, we wrote off inventories that were considered
obsolete. Remaining inventory balances were adjusted to the lower of cost or market value.
As part of the HP Transaction, all of our inventory balances were acquired by HP.

# Recently Issued
Accounting Guidance

In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS 141R). SFAS 141R establishes principles and
requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilities assumed, any non controlling interest in the
acquiree and the goodwill acquired. SFAS 141R also establishes disclosure
requirements to enable the evaluation of the nature and financial effects of the business
combination. SFAS 141R is effective for fiscal years beginning after
December 15, 2008. Earlier adoption is prohibited. The impact of SFAS 141R on
the Companys consolidated results of operations and financial condition will depend
on the nature and size of acquisitions, if any, subsequent to the effective date.

In
February 2008, the FASB issued FSP No. FAS 157-1, Application of FASB Statement No.
157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value
Measurements for Purposes of Lease Classification or Measurement under Statement 13,
and FSP No. FAS 157-2, Effective Date of FASB Statement No. 157" (FSP No.
FAS 157-2) Collectively, the Staff Positions defer the effective date of Statement
157 to fiscal years beginning after November 15, 2008 for nonfinancial assets and
nonfinancial liabilities except for items that are recognized or disclosed at fair value
on a recurring basis at least annually, and amend the scope of Statement 157. We adopted
Statement 157 and the related FASB staff positions except for those items specifically
deferred under FSP No. FAS 157-2. We do not expect the adoption of SFAS 157, with respect
to nonfinancial assets and liabilities under the scope of the FSP No. FAS 157-2, will have
an impact on our consolidated financial statements.

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# Geographic Breakdown of
Revenues

Prior
to the consummation of the HP Transaction, we sold 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, 2007 and
2008. As previously noted, the results for the year ended December 31, 2008 reflect only
two months of operations conducted by us prior to the consummation of the HP Transaction.

|                             | Year Ended December 31,
|---------------------------- | -----------------------
|
|
|
|
|Asia                         |                        
|America                      |                        
|Europe, Middle East & Africa |                        
|                             |                        
|Total Revenues               |                        
|                             |                        

|                         | Year Ended December 31,
|------------------------ | -----------------------
|
|
|
|Printers and Spare Parts |                        
|Ink                      |                        
|Services                 |                        
|                         |                        
|Total Revenues           |                        
|                         |                        

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# Results of Operations

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

|                                        | Year Ended December 31,
|--------------------------------------- | -----------------------
|
|
|
|
|Revenues:                               |                        
|Products                                |                        
|Service                                 |                        
|Total revenues                          |                        
|                                        |                        
|Cost of revenues:                       |                        
|Products                                |                        
|Inventory write-off                     |                        
|                                        |                        
|Services                                |                        
|Total cost of revenues                  |                        
|                                        |                        
|Gross profit                            |                        
|                                        |                        
|Research and development, net           |                        
|Selling and marketing                   |                        
|General and administrative expenses     |                        
|Doubtful accounts expenses (income)     |                        
|Amortization of other intangible assets |                        
|Operating loss                          |                        
|Gain on sale of Company's business, net |                        
|Financial income (expenses), net        |                        
|Taxes on income                         |                        
|Net income (loss)                       |                        

The
above table presents the financial data for Ellomay together with our subsidiaries Salsa
Digital Printers (which was dissolved during 2008), NUR America (which was dissolved
during 2008), NUR Europe (which was sold to HP), NUR Asia Pacific, NUR DO Brazil (which
was sold to HP), NUR Japan (which was sold to HP), NUR Italy, NUR UK, NUR Media Solutions,
Excite Ink, NUR Hungary Trading and Software Licensing Limited Liability Company, NUR Pro
Engineering, NUR Shanghai and Encre Consumables B.V. All of our subsidiaries that have not
been sold or dissolved are currently inactive.

Year Ended December 31,
2008 Compared with Year Ended December 31, 2007

Revenues.           Revenues
from product sales and services were approximately $11.4 million in the           year
ended December 31, 2008, compared to approximately $85.6 million in the           year
ended December 31, 2007.

The
decrease in revenues of approximately $74.2 million was primarily due to the sale of our
business to HP and the cessation of our wide format printing business at the end of
February 2008.

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Revenues-products.           Revenues
from sales of products were approximately $10.6 million (or 92.6% or           total
revenues) in the year ended December 31, 2008, compared to approximately           $80.2
million (or 93.7% of total revenues) in the year ended December 31, 2007.

The
decrease in revenues from products of approximately $69.6 million was mainly attributable
to the sale of our business to HP and the cessation of our wide format printing business
at the end of February 2008.

Revenues-services.           Revenues
from services rendered were approximately $0.8 million (or 7.4% of           total
revenues) in the year ended December 31, 2008, compared to approximately           $5.4
million (or 6.3% of total revenues) in the year ended December 31, 2007.

The
decrease in revenues from services of approximately $4.6 million was mainly attributable
to the sale of our business to HP and the cessation of our wide format printing business
at the end of February 2008.

Cost
of revenues.  The cost of revenues was approximately $11 million (or 96.2% of
total revenues) in the year ended December 31, 2008, compared to $56.5 million (or 66% of
total revenues) in the year ended December 31, 2007.

The
decrease in the cost of revenue of approximately $45.5 million was mainly attributable to
the sale of our business to HP and the cessation of our wide format printing business at
the end of February 2008. As for the increase in the cost percentage compared with the
year ended December 31, 2007, please see our discussion under Gross Profit
below.

Cost
of revenues-products.  Total cost of revenues-products was approximately $8.1
million (or 71.2% of total revenues) in the year ended December 31, 2008, compared to
$47.7 million (or 55.7% of total revenues) in the year ended December 31, 2007. The cost
of revenue in 2008 included approximately $0.2 million of inventory write off compared
with approximately $1.2 million of inventory write off in 2007. The decrease in the cost
of revenues-products of approximately $39.6 million was mainly attributable to the sale of
our business to HP and the cessation of our wide-format printing business at the end of
February 2008.

Cost
of revenues-services.  Cost of revenues-services was approximately $2.9 million
(or 25% of total revenues) in the year ended December 31, 2008, compared to $8.8 million
(or 10.2% of total revenues) in the year ended December 31, 2007. The decrease in the cost
of revenues-services of approximately $5.9 million was mainly attributable to the sale of
our business to HP and the cessation of our wide format printing business at the end of
February 2008.

Gross
Profit. Gross Profit was approximately $0.4 million (or 3.8% of total revenues) in the
year ended December 31, 2008, compared to $29.1 million (or 34% of total revenues) in the
year ended December 31, 2007.

The
reduction in the gross margin is mainly attributable to the fact that only two months of
activity are reflected in the report for 2008. Based on our experience in the years prior
to the consummation of the HP Transaction, a large portion of our revenue was generated
during the third month of each quarter, while the expenses were more evenly spread
throughout the quarter. Accordingly, as we only operated our business during the first two
months of 2008, a higher percentage of expenses and a lower gross margin compared with a
full quarter (or year) of activity are reflected. Employee compensation costs related to
the HP Transaction also reduced the gross margin.

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Expenses.           Net
research and development costs were approximately $1.9 million in the year
          ended December 31, 2008, compared to $7.0 million ($7.4 million less $0.4
          million of grants received) in the year ended December 31, 2007. The decrease
in           research and development costs was mainly attributable to the sale of our
          business to HP and the cessation of our wide format printing business at the
end           of February 2008.

Selling
and marketing expenses were approximately $3.1 million in the year ended December 31,
2008, compared to approximately $13.8 million in the year ended December 31, 2007. The
decrease in sales and marketing expenses was mainly attributable to the sale of our
business to HP and the cessation of our wide format printing business at the end of
February 2008.

General
and administrative expenses were approximately $9.8 million for the year ended December
31, 2008, compared to approximately $11.1 million for the year ended December 31, 2007.
The decrease in general and administrative expenses of approximately $1.3 million was
mainly attributable to the sale of our business to HP and the cessation of our wide format
printing business at the end of February 2008 offset by compensation expenses attributable
to such sale, including the acceleration of the remaining unrecognized compensation costs
of outstanding options in the approximate amount of $2.2 million and an approximate amount
of $1.6 million paid in excess of the fair value of the options repurchased.

Doubtful
accounts expenses were $0.4 million for the year ended December 31, 2008, compared to $0.9
million for the year ended December 31, 2007. The decrease in doubtful accounts expenses
was mainly attributable to the sale of our business to HP and the cessation of our wide
format printing business at the end of February 2008.

Amortization
of other intangible assets was $0 million for the year ended December 31, 2008, compared
to $0.04 million for the year ended December 31, 2007. The decrease in amortization
expenses is due the fact that the intangible assets were fully depreciated as of December
31, 2007.

Financial
income was $7.6 million in the year ended December 31, 2008, compared to $1.7 million
financial expenses in the year ended December 31, 2007. The change in financial income
(expenses) was primarily due to the amortization of the deferred interest following the
full repayment of our loans in accordance with the provisions of SFAS No. 15
Accounting by Debtors and Creditors for Troubled Debt Restructuring
(SFAS 15). In addition, interest payments in the amounts of $0.5 million and
$1.5 million for 2008 and 2007, respectively, 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 15 (see Note 9 to our consolidated
financial statements, which are included as a part of this annual report).

Taxes.           Taxes
on income were $1.0 million in the year ended December 31, 2008, as           compared to
taxes on income of $0.8 million in the year ended December 31, 2007.           The
increase was not significant.

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Year Ended December 31,
2007 Compared with Year Ended December 31, 2006

Revenues.           Revenues
from product sales and services were approximately $85.6 million in the           year
ended December 31, 2007, compared to approximately $78.0 million in the           year
ended December 31, 2006.

The
increase in revenues of $7.6 million was primarily due to the increased demand for our
UV-inks following the increase in our install base of UV based systems and the enhanced
usage of our systems by our customers. We also saw increased sales of systems in Japan as
UV based systems gained more recognition in that market and in the Middle East and Africa
region as we increased sales and marketing efforts in that region.

Revenues-products.           Revenues
from sales of products were approximately $80.2 million (or 93.7% or           total
revenues) in the year ended December 31, 2007, compared to approximately           $72.6
million (or 93% of total revenues) in the year ended December 31, 2006.

The
increase in revenues from products of approximately $7.6 million was mainly attributable
to the increase of ink sales by $4.2 million and the increase in equipment sales in Japan,
the Middle East and, Africa.

Revenues-services.           Revenues
from services rendered were approximately $5.4 million (or 6.3% of           total
revenues) in the year ended December 31, 2007, compared to approximately           $5.4
million (or 7% of total revenues) in the year ended December 31, 2006.

Revenues
from services remained flat mainly due to the decommissioning of older solvent- based
printing systems, some of which were replaced with the newer UV based systems, which were
supported by warranty provided with every new purchase.

Cost
of revenues.  The cost of revenues was approximately $56.5 million (or 66% of
total revenues) in the year ended December 31, 2007, compared to $51.2 million (or 65.7%
of total revenues) in the year ended December 31, 2006.

The
increase in the cost of revenue of approximately $5.2 million while maintaining a similar
cost percentage of revenue was mainly attributed to the increase in the cost of raw
materials for equipment manufacturing and spare parts combined with an increase in freight
expenses. This increase was offset by a reduction in the cost of materials for ink
manufacturing. We wrote off $1.2 million of inventory in 2007 compared with $0.8 million
in 2006.

Cost
of revenues-products.  Total cost of revenues-products was approximately $47.7
million (or 55.7% of total revenues) in the year ended December 31, 2007, compared to
$43.9 million (or 56.2% of total revenues) in the year ended December 31, 2006. The cost
of revenue in 2007 included $1.2 million of inventory write off compared to $0.8 million
of inventory write off in 2006. The need to increase the level of production due to
increased customer demand for our UV systems, combined with limited working capital
resources did not allow us to negotiate favorable prices as we were forced to concentrate
on extending payment terms and flexibility in deliveries in order to hold minimum levels
of inventory. This situation also increased our freight charges as many times we preferred
to airship lower quantities of materials at a higher cost instead of shipping larger
quantities by sea. On the other hand, we continued to increase the quantities of UV-inks
we manufactured in our plant and reduce the quantities purchased from third parties,
thereby reducing the overall cost per liter and the cost as a percentage of revenue.

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Cost
of revenues-services.  Cost of revenues-services was approximately $8.8 million
(or 10.2% of total revenues) in the year ended December 31, 2007, compared to $7.4 million
(or 9.5% of total revenues) in the year ended December 31, 2006. The increase in the cost
of revenues-services was mainly attributable to the increase in the cost of spare parts
for the same reasons as described above.

Gross
Profit. Gross Profit was approximately $29.1 million in the year ended December 31,
2007, compared to $26.7 million in the year ended December 31, 2006. The gross profit as a
percentage of revenues remained practically flat at 34.0% in the year ended December 31,
2007 compared with 34.3% in the year ended December 31, 2006.

In
the second half of 2007 we needed to increase our working capital in order to allow for
the increased manufacturing requirements. At the same time we started discussions with
potential buyers for the business and therefore delayed the plans for additional capital
raise. This placed us in very difficult situation with our suppliers of raw materials.
While on the one hand we were increasing purchases, on the other hand we were delaying
payments and increasing the perceived risk of those suppliers. Under those circumstances
it was very difficult to achieve significant price reductions. In many cases we also had
to reduce inventories and use the more expensive airfreight in order to deliver raw
materials to the production floor on time. At the same time, our ink business continued to
grow and allowed us some more leverage. This, combined with the continued decrease of ink
purchases from third parties, resulted in an improvement of the gross margin percentage of
our ink sales.

Expenses.           Net
research and development costs were approximately $7.0 million in the year
          ended December 31, 2007 ($7.4 million less $0.4 million of grants received),
          compared to $5.8 million in the year ended December 31, 2006. The increase in
          research and development costs was mainly attributable to the additional labor
          and contractors hired to increase the pace and number of new products and
          features developed.

Selling
and marketing expenses were approximately $13.8 million in the year ended December 31,
2007, compared to approximately $11.7 million in the year ended December 31, 2006. The
increase in sales and marketing expenses is mostly attributable to the opening of the new
Middle East and Africa region, guaranteed commissions paid to newly hired sales
representatives and increased marketing staff and resources at the corporate level in
support of the introduction of new products.

General
and administrative expenses were approximately $11.1 million for the year ended December
31, 2007, compared to approximately $9.8 million for the year ended December 31, 2006. The
increase in general and administrative expenses was mainly attributable to our recording
of reductions in legal contingencies in 2006 in contrast to 2007 during which no
comparable reductions were recorded and we experienced an increase in legal expenses due
to the transaction with HP and additional litigations.

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Doubtful
accounts expenses were $0.9 million for the year ended December 31, 2007, compared to an
income of $0.3 million for the year ended December 31, 2006. During 2006 we placed a
significant effort on collecting old balances, including such balances that were
previously reserved for, thus generating income from this activity. By 2007, most of those
older balances had already been collected. Also, the finance staff at the end of 2007 was
largely focused on issues related to the transaction with HP and correspondingly invested
less effort in collections, resulting in an increase in the overall accounts receivable
balance and the related estimated allowance for doubtful accounts.

Amortization
of other intangible assets was $0.04 million for the year ended December 31, 2007,
compared to $0.2 million for the year ended December 31, 2006.

Financial
expenses increased to $1.7 million in the year ended December 31, 2007, compared to $1.3
million in the year ended December 31, 2006. This increase was primarily due to exchange
rate differences driven primarily by the appreciation of the New Israeli Shekel compared
with the US Dollar. In addition, interest payments in the amounts of $1.5 million and $1.3
million for 2007 and 2006, respectively, 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 15 (see Note 9 to our consolidated
financial statements, which are included as a part of this annual report).

Taxes.           Taxes
on income were $0.8 million in the year ended December 31, 2007, as           compared to
taxes on income of $0.1 million in the year ended December 31, 2006,           with the
increase due to the adoption of FIN 48.

Impact of Inflation,
Devaluation and Fluctuation of Currencies

Prior
to the consummation of the HP Transaction, most of our sales were in U.S. dollars and in
Euro. In addition, a substantial portion of costs were incurred outside of Israel in U.S.
dollars or were paid in U.S. dollars, Euro or in New Israeli Shekels (NIS)
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 our 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, if the timing of such devaluations were to lag considerably behind inflation or if
there is a devaluation of the U.S. dollar against the Israeli currency not fully offset by
price deflation. Consequently, we were affected by changes in the prevailing NIS/U.S.
dollar exchange rate.

In
addition, our sales of products and services in Europe, as well as purchases of
components, were 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, exposed 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
consideration received from HP upon consummation of the HP Transaction was denominated in
U.S. dollars and has since been deposited in U.S. dollar denominated accounts. Some of the
liabilities we retained were denominated in other currencies (most notably severance
payments in Israel). As a result of the devaluation of the U.S. dollar against the New
Israeli Shekel, the value of those liabilities increased. We currently conduct our
business in Israel and a significant portion of our expenses are in NIS. We therefore
expect to continue to be affected by changes in the prevailing NIS/U.S. dollar exchange
rate in the future. We may also be affected by the U.S. dollar exchange rate to the Euro.
As we are exploring business opportunities around the world, our investment in prospective
businesses may be denominated in non U.S. dollar currencies, and due to the fluctuations
in the exchange rates in recent years, we cannot at this time anticipate what impact the
prevailing exchange rate will have on our future investments.

41

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The
Euro was revaluated against the U.S. dollar by approximately 11.3% in 2006, revaluated by
approximately 11.7% in 2007 and devaluated by approximately 5.3% in 2008.

The
annual rate of inflation in Israel was (0.1)% in the year ended December 31, 2006,
increased to 3.4% in the year ended December 31, 2007 and increased to 3.8% in the year
ended December 31, 2008. The New Israeli Shekel was evaluated by approximately 8.2%
against the U.S. dollar in 2006, evaluated by approximately 9.0% in 2007 and evaluated by
approximately 1.1% in 2008. We cannot predict the rate of revaluation/devaluation of the
New Israeli Shekel against the U.S. dollar in the future and whether these changes will
have a material adverse effect on us.

The
representative dollar exchange rate for converting the New Israeli Shekel to U.S. dollars,
as reported by the Bank of Israel, was NIS 3.802 for one-dollar U.S. on December 31, 2008.
The representative dollar exchange rate was NIS 3.846 for one-dollar U.S. on December 31,
2007 and NIS 4.225 on December 31, 2006.

Prior
to the consummation of the HP Transaction, certain transactions and certain of our
balances and the balances of certain of our subsidiaries were denominated in U.S. dollars
and are 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
the remeasurement of monetary balance sheet items denominated in non-dollar currencies are
reflected in the statements of income (operations) as financial income or expenses, as
appropriate. Prior the HP transaction, for certain 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 equity
(deficiency).

The
average exchange rates for converting the New Israeli Shekel to U.S. dollars during the
years ended December 31, 2006, 2007 and 2008 were 4.456, 4.1081 and 3.5878 NIS for one
U.S. dollar, respectively. The exchange rate as of March 15, 2009 was NIS 4.171 for one
U.S. dollar.

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

We
have incurred operating losses during the last five years. Following the consummation of
the HP Transaction and the payment of some related liabilities (including repayment of our
short and long-term debt), as of March 15, 2009, we hold approximately $76.3 million in
cash and cash equivalents. Our current plan of operation is to identify and evaluate
suitable business opportunities and strategic alternatives, including through the
acquisition of all or part of an existing business, pursuing business combinations or
otherwise. Although we now hold the consideration received from HP in connection with the
sale of our business, we may need additional funds if we seek to acquire certain new
businesses and operations. If we are unable to raise funds through public or private
financing of debt or equity, we will be unable to fund certain business combinations that
could ultimately improve our 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.

42

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Prior
to the consummation of the HP Transaction, our capital requirements and level of expenses
depended 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 our products and services. As discussed previously, due to the increase in
demand for our products and the need to increase our working capital, we would have been
required to raise more equity or debt in order to support our growth. Now that the HP
Transaction has been consummated, we conduct limited activities and we believe our working
capital is sufficient for our present requirements.

We
have historically funded our operations primarily through the private sale of our equity
securities and commercial bank loans. At December 31, 2008 we had approximately $76
million of cash, cash equivalents and short term deposits compared with $4.3 at December
31, 2007 and $4.9 million at December 31, 2006. We currently invest our excess cash in
cash and cash equivalents that are highly liquid.

As
of December 31, 2008, we did not have material commitments for capital expenditures.

Operating activities

In the
year ended December 31, 2008, we had a net income of $87 million. Net cash used in
operating activities was approximately $9.2 million. Following the consummation of the HP
Transaction, most of our assets were sold to HP and the cash generated from the sale is
reflected in our net cash provided from investment activities.

In
the year ended December 31, 2007, we had a net loss of $6.4 million. Net cash used in
operating activities was approximately $4.1 million. The main changes in our working
capital were: (i) an increase of approximately $4.7 million in trade accounts receivable
due mainly to increased level of sales towards the end of the year and reduced focus on
collections as our finance personnel world-wide were engaged in the transaction with HP;
(ii) an increase of approximately $1.8 million in other accounts receivable, mainly VAT
receivable due to the increased level of materials purchasing; (iii) an increase of
approximately $4.5 million in inventories due to the increased production levels; and (iv)
an increase of approximately $9.8 million in trade payables due mainly to increased
production levels and delays in payments beyond the agreed-upon payment terms.

In
the year ended December 31, 2006, we had a net loss of $1.9 million. Net cash used in
operating activities was approximately $6.5 million. The main changes in our working
capital were: (i) an increase of approximately $2.4 million in trade accounts receivable
due to the increased level of sales in Q4 compared with the sales in Q4 of 2005 when the
company had limited financial resources to fund its working capital; (ii) a decrease of
approximately $2.6 million in deferred revenues which represents additional revenue
recognized in 2006 for which payments were made by the customers already in prior periods;
and (iii) an increase of approximately $4.4 million in inventories due to the increased
level of production activity following the increased demand for our products compared with
the previous year.

43

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Following
the consummation of the HP Transaction, we have ceased conducting any operating activity
and currently substantially all of our assets consist of cash and cash equivalents. We now
only conduct activities relating to attempting to locate business opportunities and
strategic alternatives, activities relating to the investment of our funds and activities
relating to the winding up of the operations that were not transferred to HP and the
remaining aspects relating to the transfer of the business to HP. We cannot at this point
predict whether following the consummation of a business transaction we will have
sufficient working capital in order to fund our operations.

Investing activities

Net
cash provided by investing activities was approximately $54.6 million in the year ended
December 31, 2008, primarily due to proceeds from the HP Transaction.

Net
cash used in investing activities was approximately $1.2 million in the year ended
December 31, 2007, primarily due to investments in our IT infrastructure and in equipment
for our ink plant to support the increased quantities manufactured.

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 million.

Financing activities

Net
cash used in financing activities in the year ended December 31, 2008 was approximately
$22.2 million, deriving primarily from the repayment of short and long-term loans and the
repurchase of employee stock options.

Net
cash provided by financing activities in the year ended December 31, 2007 was
approximately $4.6 million, deriving primarily from the issuance of shares and warrants in
the aggregate net amount of $6.1 million offset by the 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, 2006 was
approximately $3.6 million, deriving primarily from the issuance of shares and warrants in
the aggregate net amount of $7.0 million, offset by a $1.8 million decrease in short-term
bank credit and short-term bank loans and payment of long-term debt, including interest on
restructured debt, in the amount of $1.6 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.

44

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Prior
to the consummation of the HP Transaction, we maintained long and short-term credit
facilities, excluding accrued interest on restructured debt and a note from a related
party, in an aggregate amount of approximately $22.0 million as of December 31, 2007.
During 2006 and 2007, we did not make any principal payments on our long-term loans. As
previously noted, interest payments in the amounts of $1.3 million and $1.5 million for
2006 and 2007, respectively, were recorded as a reduction of the carrying amount of the
accrued interest in accordance with the provisions of SFAS No. 15 Accounting by
Debtors and Creditors for Troubled Debt Restructuring (see Note 9 to the
consolidated financial statements included in this report).

Upon
consummation of the HP Transaction, we repaid our short-term debt to banks in the amount
of $9.8 million and, in early April 2008, we fully repaid our long-term debt to banks in
the amount of $12.1 million. We were released from all outstanding guarantees during the
period following the consummation of the HP Transaction. Following the repayment of the
loans and the release from the guarantees, the Banks terminated the floating liens and the
securities given by our subsidiaries were terminated. In addition, in May 2008 the
subordinated notes that were assigned by the Banks to Fortissimo were cancelled effective
March 30, 2008. As a result of the repayment of our long-term and short-term loans, as of
December 31, 2008, we had no outstanding debt to any bank or other lending financial
institution.

As
of December 31, 2008, our total current assets amounted to approximately $78 million, out
of which $76 million was in cash, cash equivalents and short-term deposits, compared with
total current liabilities of approximately $2 million.

As
of December 31, 2007, our total current assets amounted to approximately $44.6 million,
out of which $4.3 million was in cash and cash equivalents, compared with total current
liabilities of approximately $49.4 million. The main reason for the difference between the
current liabilities and the current assets is the classification of the note to related
parties in the short-term liabilities. The note was valid through November 2008 and it was
due to expire without payment unless we entered into liquidation procedures prior to the
termination of the note. As stated above, the note was cancelled in May 2008, effective as
of March 30, 2008.

As
of December 31, 2006, our total current assets 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.

The
increase in our cash balance is due to the sale of our business to HP and the cessation of
our wide-format printing business at the end of February 2008.

45

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Outstanding Warrants

As
of March 15, 2009, we had outstanding warrants to purchase a total of 41,173,526 ordinary
shares, all of which are currently exercisable. Of such warrants (i) 50,000 were issued to
Bank Leumi as part of the rescheduling of our long-term debt and are exercisable at $5.00
per share no later than August 2009, (ii) 112,903 (of which an aggregate of 79,145 are
currently held, in equal parts, by Kanir and Mr. Nehama) were originally issued to the
placement agent in connection with our October 2003 credit line commitment and are
exercisable at $0.62 per share no later than March 31, 2009, (iii) 646,542 (of which an
aggregate of 20,474 are currently held, in equal parts, by Kanir and Mr. Nehama) were
originally issued to the investors participating in our private placement in March 2004
and are exercisable at $1.54 per share no later than March 31, 2009, (iv) 129,310 (all of
which are currently held, in equal parts, by Kanir and Mr. Nehama) were originally issued
to Duncan Capital Group, LLC as placement agent in connection with our private placement
of March 2004 and are exercisable at $1.16 per share no later than March 31, 2009, (v)
3,000,000 (all of which are currently held, in equal parts, by Kanir and Mr. Nehama) were
originally issued to Dan Purjes in connection with a voting trust agreement and voting
agreement and are exercisable at $0.75 per share no later than April 2010; (vi) 25,714,286
(of which 11,462,157 are currently held by Kanir and 10,067,172 are currently held by
Nechama Investments) were originally issued to investors participating in our private
placement in August 2005 and are exercisable at $0.40 per share no later than October
2010, (vii) 8,000,000 (of which 846,905 are currently held by Bonstar Investments Ltd.
(Bonstar), a limited partner in Kanir, and 4,236,766 are currently held by Mr.
Nehama) were originally issued to Bank Hapoalim, Bank Leumi and Discount Bank in September
2005 in connection with a debt restructuring agreement discussed in Item 5.B:
Liquidity and Capital Resources and are exercisable at $0.35 per share no later than
December 2010, and (viii) 3,520,485 were granted to the investors participating in our
private placement in January and February 2007 discussed in Item 10.C: Material
Contracts and are exercisable at $0.65 per share no later than January or February
2012.

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

Our
research and development center, which prior to the consummation of the HP Transaction
engaged 54 employees, was 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 were conducted at our headquarters facility in
Lod, Israel.

Net
research and development expenses were approximately $5.8 million, $7.0 million and $1.9
million in the years ended December 31, 2006, 2007 and 2008, respectively. We did not
receive royalty-bearing grants in 2006, 2007 and 2008. We received non royalty bearing
grants in the amount of $0.5 million in 2007. We did not receive non royalty bearing
grants in 2008.

Following
the consummation of the HP Transaction, we do not currently engage in any research and
development activities.

46

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

Following
the consummation of the sale of our business to HP, we are no longer active in the
wide-format printing industry and are subject to certain restrictions with respect to
future operations in this field. Our current plan of operation is to identify and evaluate
suitable business opportunities and strategic alternatives, including through the
acquisition of all or part of an existing business, pursuing business combinations or
otherwise. While we are actively exploring strategic transactions and opportunities, we
have not targeted any particular industry or specific business within an industry in which
to pursue such opportunities. There is no assurance that any of these alternatives will be
pursued or, if one is pursued, the timing thereof, the terms on which it would occur, the
type of industry that will be involved and the success of such activity. Therefore, our
financial data reported in this Annual Report is not necessarily indicative of our future
operating results or financial position.

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

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

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

Prior
to the HP Transaction, the Company and most of its subsidiaries rented their facilities
under various operating lease agreements.

As
of the HP Transaction Closing Date, most of the operating and capital lease commitments
were assumed by HP (see Note 12a to our consolidated financial statements included as a
part of this annual report on Form 20-F). We have retained a lease of premises of our US
subsidiary, NUR America, which is fully sub-leased to a third party.

The
following table of our material contractual obligations as of December 31, 2008,
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)
|------------------------------ | -----------------------------------------------------
|
|
|
|
|Long-term rent obligations(1)  |                                                      
|Accrued severance pay(2)       |                                                      
|Uncertain tax positions (3)    |                                                      
|Other long-term liabilities(4) |                                                      
|                               |                                                      
|Total                          |                                                      
|                               |                                                      

---

|(1) | Reflects
lease agreement of our subsidiary NUR America, which was not assumed by                HP
in connection with the HP transaction. The premises are being sub leased.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Uncertain
income tax position under FASB Interpretation No. 48,                Accounting
for Uncertainty in Income Taxes, (FIN 48) are                due upon
settlement and we are unable to reasonably estimate the ultimate amount                or
timing of settlement. See Note 15c of the accompanying Notes to Consolidated
               Financial Statements for further information regarding the Companys
               liability under FIN 48.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Consists
of (i) additional compensation to former employees in connection with                the
HP Transaction in the amount of $450 and (ii) our undertaking to HP in
               connection with the amounts required to fully-fund the severance pay to
our                former employees who have transferred to HP in the amount of $245 (we
will only                be required to pay these severance pay related funds if and when
the employment                of such employees with HP entities is terminated by the HP
entities).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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# ITEM 6: Directors,
Senior Management and Employees

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

As
previously reported in our annual report for the fiscal year ending on December 31, 2007,
following the consummation of the HP Transaction, a majority of the members of our senior
management ceased to be employed by us and, following the change of control of the Company
in March 2008, three of our directors, including the Chairman of our Board of Directors,
resigned from our Board. These departing directors and members of senior management are:

|Name              | Age |  | Former Position with Ellomay               
|----------------- | --- |  | -------------------------------------------
|
|
|
|
|Yuval Cohen       | 46  |  | Chairman of the Board of Directors         
|Eli Blatt         | 46  |  | Director                                   
|Shmoulik Barashi  | 46  |  | Director                                   
|David Reis        | 48  |  | President and Chief Executive Officer      
|Assaf Eyal        | 48  |  | Executive Vice President                   
|Shuky Garibi      | 51  |  | Vice President of Research and Development 
|Itzik Arbesfeld   | 42  |  | Vice President of Human Resources          
|Eran Cohen        | 50  |  | Vice President of Operation                
|Menashe Ben Chaim | 46  |  | Vice President of Consumables              
|Igal Zeitoun      | 39  |  | Vice President of Customer Support         
|Mark Packman      | 54  |  | President, NUR America, Inc.               
|Jean Marc Blum    | 43  |  | Managing Director, Middle East and Africa  
|Andrew Middleton  | 46  |  | Managing Director, NUR Europe S.A.         
|Roni Klein        | 48  |  | Managing Director, NUR Asia Pacific Limited

In
addition, Mr. Yosef Zylberberg, our former Interim Chief Executive Officer and Chief
Financial Officer, ceased serving in such positions on December 31, 2008.

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

|Name                       | Age |  | Position with Ellomay                       
|-------------------------- | --- |  | --------------------------------------------
|
|
|
|
|Shlomo Nehama(1)(2)        | 53  |  | Chairman of the Board of Directors          
|Hemi Raphael(2)            | 57  |  | Director                                    
|Anita Leviant(2)           | 53  |  | Director                                    
|Ran Fridrich(1)(2)         | 56  |  | Director and Interim Chief Executive Officer
|Oded Akselrod(3)           | 62  |  | Director                                    
|Lauri A. Hanover (1)(3)(4) | 49  |  | Director                                    
|Alon Lumbroso(3)(4)        | 52  |  | Director                                    
|Kalia Weintraub            | 30  |  | Chief Financial Officer                     
|Eran Zupnik                | 40  |  | EVP of Business Development                 

|(1) | Member of Ellomays Stock Option and Compensation Committee.
|--- | ------------------------------------------------------------

|(2) | Elected pursuant to the Shareholders Agreement, dated as of March 24, 2008,
          between S. Nechama Investments (2008) Ltd. and Kanir Joint Investments (2005)
          Limited Partnership.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Member of Ellomays Audit Committee.
|--- | ------------------------------------

|(4) | External Director.
|--- | ------------------

The
address of each of our executive officers and directors is c/o Ellomay Capital Ltd.,
Ackerstein Towers, 11 Hamenofim Street, P.O.Box 2148, Herzliya 46120, Israel.

Shlomo
Nehama has served as a director and Chairman of the Board of Ellomay since March 2008.
From 1998 to 2007, Mr. Nehama served as the Chairman of the Board of Bank Hapoalim B.M.,
one of Israels largest banks. In 1997, together with the late Ted Arison, he
organized a group of American and Israeli investors who purchased Bank Hapoalim from the
State of Israel. From 1992 to 2006, Mr. Nehama served as the Chief Executive Officer of
Arison Investments. From 1982 to 1992, Mr. Nehama was a partner and joint managing
director of Eshed Engineers, a management consulting firm. Mr. Nehama is a graduate of the
Technion  Institute of Technology in Haifa, Israel, where he earned a degree in
Industrial Management and Engineering. Mr. Nehama received an honorary doctorate from the
Technion for his contribution to the strengthening of the Israeli economy.

Hemi
Raphael has served as a director of Ellomay 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.

Anita
Leviant has served as a director of Ellomay since March 2008. Ms. Leviant heads LA
Global Consulting, a practice specializing in consulting and leading global and financial
projects and cross border transactions. For a period of twenty years, until 2005, Ms.
Leviant held several senior positions with Hapoalim Banking group including EVP Deputy
Head of Hapoalim Europe and Global Private Banking and EVP General Global Counsel of the
group, and served as a director in the overseas subsidiaries of Bank Hapoalim. Prior to
that, Ms. Leviant was an associate in GAFNI & CO. Law Offices in Tel Aviv where she
specialized in Liquidation, Receivership and Commercial Law and was also a Research
Assistant to the Law School Dean in the Tel Aviv University specialized in Private
International Law. Ms. Leviant holds a LL.B degree from Tel Aviv University Law School and
is a member of both the Israeli and the New York State Bars. Ms. Leviant currently serves
as Deputy Chairman of the Israel-British Chamber of Commerce, chairman of the Capital
Markets Committee and as a member of the advisory board of Private Courts to Israel Ltd.

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Ran
Fridrich has served as a director of Ellomay since March 2008 and as our interim chief
executive officer since January 2009. Mr. Fridrich is the co-founder and executive
director of Oristan, Investment Manager, an investment manager of CDO Equity and Mezzanine
Funds and a Distress Fund, established in June 2004. In addition, Mr. Fridrich is a
consultant to Capstone Investments, CDO Repackage Program, since January 2005. In January
2001 Mr. Fridrich founded the Proprietary Investment Advisory in Israel, an entity focused
on fixed income securities, CDO investments and credit default swap transactions, and
served as its investment advisor through January 2004. Prior to that, Mr. Fridrich served
as the chief executive officer of two packaging and printing Israeli companies, Lito Ziv,
a public company, from 1999 until 2001 and Mirkam Packaging Ltd. from 1983 until 1999. Mr.
Fridrich also serves as a director of Cargal Ltd. since September 2002. Mr. Fridrich is a
graduate of the Senior Executive Program of Tel Aviv University.

Oded
Akselrod has served as a director of Ellomay since February 2002. Mr. Akselrod serves
a business advisor to corporations and investment funds in Israel. 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 the 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., Gadish Global Financial Services (2007) Ltd., Geva
Dor Investments Ltd., Shalag Industries Ltd., Psagot Investment House Ltd. and Psagot
Securities Ltd.

Lauri
A. Hanover has served as an external director of Ellomay since November 2003. Ms.
Hanover serves as Chief Executive Officer of Gross, Kleinhendler, Hodak, Halevy and
Greenberg & Co. since January 2008. Prior to that, she served as senior vice president
and chief financial officer of Lumenis Ltd. from 2004 through 2007 and 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 a Bachelors degree in finance from the Wharton School of
Business and a Bachelor-of-Arts degree 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.

50

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Alon
Lumbroso has served as an external director of Ellomay 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.

Kalia
Weintraub has served as our chief financial officer since January 2009. Prior to her
appointment as our chief financial officer, Ms. Weintraub served as our corporate
controller from January 2007 and was responsible, among her other duties, for the
preparation of all financial reports. Prior to joining Ellomay, she worked as a certified
public accountant in the AABS High-Tech practice division of the Israeli accounting firm
of Kost Forer Gabbay & Kasierer, an affiliate of the international public accounting
firm Ernst & Young, from 2005 through 2007 and in the audit division of the
Israeli accounting firm of Brightman Almagor Zohar, an affiliate of the international
public accounting firm Deloitte, from 2003 to 2004. Ms. Weintraub holds a B.A. in
Economics and Accounting and an M.B.A. from the Tel Aviv University and is licensed as a
CPA in Israel.

Eran
Zupnik has served as our EVP of Business Development since November 2008. Prior to joining
Ellomay, Eran was a mergers and acquisitions lawyer in New York with Skadden Arps Slate
Meagher & Flom LLP, one of the worlds leading law firms. At Skadden, Eran led
and advised US and International clients in more then 150 cross-border merger and
acquisition transactions as well as securities offerings. Prior to Skadden, Eran was a
consultant with the business advisory services group of PricewaterhouseCoopers LLP in
Boston. Eran received his LLB and BA in Business Administration from the College of
Management in Israel. He was admitted to both the New York and Israeli bar and is also a
certified public accountant.

As
previously mentioned, Yosef Zylberberg has served as our interim chief executive officer
since March 2008 and as our chief operating officer and chief financial officer since
February 2006, all until December 2008. Prior to joining Ellomay, 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.

51

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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 members of our senior management who left during 2008) in the fiscal year
ended December 31, 2008 was approximately $7.4 million, out of which an amount of
approximately $3.1 million was paid as consideration in connection with the repurchase of
employee stock options, an amount of approximately $2.8 million was related to pension,
retirement and other similar benefits (including termination of employees in connection
with the consummation of the HP Transaction) and an amount of approximately $0.7 million
was paid as transaction bonuses to members of our senior management in connection with,
and following, the consummation of the HP Transaction.

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 our 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 2008, our senior
management members received payments with respect to their achievements in 2007 in the
amount of approximately $0.04 million.

Other
than options granted to members of our Board of Directors, we did not grant any options to
purchase ordinary shares in 2008. We currently have a contractual undertaking to one of
our senior employees to grant options to purchase approximately 1.125% of our shares, on a
fully diluted basis, subject to a vesting schedule and at an exercise price determined
based on our economic value.

In connection with the HP
Transaction, our Board approved the acceleration of the vesting of all outstanding
employee stock options, including all stock options held by members of senior management
and the repurchase, subject to the fulfillment of regulatory requirements, of currently
outstanding employee stock options to purchase approximately 9.9 million ordinary shares
of the Company. The aggregate consideration for such employee stock options is expected to
be up to $3.8 million. Of the total, approximately $3.1 million were paid during July 2008
and an additional payment, up to the aggregate amount, will be calculated after all HP
Transaction related issues and other financial aspects of the Company are known and
verified and will be paid following the release to the Company of the funds deposited in
the indemnity escrow account in connection with the HP Transaction. This resolution does
not apply to options held by our non-employee directors. Following the payment of $3.1
million, all repurchased stock options were cancelled and the number of shares reserved
for issuance under our 2000 stock option plan was reduced accordingly. Any outstanding
employee stock option that was not repurchased, was terminated pursuant to its terms
following the termination of employment of the vast majority of our employees in
connection with the consummation of the HP Transaction.

In
connection with the HP Transaction, our Board also approved the payment of transaction
bonuses to certain employees, including members of senior management, in the aggregate
amount of approximately $0.7 million and established that, subject to the aforementioned
determination and verification of all HP Transaction related issues and other financial
aspects of the Company, additional bonuses may be paid to certain employees, based on
criteria, amounts and percentages pre-determined by our Board.

52

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In December 2008, following the
approval of our Audit Committee, Board of Directors and shareholders, we entered into a
management services agreement with Kanir and with Meisaf Blue & White Holdings Ltd.
(Meisaf), a private company controlled by Shlomo Nehama, effective as of March
31, 2008, the date of appointment of Messrs. Fridrich and Nehama as members of our Board.
In consideration for the performance of the management services and the board services
under the terms of the management services agreement, we agreed to pay Kanir and Meisaf,
in equal parts and quarterly payments, an aggregate annual services fee in the amount of
$250,000 plus value added tax pursuant to applicable law. For more information see
Item 10.C: Material Contracts.

As
approved by our shareholders, we pay our directors (Anita Leviant, Oded Akselrod, Lauri
Hanover and Alon Lumbroso) 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. In our annual general meeting of shareholders held on December 30,
2008, our shareholders approved payment of these fees to our current and future directors.

Each
of these directors (Anita Leviant, Oded Akselrod, Lauri Hanover and Alon Lumbroso) also
receives an annual grant of options to purchase 10,000 ordinary shares under the terms and
conditions set forth in Ellomays 1998 Non-Employee Director Share Option Plan as
more fully described below.

In
1998, we adopted the 1998 Non-Employee Director Share Option Plan (the 1998
Plan) to provide for grants of options to purchase ordinary shares to non-employee
directors of Ellomay. 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 original
expiration date of the 1998 Plan pursuant to its terms was December 8, 2008 (10 years
after adoption). At the General Meeting of our shareholders, held on January 31, 2008, the
term of the 1998 Plan was extended and as a result it will expire on December 8, 2018,
unless earlier terminated by the Board.

Under
the 1998 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 of such year.
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 Ellomay, based on the best information available to it. The exercise
price is required to be paid in cash.

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The
term of each option granted under the 1998 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 Ellomay could be withheld until the payment of taxes due with
respect to the grant and exercise (if any) of such options.

In
connection with the management services agreement entered into effective as of March 31,
2008, Messrs. Nehama, Fridrich and Raphael waived any right to additional remuneration for
their service as members of our board of directors, including the right to receive the
fees set forth above and the right to receive options under the 1998 Plan. For more
information concerning the management services agreement see Item 10.C: Material
Contracts.

Following
the departure of Yossy Zylberberg, our former Interim Chief Executive officer and Chief
Financial Officer on December 31, 2008, Mr. Ran Fridrich was appointed as our Interim
Chief Executive Officer, effective as of January 1, 2009, for a period of one year. Mr.
Fridrich has agreed to serve as our Interim Chief Executive Officer without compensation
or other benefits.

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

According
to the provisions of our Second Amended and Restated Articles (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.

Terms of Directors

Our
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 eight (8) directors (including the
external directors). The members of our Board are elected annually at our 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 last annual meeting was held on December 30, 2008. 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.

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On
March 30, 2008, three members of our Board, Yuval Cohen, Shmoulik Barashi and Eli Blatt,
resigned their position as directors of Ellomay following the sale of the ordinary shares
and a majority of the warrants held by the Fortissimo entities. Pursuant to the Articles,
the Board members appointed Shlomo Nehama, Anita Leviant and Ran Fridrich as directors, to
serve until the next general meeting of our shareholders. Messrs. Nehama and Fridrich and
Ms. Leviant were re-elected to serve on our Board at our annual shareholders meeting
held on December 30, 2008. The members of our 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, as a public
company, have at least two external directors.

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.

Under
the Companies Law, external directors must be elected by a majority vote at a
shareholders meeting, provided that either: (i) 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 (ii) 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. Our 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.

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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 the 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.
Our board of directors determined that Lauri A. Hanover is an accounting and financial
expert and that Alon Lumbroso has professional competence.

Our
Board 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, our Board determined that Shlomo Nehama shall be designated as
the additional accounting and financial expert.

Alternate Directors

The
Articles provide that, subject to the Boards approval, a director may appoint an
individual, by written notice to us, 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.

Duties of Office Holders and
Approval of Certain Transactions Under the Israeli Companies Law

The
Companies Law codifies the duty of care and fiduciary duties that an office holder has to
our company. 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 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. 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. In the event a majority of the members of the board of directors have a
personal interest in a matter, such matter must be also approved by the shareholders of
the company.

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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 Ellomay, or controlling shareholders and their relatives.

Ellomay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 Ellomay
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 Ellomay, (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. In certain circumstances, some
of the matters referred to above may also require shareholder approval.

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

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

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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.

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
Ellomay relating to employees incentive plans, and employment or salary agreements between
Ellomay 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 Ellomays securities.

In
March 1998, Ellomay established a Stock Option and Compensation Committee to administer
Ellomay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 Ellomay and approval of Ellomays executive officers annual
compensation. All arrangements as to compensation of office holders who are not directors
also require the approval of the Board. The Stock Option and Compensation Committee is
presently composed of three members: Shlomo Nehama, Ran Fridrich and Lauri A. Hanover.

Non-Employee Director
Share Option Plan Committee

In
February 1999, Ellomay established a committee to administer the Ellomay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 Ellomay, except
for allocation of shares or securities convertible into shares of Ellomay relating to
employees incentive plans, and employment or salary agreements between Ellomay 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.

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Indemnification and
Exculpation of Executive Officers and Directors

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

Indemnification

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

At
the annual shareholders meeting held on October 27, 2005, our shareholders authorized us
to enter into indemnification agreements with each of our current and future directors and
officers. Ellomay 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 Ellomay 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
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | 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 Ellomay 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 Ellomay shall pay may not exceed an amount equal to fifty
percent (50%) of the net equity of Ellomay or to one time annual revenue of Ellomay in the
year prior to the date of the claim with regard to judgment liability (the higher amount
of the two) with regard to a final judgment by a competent court, 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 us to the extent permitted by law.

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

At
the annual shareholders meeting held on October 27, 2004, Ellomays shareholders
authorized the Company to exculpate its directors and officers in advance from liability
to Ellomay, in whole or in part, for a breach of the duty of care. The form of exculpation
letter was approved at the annual shareholders meeting held on October 27, 2005 and
appears in our current report on Form 6-K as filed with the SEC on October 14, 2005.

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.

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We
have obtained directors and officers liability insurance covering our
directors and officers. In our January 2008 general meeting of shareholders, our
shareholders also approved the procurement of a run-off directors and
officers liability insurance policy covering our directors and officers for events
that occurred prior and up to the closing of the HP Transaction.

Following
the changes in composition of our Board on March 2008, our Audit Committee and Board
approved the entering into indemnification agreements with, the provision of exculpation
letter to, and the inclusion in our directors and officers liability insurance
policy of, our new directors. The approval as it relates to Shlomo Nehama and Ran
Fridrich, who are both considered to be controlling shareholders, required
further approval of our shareholders. In our December 30, 2008 annual shareholders
meeting, our shareholders approved these resolutions.

Internal Auditor

Under
the Companies Law, our Board is also required to appoint an internal auditor proposed by
the Audit Committee. The role of the internal auditor is to examine, among other things,
whether our activities comply with the law and orderly business procedure. The internal
auditor may not be an interested party or officer holder, or a relative of any interested
party or office holder, and may not be a member of our independent auditor firm. The
Companies Law defines the term interested party to include a person who holds
5% or more of the companys outstanding share capital or voting rights, a person who
has the right to appoint one or more directors or the general manager, or any person who
serves as a director or as the general manager. Mr. Doron Cohen of Fahn, Kanne & Co.,
an Israeli accounting firm, serves as our internal auditor.

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

As
of December 31, 2008, we had 9 employees and independent contractors compared to 330
employees and independent contractors as of December 31, 2007 and 312 as of December 31,
2006. All of our employees and independent contractors, as of December 31, 2008, were in
management, finance and administration and all were located in Israel.

In
connection with and following the consummation of the HP Transaction on February 29, 2008,
approximately 80% of our employees world-wide have been rolled over to various HP related
entities. We have terminated the employment of a majority of the other employees,
including the majority of our senior management. The employees who were terminated were
eligible to termination related severance and/or notice periods ranging between one and
six months. In connection with such terminations, we recorded as of the HP Transaction
closing date severance-related expenses in the approximate amount of $2.8 million.

All
of our 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.

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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 personnel.

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.

Our
liability for future severance pay obligations is partially 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. Our employees 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
Ellomays ordinary shares as of March 15, 2009, of (i) each director of Ellomay and
(ii) each member of senior management of Ellomay. All of the information with respect to
beneficial ownership of the ordinary shares is given to the best of Ellomays
knowledge and has been furnished in part by the respective directors and member of senior
management.

| | Name of Beneficial Owner | Number of Shares
Beneficially Held(1) | Percent of Class
| | ------------------------ | ------------------------------------- | ----------------
|
|
|
|
| | Shlomo Nehama (2)        | 41,782,886                            | 45.17%          
| | Hemi Raphael (3)         | -                                     | -               
| | Anita Leviant            | *                                     | *               
| | Ran Fridrich (3)         | -                                     | -               
| | Lauri A. Hanover         | *                                     | *               
| | Alon Lumbroso            | *                                     | *               
| | Oded Akselrod            | *                                     | *               
| | Kalia Weintraub          | -                                     | -               
| | Eran Zupnik              | -                                     | -               

---

|*
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 March
          15, 2009 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 73,786,428 ordinary shares outstanding as of March
15, 2009.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

63

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---

|(2) | The
41,782,886 ordinary shares beneficially owned by Mr. Nehama consist of: (1)
          22,661,551 ordinary shares , currently exercisable warrants to purchase
          10,067,172 ordinary shares and a currently exercisable call option to purchase
          2,789,971 currently exercisable warrants held by the Fortissimo Entities
          pursuant to the Fortissimo Call Option (both as hereinafter defined) held by
          Nechama Investments, which together constitute approximately 41.0% of the
          outstanding ordinary shares and (ii) 412,961 ordinary shares and currently
          exercisable warrants to purchase 5,851,231 ordinary shares held directly by Mr.
          Nehama, which together constitute approximately 7.9% of the outstanding
ordinary           shares. Mr. Nehama, as the sole officer, director and shareholder of
Nechama           Investments, may be deemed to indirectly beneficially own any ordinary
shares           beneficially owned by Nechama Investments, which constitute (together
with his           shares and warrants) approximately 45.2% of the outstanding ordinary
shares. By           virtue of the 2008 Shareholders Agreement (as defined below), Mr.
Nehama,           Nechama Investments, Kanir and Messrs. Raphael and Fridrich may be
deemed to be           members of a group that holds shared voting power with respect to
45,735,389           ordinary shares and currently exercisable warrants to purchase
23,143,793           ordinary shares, as well as currently exercisable warrants to
purchase 4,184,957           that may be acquired pursuant to the Fortissimo Call Option,
which together           constitute approximately 72.3% of the outstanding ordinary
shares, and holds           shared dispositive power with respect to 36,967,000 ordinary
shares, which           constitute 50.1% of the outstanding ordinary shares. Accordingly,
Mr. Nehama may           be deemed to beneficially own approximately 74.2% of the
outstanding ordinary           shares. Mr. Nehama and Nechama Investments both disclaim
beneficial ownership of           the ordinary shares beneficially owned by Kanir.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | By
virtue of their positions as sole shareholders and directors of Kanir
          Investments Ltd. (Kanir Ltd.), the general partner in Kanir, and
          limited partners in Kanir, Hemi Raphael and Ran Fridrich may be deemed to
          indirectly beneficially own the ordinary shares and ordinary shares underlying
          warrants beneficially owned by Kanir. Messrs. Raphael and Fridrich disclaim
          beneficial ownership of such shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our
directors  hold, in the aggregate, options exercisable into 146,667
ordinary shares. The 146,667 options have a weighted average exercise price of
approximately $0.65 per share and have expiration dates until 2019. Under the 1998 Plan,
Oded Akselrod, one of the members of our Board, was granted options to purchase 10,000
ordinary shares on December 30, 2004, August 1, 2005, August 1, 2006, August 1, 2007 and
August 1, 2008. Anita Leviant, one of the members of our Board, was granted options to
purchase 13,333 shares on August 1, 2008. Lauri A. Hanover, one of our external directors,
was granted options to purchase 6,667 shares on November 18, 2003 and was also granted
options to purchase 10,000 ordinary shares on December 30, 2004, August 1, 2005, August 1,
2006, August 1, 2007 and August 1, 2008. Alon Lumbroso, our second external director, was
granted 6,667 options on November 27, 2006 and was also granted options to purchase 10,000
ordinary shares on August 1, 2007 and August 1, 2008. 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 Ellomay at the date of grant.

Outstanding Options

Immediately
prior to the consummation of the HP Transaction, there were outstanding options to
purchase 10,079,400 of our ordinary shares that were granted to our employees. In
connection with the HP Transaction, the vesting of all such employee options was
accelerated and all became immediately exercisable upon consummation of the sale of our
business to HP on February 29, 2008. As more fully described herein, 9,893,550 of such
options were thereafter purchased by us and cancelled in July 2008. Any options not
repurchased (due to their relatively high exercise price) were canceled during 2008
pursuant to their terms and the terms of the 2000 Stock Option Plan.

64

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---

The
options granted to directors under the 1998 Plan are not subject to vesting requirements
and have an exercise price ranging from $0.31 to $1.86 per share, with various expiration
dates. See Note 14 to our 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, we adopted the 1995 Israel Stock Option Plan (the 1995 Plan), which
provides for grants of stock options to our employees and consultants. Options to purchase
an aggregate of 500,000 ordinary shares were originally available for grant under the 1995
Plan, as amended, including service options for future services, options for performance,
and options to consultants for service or performance.

At
the annual shareholders meeting held on November 18, 2003, our shareholders approved the
Boards resolution to terminate the 1995 Plan and to increase the number of ordinary
shares authorized for issuance under our 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 our 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.

As
of March 15, 2009, there are no outstanding options under the 1995 Plan.

1997 Stock Option Plan

In 1997,
we adopted the 1997 Stock Option Plan (the 1997 Plan), which provides for
grants of stock options to our employees, directors and consultants. 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 our 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 our 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.

As
of March 15, 2009, there are no outstanding options 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.

65

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2000 Stock Option Plan

In
2000, we adopted the 2000 Stock Option Plan (the 2000 Plan) to provide for
grants of service and non-employee options to purchase ordinary shares to our officers,
employees, directors and consultants. 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 March 15, 2009, 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 227,000 from 17,497,590 to 17,724,590. Section 12 of the 2000 Plan provided
originally that the 2000 Plan will expire on August 31, 2008, unless previously terminated
or extended by the Board. At our Board meeting held on June 23, 2008, our Board resolved
to amend Section 12 of the 2000 Plan to extend its term until August 31, 2018.

Our
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. Our Board delegated to our management its authority to
issue ordinary shares issuable upon exercise of options under the 2000 Plan. The exercise
price of the options under the 2000 Plan is determined by our 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 our 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.

Our
Stock Option and Compensation 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 our Israeli employees
are held in a trust until the payment of all taxes due with respect to the grant and
exercise (if any) of such options.

66

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We
have elected the benefits available under the capital gains alternative of
Section 102 of the Israeli Tax Ordinance. Pursuant to this election, 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, we 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 we were previously entitled to
do. We 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.

Changes in Options Following
Consummation of the HP Transaction

In
connection with the HP Transaction, our Board of Directors approved the immediate
acceleration of all outstanding employee stock options that were outstanding as of the
date of execution of the Asset Purchase Agreement. Our Board of Directors further approved
the offer to employees who hold outstanding stock options with exercise prices below $1.00
to repurchase their outstanding stock options, subject to and following the fulfillment of
all regulatory requirements. The employees received offers from us, setting forth the
consideration offered for such options. The employees were generally offered a choice
between two methods of payment.

The
first method entails receipt, subject to and following fulfillment of regulatory
requirements, of 75% of the consideration and receipt of up to 25% of the consideration
following release of the monies deposited in escrow in connection with the HP Transaction.
The exact amount of the second payment, if any, will be determined based on the net cash
generated by us from our remaining assets and liabilities based on the criteria set forth
by our Board and such amount will bear interest equal to the interest rate applicable to
the monies deposited in the escrow account in connection with the HP Transaction
commencing March 1, 2008. The second method entails receipt, subject to and following
fulfillment of regulatory requirements, of 90% of the consideration without entitlement to
any additional payment in the future.

Under
both payment methods, all outstanding options were to terminate immediately upon receipt
of the first (or in the case of the second method, only) payment.

The
offer to repurchase options was made to employees holding an aggregate of options to
purchase approximately 9.9 million of our ordinary shares and the aggregate purchase price
is up to approximately $3.8 million.

Based
on the election of the employees between the two methods of payment described herein, on
July 2008 we paid approximately $3.1 million in consideration for the options resulting in
the immediate cancellation of options to repurchase 9,893,550 of our ordinary shares. The
remainder, in the amount of up to $0.7 million, will be paid subject to the terms of the
first method of payment set forth above.

Pursuant
to the terms of our option plans, all options that were not repurchased expired 90 days
following the termination of employment of the employees holding such options.

As
a result of the purchase of the options and the cancellation of the options as set forth
above, on March 15, 2009 the number of ordinary shares authorized for issuance under the
2000 Plan was 7,272,028. Currently, there are no options outstanding under the 2000 Plan.

67

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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 our ordinary
shares as of March 15, 2009, by each person known by us 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 our knowledge.

|                                                         | Ordinary Shares
Beneficially Owned(1) | Percentage of Ordinary Shares
Beneficially Owned
|-------------------------------------------------------- | ------------------------------------- | ------------------------------------------------
|
|
|
|
|Shlomo Nehama (2)                                        |                                       |                                                 
|Kanir Joint Investments (2005)Limited Partnership (3)(4) |                                       |                                                 
|Zohar Zisapel (5)                                        |                                       |                                                 
|Old Lane Funds (6)                                       |                                       |                                                 
|Fortissimo Entities (7)                                  |                                       |                                                 

---

|(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 March
          15, 2009 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 73,786,428 ordinary shares outstanding as
of March 15, 2009.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The
41,782,886 ordinary shares beneficially owned by Mr. Nehama consist of: (i)
          22,661,551 ordinary shares, currently exercisable warrants to purchase
          10,067,172 ordinary shares and a currently exercisable call option to purchase
          2,789,971 currently exercisable warrants held by the Fortissimo Entities
          pursuant to the Fortissimo Call Option held by Nechama Investments, which
          together constitute approximately 41.0% of the outstanding ordinary shares and
          (ii) 412,961 ordinary shares and currently exercisable warrants to purchase
          5,851,231 ordinary shares held directly by Mr. Nehama, which constitute
          approximately 7.9% of the outstanding ordinary shares. Mr. Nehama, as the sole
          officer, director and shareholder of Nechama Investments, may be deemed to
          indirectly beneficially own any ordinary shares beneficially owned by Nechama
          Investments, which constitute (together with his shares and warrants)
          approximately 45.2% of the outstanding ordinary shares. By virtue of the 2008
          Shareholders Agreement, Mr. Nehama, Nechama Investments, Kanir, Kanir Ltd. and
          Messrs. Raphael and Fridrich may be deemed to be members of a group that holds
          shared voting power with respect to 45,735,389 ordinary shares and currently
          exercisable warrants to purchase 23,143,793 ordinary shares, as well as
          currently exercisable warrants to purchase 4,184,957 that may be acquired
          pursuant to the Fortissimo Call Option, which together constitute approximately
          72.3% of the outstanding ordinary shares, and holds shared dispositive power
          with respect to 36,967,000 ordinary shares, which constitute 50.1% of the
          outstanding ordinary shares. Accordingly, Mr. Nehama may be deemed to
          beneficially own approximately 74.2% of the outstanding ordinary shares. Each
of           Mr. Nehama and Nechama Investments disclaims beneficial ownership of the
          ordinary shares beneficially owned by Kanir.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

68

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|(3) | According
to information provided by the holder, Kanir is an Israeli limited           partnership.
The holdings of Kanir include currently exercisable warrants to           purchase
13,076,621 ordinary shares and a currently exercisable call option to           purchase
1,394,986 currently exercisable warrants held by the Fortissimo           Entities
pursuant to the Fortissimo Call Option. Kanir Ltd., in its capacity as           the
general partner of Kanir LP, has the voting and dispositive power over the
          ordinary shares directly beneficially owned by Kanir. As a result, Kanir Ltd.
          may be deemed to indirectly beneficially own the ordinary shares beneficially
          owned by Kanir. Messrs. Raphael and Fridrich are the sole shareholders and
          directors of Kanir Ltd. As a result, they may be deemed to indirectly
          beneficially own the ordinary shares beneficially owned by Kanir. Messrs.
          Raphael and Fridrich disclaim beneficial ownership of such ordinary shares. By
          virtue of the 2008 Shareholders Agreement, Mr. Nehama, Nechama Investments,
          Kanir, Kanir Ltd. and Messrs Raphael and Fridrich may be deemed to be members
of           a group that holds shared voting power with respect to 45,735,389 ordinary
          shares and currently exercisable warrants to purchase 23,143,793 ordinary
          shares, as well as currently exercisable warrants to purchase 4,184,957 that
may           be acquired pursuant to the Fortissimo Call Option, which together
constitute           approximately 72.3% of the outstanding ordinary shares, and holds
shared           dispositive power with respect to 36,967,000 ordinary shares, which
constitute           50.1% of the outstanding ordinary shares. Each of Kanir, Kanir Ltd.
and Messrs.           Raphael and Fridrich disclaims beneficial ownership of the ordinary
shares           beneficially owned by Nechama Investments.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Bonstar,
an Israeli company, currently holds warrants to purchase 846,906           ordinary
shares, which constitute approximately 1.1% of the outstanding ordinary           shares.
Bonstar is a limited partner of Kanir and assisted Kanir in the           financing of
the purchase of some of its ordinary shares. Accordingly, Bonstar           may be deemed
to be a member of a group with Kanir and its affiliates, although           there are no
agreements between Bonstar and either of such persons and entities           with respect
to the ordinary shares beneficially owned by each of them. Mr.           Joseph Mor and
Mr. Ishay Mor are the sole shareholders of Bonstar and Mr. Joseph           Mor serves as
the sole director of Bonstar. Messrs. Joseph Mor and Ishay also           hold, through a
company jointly held by them, 750,000 ordinary shares, which           constitute
approximately 1.0% of the outstanding ordinary shares. By virtue of           their
control over Bonstar and the other company, Messrs. Joseph Mor and Ishay           Mor
may be deemed to indirectly beneficially own the 1,596,906 ordinary shares
          beneficially owned by Bonstar and by the other company, which constitute
          approximately 2.1% of the ordinary shares. Each of Bonstar and Messrs. Joseph
          Mor and Ishay Mor disclaims beneficial ownership of the ordinary shares
          beneficially owned by Kanir and Nechama Investments. The information provided
in           the foregoing paragraph is based on public filings made by Bonstar and
Messrs.           Joseph Mor and Ishay Mor.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | According
to public filings and information provided by the holder, Zohar           Zisapel is an
Israeli citizen.
|--- | ------------------------------------------------------------------------------------------------------------------

|(6) | According
to information provided by the holders, the Old Lane Funds include Old           Lane
Luxemburg Master Fund S.a.r.l (Old Lane), a private company
          registered in Luxemburg, and its shareholders: Old Lane Cayman Master Fund
L.P.,           a limited partnership registered in the Cayman Islands (Old Lane
          Cayman), Old Lane HMA Master Fund, L.P., a limited partnership registered
          in the Cayman Islands (Old Lane HMA) and 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           Shareholders).
Old Lane currently beneficially holds 4,814,815 ordinary           shares for the benefit
of its shareholders as follows: (i) 2,207,408 ordinary           shares and 662,222
ordinary shares underlying currently exercisable warrants           held for the benefit
of Old Lane Cayman, which also directly holds 34,522           ordinary shares, (ii)
625,926 ordinary shares and 187,778 ordinary shares           underlying currently
exercisable warrants held for the benefit of Old Lane HMA,           which also directly
holds 10,072 ordinary shares and (iii) 870,370 ordinary           shares and 261,111
ordinary shares underlying currently exercisable warrants           held for the benefit
of Old Lane US, which also directly holds 14,006 ordinary           shares. Old Lane
disclaims beneficial ownership of the shares held for the           benefit of the Old
Lane Shareholders.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | 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-GP is the
general partner           of each of FFC-Israel, FFC-Israel-DP and FFC Cayman, which
invest together in           the framework of parallel private equity funds. The holdings
of the Fortissimo           Entities consist of currently exercisable warrants to
purchase 3,742,048           ordinary shares held directly by FFC-Israel, currently
exercisable warrants to           purchase 333,516 ordinary shares held directly by
FFC-Israel-DP and currently           exercisable warrants to purchase 109,393 ordinary
shares held directly by FFC           Cayman. The 2005 shareholders agreement between
FFC-GP and Kanir was terminated           in connection with the sale of all of the
ordinary shares and a majority of the           warrants to purchase ordinary shares held
by the Fortissimo Entities to Kanir           and Nechama Investments in March 2008.
Based on public filings made by Kanir and           Nechama Investments, among the
transaction set forth in the documents governing           the sale of our securities by
the Fortissimo Entities to Kanir and Nechama           Investments, Kanir and Nechama
Investments granted the Fortissimo Entities a put           option exercisable at $0.50
per warrant, and the Fortissimo Entities granted           Kanir and Nechama Investments
a call option (the Fortissimo Call           Option) exercisable at $0.80 per
warrant, with respect to warrants to           purchase 4,184,957 ordinary shares held by
the Fortissimo Entities, in each           case, subject to equitable adjustments in the
event of customary capitalization           events or dividend distributions. Said
options are exercisable during the period           commencing on March 27, 2009 and
ending on the earlier to occur of (i) March 27,           2010 and (ii) the date on which
such warrants have been listed for trade on a           stock market.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

69

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Significant Changes in
the Ownership of Major Shareholders

In
January and February 2007, we closed a private placement with certain investors. As of
March 15, 2009, Old Lane Luxemburg, who participated in the private placement, is the
beneficial owners of 4,814,815 ordinary shares (including 1,111,111 ordinary shares
issuable upon exercise of warrants), or 6.4% of our outstanding ordinary shares. 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 Ellomay.

In
February 2008, Kanir purchased, in a series of private transactions, additional Ellomay
shares and warrants. The sellers in such private transactions included, among others, Dan
and Edna Purjes, and entities they control or are affiliated with. Certain of the
securities purchased by Kanir were subsequently transferred to Shlomo Nehama. The
Purjess beneficial ownership interest decreased from 16.51% to 12.51% as of May 2007
as a result of the private placement in early 2007 and, pursuant to information provided
by Mr. Purjes, as a result of the sale of shares and warrants on February 2008, he and his
affiliates no longer beneficially owned any Ellomay ordinary shares or warrants
immediately following the sale.

In
March and April 2008, Kanir, Shlomo Nehama and Nechama Investments purchased additional
Ellomay shares and warrants in a series of private transactions, including all of the
shares and a majority of the warrants held by the Fortissimo Entities, a majority of the
warrants held by Bank Hapoalim, decreasing the percentage of ordinary shares beneficially
owned by Bank Hapoalim from 6.3% to less than one percent, and shares held by certain of
the entities affiliated with Meitav Investment House Ltd. (the Meitav
Entities), decreasing the percentage of ordinary shares beneficially owned by the
Meitav Entities from 6.34% to less than five percent.

In
September 2008, warrants to purchase 240,000 ordinary shares, at an exercise price of
$0.52 per share, were exercised. In October 2008, warrants to purchase 825,923 ordinary
sharesat an exercise price of $0.34 per share, held equally by Kanir and Shlomo Nehama,
were exercised. These exercises resulted in the receipt by us of aggregate consideration
in the amount of $0.511 million.

70

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Record Holders

Based
on a review of the information provided to us by our transfer agent and major
shareholders, as of March 15, 2009, there were 67* record holders of ordinary shares, of
which 26 represented United States* record holders holding approximately 32.9% (of which
approximately 32% are held by the Depository Trust Company) of our outstanding ordinary
shares.

---

|* | Including
the Depository Trust Company.
|- | ---------------------------------------

2008 Shareholders
Agreement

Pursuant
to public filings made and information provided by Kanir and Nechama Investments and their
affiliates, on March 24, 2008, Kanir and Nechama Investments entered into a shareholders
agreement (the 2008 Shareholders Agreement) with respect to their holdings of
Ellomay. The following summary is based on public filings made by the parties to the 2008
Shareholders Agreement, which include a more detailed description of the 2008 Shareholders
Agreement and a copy of such agreement.

The
parties to the 2008 Shareholders Agreement agreed to vote all their Ellomay ordinary
shares as provided in the 2008 Shareholders Agreement. Where the 2008 Shareholders
Agreement is silent as to a matter brought before the shareholders of Ellomay, the parties
will agree in advance as to how they will vote. In the event that the parties do not reach
an agreement regarding any such matter, they will vote all of their ordinary shares
against such matter. In addition, the parties agreed to use their best efforts to amend
our articles to require that, if so requested by at least two of our directors, certain
matters will require the approval of a simple majority of the outstanding ordinary shares,
such as related party transactions and any material change in Ellomays scope of
business. At our annual shareholders meeting held on December 30, 2008, our shareholders
approved the adoption of our Second Amended and Restated Articles, as requested by Kanir
and Nechama Investments and that includes, among other things, the revisions contemplated
in the 2008 Shareholders Agreement. For more information, see Item 10B: Memorandum
of Association and Second Amended and Restated Articles.

The
parties to the 2008 Shareholders Agreement further agreed to use their best efforts to
ensure that the composition of our Board will be in accordance with the agreements set
forth therein.

The
2008 Shareholders Agreement also contains certain agreements with respect to the ordinary
shares held by each party that constitute, from time to time, 25.05% of the outstanding
ordinary shares and, in the aggregate, 50.1% of the outstanding ordinary shares (these
shares are defined in the 2008 Shareholders Agreement as the Restricted
Shares), including a lock-up period, right of first refusal, tag along and a
buy/sell notice mechanism.

The
parties to the 2008 Shareholders Agreement agreed not to enter into any additional voting
or similar agreements with any other shareholders of Ellomay during the term of the 2008
Shareholders Agreement, which will be in effect so long as (i) the parties hold more than
50% of the outstanding ordinary shares of Ellomay or (ii) each of the parties holds all of
its Restricted Shares (unless the lending bank of the parties to the agreement forecloses
on its pledge on the Restricted Shares of either party, causing the immediate termination
of the 2008 Shareholders Agreement).

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Encumbrances Placed on
Ellomays Securities

Pursuant
to public filings made and information provided by Kanir and Nechama Investments and their
affiliates, on March 27, 2007, each of Kanir and Nechama Investments entered into a
separate five-year loan agreement with Israel Discount Bank Ltd. in order to finance the
purchase of Ellomay ordinary shares and warrants to purchase ordinary shares. As
collateral for the loans, Israel Discount Bank Ltd. received a first-priority pledge over
19,020,872 ordinary shares and warrants to purchase 2,027,426 ordinary shares, or, in the
aggregate, 27.8% of the outstanding ordinary shares, held by Kanir and over 19,021,547
ordinary shares, or 25.8% of the outstanding ordinary shares, held by Nechama Investments.
A default of either of Kanir and Nechama Investments under their agreements with Israel
Discount Bank Ltd. could cause a foreclosure with respect to the ordinary shares of
Ellomay subject to the pledge to such bank, which could result in a change of control of
Ellomay.

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

On
December 30, 2008, following the approval of our Audit Committee, Board of Directors and
shareholders, we entered into a management services agreement with Kanir and Meisaf,
effective as of March 31, 2008, the date of appointment of Messrs. Fridrich and Nehama as
members of our Board. In consideration of the performance of the management services and
the board services under the terms of the management services agreement we agreed to pay
Kanir and Meisaf, in equal parts in and quarterly payments, an aggregate annual services
fee in the amount of $250,000 plus value added tax pursuant to applicable law.

For
a further discussion of transactions and balances with related parties see Item
10.C: Material Contracts and Note 13 to our consolidated financial statements, which
are included as a part of this annual report.

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

Not
Applicable.

ITEM 8: Financial Information

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

Consolidated Statements

For
our audited consolidated financial statements for the year ended December 31, 2008, please
see pages F-1 to F-44 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.

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Legal Proceedings

We
are a party to various legal proceedings incident to our business. Pursuant to the terms
of the Asset Purchase Agreement with HP, a majority of the litigation we are party to was
not assumed by HP or any of its subsidiaries and we continue to be responsible for the
management and outcome of such litigation. In addition, we undertook to continue to be
responsible for the management and outcome of the outstanding litigation involving NUR
Europe, one of our previously wholly-owned subsidiaries that was acquired by HP.

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.

The
US dollar amounts presented below are based on applicable conversion rates in effect as of
December 31, 2008.

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 sought reimbursement of the purchase price it paid amounting to approximately
$0.18 million, as well as damages of approximately 0.23 million (or $0.33 million).
NUR Europe filed a counterclaim of $0.216 million in respect of unpaid invoices. In
October 2007 the court ruled that Distrade was not entitled to any damages and NUR Europe
should credit it for the unpaid balance. Distrade was ordered to return the product to NUR
Europe. The ruling was deemed final in April 2008 when the official time for appeal
passed.

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
$0.584 million. The local court ruled that the subsidiaries should reimburse the clients
with the aggregate amounts of $0.472 million. One of subsidiaries is in the process of
liquidation and has no assets in China and the other is no longer active in China and
based on advice received from legal counsel the judgment against it cannot be enforced in
Hong Kong. The clients may file a suit in Hong Kong but have not done so to date. Based on
the managements estimate and the opinion of our 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 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 $ 1.388 million). In February 2006, the Court of Osnabrück
ordered NUR Media Solutions to pay Heywinkel an aggregate amount of 1.2 million (or
$1.76 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.
During 2007, NUR Media Solutions reached an agreement with Heywinkel to pay the amount due
over a period of 40 months and, pursuant to the terms of the payment arrangement, Ellomay
provided a guarantee for the debt of NUR Media Solutions to Heywinkel. Following the
consummation of the HP Transaction a second settlement agreement was reached by which the
full amount was paid in a lump sum during August 2008.

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In
September 2003, we filed a suit in the Magistrate Court of Tel Aviv, Israel against R.R.
Graphics Ltd., a former distributor in Israel, for the collection of unpaid invoices
totaling approximately $0.42 million. In February 2004, R.R. Graphics filed a statement of
defense denying our claims and it also filed a counter-claim for alleged damages caused to
it by us in the amount of approximately $0.21 million. We believe that the counter-claim
that was filed by R.R. Graphics is without merit and that a loss in not probable.

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.

In
February 2005, the OCS initiated administrative proceedings for the confiscation of
certain of our assets to secure our alleged liability to the OCS of approximately $0.8
million in unpaid royalties related to the sale of equipment. On February 21, 2005, we
filed a suit with the District Court in Jerusalem against the OCS and the Marketing Fund
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. We also filed a motion
requesting the court to direct the OCS to cease and cancel the confiscations procedures.
In February 2006, the court approved a settlement between Ellomay and the OCS. Under the
terms of the approved settlement, we were required to make aggregate payments of
approximately $0.6 million to the OCS and approximately $0.78 million to the Marketing
Fund over a three-year period. As of December 31, 2008, the debt to the OCS and the debt
to the Marketing Fund have been fully repaid.

In
October 2005, Dan Purjes, our former chairman and a former beneficial owner of
approximately 16.51% of our ordinary shares, filed a complaint against us 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 us pursuant to a voting
agreement dated January 23, 2005 by and between Mr. Purjes and us. The complaint filed by
Mr. Purjes sought to have the voting agreement declared unenforceable. On March 14, 2008,
following the sale of Mr. Purjess shares and warrants, the parties filed a
stipulation of discontinuance with prejudice.

In
February 2007 a claim was filed against us and one of our former officers by a person
claiming to have been an agent of the company in West Africa for commissions on sales of
printers. The claim is for NIS 3,000 ($0.79 million). We filed a statement of defense
denying all claims, both with respect to the causes of action and with respect to the
factual allegations in the claim. Based on management estimation and the opinion of its
legal counsel no provision was recorded with respect to this claim.

In
May 2007, a former managing director of NUR Europe filed a lawsuit against the Company and
two of its subsidiaries claiming his resignation was for just cause due to demotion and
therefore should be deemed as a termination of his employment by the subsidiary. The
Company denied all the claims made by the former employee. The ruling in favor of the
company was deemed final in March 2009 when the official time for appeal passed.

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In
January 2008, a former distributor of NUR Asia Pacific filed a lawsuit against the
subsidiary claiming his distribution agreement was terminated in violation of its terms
and seeking damages in the amount of $AUD 5.562 million. The subsidiary filed a statement
of defense denying the claims and filed a counterclaim against the former distributor for
non-payment and other damages in the amount of $0.882 million. The parties reached a
settlement agreement by which the subsidiary paid the former distributor an amount of
$0.175 million in October 2008.

During
2008, a former employee of a subsidiary filed a lawsuit against the Company in the amount
of approximately $ 0.32 million alleging the Company did not provide him with
the appropriate amount of time to exercise his stock options following the
termination of the applicable blackout period. The Company and the
former employee are negotiating a settlement proposal by which the Company
undertakes to pay an amount of approximately $0.03 million and this amount shall be
considered as the gross, exhaustive and final consideration paid to the former
employee.

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

Dividends

We
do not anticipate that we will pay any cash dividend on our 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 changes have occurred since
December 31, 2008.

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
Ellomay as reported by 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 February 28, 2009.
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 EMYCF.PK.

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|Year                   | High (US) | Low (US)
|---------------------- | --------- | --------
|
|
|
|
|2004                   |           |         
|2005                   |           |         
|2006                   |           |         
|2007                   |           |         
|2008                   |           |         
|                       |           |         
|2007                   |           |         
|First Quarter          |           |         
|Second Quarter         |           |         
|Third Quarter          |           |         
|Fourth Quarter         |           |         
|                       |           |         
|2008                   |           |         
|First Quarter          |           |         
|Second Quarter         |           |         
|Third Quarter          |           |         
|Fourth Quarter         |           |         
|                       |           |         
|Most Recent Six Months |           |         
|February 2009          |           |         
|January 2009           |           |         
|December 2008          |           |         
|November 2008          |           |         
|October 2008           |           |         
|September 2008         |           |         

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.

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

Not
Applicable.

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

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

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|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 Second Amended and Restated Articles
|-- | ------------------------------------------------------------------

Set
forth below is a brief description of certain provisions contained in the Memorandum of
Association, the Second Amended and Restated Articles, adopted by our shareholders at our
general meeting held on December 30, 2008, as well as certain statutory provisions of
Israeli law. The Memorandum of Association and the Articles are incorporated by reference
herein. The description of certain provisions does not purport to be a complete summary of
these provisions and is qualified in its entirety by reference to such exhibits.

Authorized Share Capital

The
authorized share capital of Ellomay 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.

Due
to the fact that we were incorporated prior to 1999, the year the Companies Law was
enacted, a special majority of 75% of the shares voting on the matter is required in order
to amend our Memorandum, which includes changes to our capital structure, such as an
increase in our authorized capital.

At
our general meeting held on December 30, 2008, our shareholders resolved to effect a
reverse share split of our ordinary shares (on the effective date to be determined by our
Board) where each ten ordinary shares will be consolidated into one single ordinary share
of NIS 10.00 nominal value, such that our registered share capital will be divided into
17,000,000 ordinary shares. Our shareholders further resolved that all fractional shares
which are one-half share or more will be increased to the next higher whole number of
shares and all fractional shares which are less than one-half share will be decreased to
the next lower whole number of shares and to authorize our Board to determine the timing
of the reverse share split and also to determine not to implement the reverse share split,
all based on our Boards judgment of our best interests.

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As
more fully described in the proxy statement sent to our shareholders prior to the December
30, 2008 meeting, the purpose of the reverse share split is to enable us to meet the
minimum bid price initial listing requirement of the NASDAQ Global Market. As we cannot
currently attempt to list our shares on the NASDAQ Global Market due, among other things,
to our lack of operations, our current intention is to implement the reverse share split
prior to the closing of a business combination and to attempt to list our shares on the
NASDAQ Global Market in conjunction with the closing of such business combination.
Subsequently to the publication of our proxy statement, the NASDAQ issued new listing
requirements, reducing the minimum bid price from $5.00 to $4.00 in all NASDAQ markets. We
cannot predict if and when our ordinary shares will begin trading on the NASDAQ Global
Market or any other NASDAQ market and cannot assure you that following the reverse share
split the market price per each of our ordinary shares will either exceed or remain in
excess of the $4.00 per share minimum bid price as required to meet the initial listing
requirements for the NASDAQ Global Market. In addition, we cannot predict whether, or
assure you that, we will otherwise meet the initial listing requirements and thereafter
the continued listing requirements of the NASDAQ Global Market.

Purpose and Objective

We
are a public company registered under the Companies Law as Ellomay Capital Ltd.,
registration number 52-003986-8. Pursuant to Article 3.1 of our Articles, our objective is
to undertake any lawful activity, including any objective set forth in our Memorandum of
Association. Pursuant to Article 3.2 of our Articles, our purpose is to operate in
accordance with commercial considerations with the intentions of generating profits. In
addition, we may contribute reasonable amounts for any suitable purpose even if such
contributions do not fall within our business considerations. The Board may determine the
amounts of the contributions, the purpose for which the contribution is to be made, and
the recipients of any such contribution.

Board of Directors

Under
the Companies Law, the Board is authorized to set our strategy and supervise the
performance of the duties and actions of our chief executive officer. Our 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 in it, including determination of our 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 eight
(8) 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.

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The
Companies Law codifies the fiduciary duties that an office holder has to a 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.

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

Chairman of the Board

Our
Articles provide that our Chairman of the Board shall have no casting vote, unless (i) the
Chairman of the Board is then Mr. Shlomo Nehama and (ii) Nechama Investments, together
with any Affiliates (as defined in our Articles) thereof, then holds at least 25.05% of
our outstanding shares. Our Articles further provide that, notwithstanding the foregoing,
in case Mr. Shlomo Nehama elects to exercise his casting vote in respect of a specific
resolution brought before the Board (the Triggering Resolution), then (a)
prior to such exercise, Nechama Investments shall be required to trigger the Buy Me
Buy You mechanism set forth in Section 6 of the 2008 Shareholders Agreement as an
Offering Party (as defined in the 2008 Shareholders Agreement), whereby the Triggering
Resolution will be pending until the consummation of the sale of the Restricted Shares (as
defined in the 2008 Shareholders Agreement) of one party to the 2008 Shareholders
Agreement to the other party of the 2008 Shareholders Agreement in accordance with such
Buy Me Buy You mechanism; and (b) in the event that three (3) directors of our
so require, the Triggering Resolution shall be conditioned upon the approval of our
General Meeting pursuant to Article 25.1 of the Articles (requiring a special majority of
50.1% of the outstanding shares). Upon a transfer of the Restricted Shares by Kanir to
third party in accordance with the terms of the 2008 Shareholders Agreement, the casting
vote of the Chairman of the Board shall expire.

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 made public as required by Israeli law. The Articles provided that we shall not
be required to deliver notice to each shareholder, except as may be specifically required
by Israeli law. The Articles further provide that a notice by us of a general meeting that
is published in one international wire service shall be deemed to have been duly given on
the date of such publication.

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Two
or more members present in person or by proxy and holding shares conferring in the
aggregate more than 25% 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), any two
shareholders, 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
March 24, 2008, in connection with the purchase of a controlling interest of our ordinary
shares, Nechama Investments and Kanir entered into a shareholders agreement. Under the
agreement, both parties agreed to vote all the Companys shares held by them as
provided in the agreement and, where the agreement is silent, as the parties shall agree
prior to any meeting of the Companys shareholders. In addition, the agreement
provides that in the event the parties do not reach an agreement regarding certain
resolution proposed to the Companys shareholders meeting, the parties shall vote all
of their shares against such proposed resolution. For further information with respect to
the shareholders agreement, see Item 7.A.: Major Shareholders under the
caption 2008 Shareholders Agreement.

Following
the adoption of the Second Amended and Restated Articles at our general meeting of
shareholders held on December 30, 2008, Article 25.5 provide that for so long as the 2008
Shareholders Agreement is in effect, at the written request of any two directors with
respect to any proposed action or transaction (including certain related party
transactions, any amendments to our Memorandum of Association or Articles, any merger or
consolidation of the Company, any material change in the scope of our business, the
voluntary liquidation or dissolution of the Company, approval of annual budget or business
plan and material deviations therefrom and any change in signatory rights on behalf of the
Company), such action or transaction shall require the approval of our general meeting by
a resolution supported by members present, in person or by proxy, vested with at least
50.1% of our outstanding shares, or by such higher approval threshold as may be required
by Israeli law.

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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 our 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.

Pursuant
to the Companies Law, the quorum requirement for General Meetings and for separate General
Meetings for holders of a specific class may be satisfied with the presence of at least
two members present in person or by proxy and holding not less than 25% of the outstanding
shares, or the shares of such class, as the case may be.

Dividends and Profits

Our
Board may from time to time, subject to the provisions of Companies Law, declare and order
the payment of a dividend from our accrued profits at the rate it may deem, provided that
there is no reasonable concern that payment of such dividend may prevent us from meeting
our 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 certain of our
specific assets and/or by the distribution of shares and/or debentures of Ellomay and/or
of any other company, or in any combination of such manners. Subject to special or
restricted rights conferred upon the holders of shares as to dividends, if any, the
dividends shall be distributed in accordance with our paid-up capital 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 its
payment shall be forfeited and returned to us, unless otherwise directed by the Board. In
the event of the winding up of Ellomay, 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

We
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 extends the disclosure requirements applicable to Office Holder
as described in Item 6.C: Board Practices, to a controlling shareholder in a
public company. The Companies Law defines a controlling shareholder the shareholder who
can direct the activities of the company, including 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. If two or more shareholders
are interested parties in the same transaction, their shareholdings are combined for the
purposes of calculating percentages. If two or more shareholders are parties to a voting
agreement, their interests are also generally combined for the purposes of calculating
percentages. Extraordinary transactions between a public company and a controlling
shareholder or a controlling shareholders relative, extraordinary transactions in
which a controlling shareholder has a personal interest but which are between a public
company and another entity, and the entering into agreements with the controlling
shareholder, or his relative if such relative is an Office Holder, in connection with
their terms of compensation, all require the approval of the audit committee, the board of
directors and the shareholders. If required, shareholder approval must include at least
one-third of the shareholders who have no personal interest in the transaction and are
present and voting at the meeting. Alternatively, the total shareholdings of the
disinterested shareholders who vote against the transaction must not represent more than
one percent of the voting rights in the company.

Under
the Companies Regulations (Relief from Related Party Transactions), 2000, promulgated
under the Companies Law (the Relief Regulations), certain extraordinary
transactions between a company and its controlling shareholder(s), certain undertakings
of a company to its directors in connection with their terms of service and certain
transactions between a company and its controlling shareholder(s) or their relatives in
their capacity as Office Holders of the company may be approved, if the conditions set
forth in such regulations are met, without the requirement to obtain shareholder
approval. The Relief Regulations require that the companys audit committee and
board of directors determine that the conditions set forth in the Relief Regulations are
met. One of the alternative conditions for approving an extraordinary transaction with a
controlling shareholder is that such transaction only benefits the company. Another
available condition is that the transaction is in the ordinary course of business, on
market terms, and does not harm the company. The foregoing relief will not apply if one
or more shareholders holding at least 1% of the issued and outstanding share capital of
the company or of the companys voting rights objects to the use by the company of
such relief, provided that such objection is submitted to the company in writing not
later than fourteen (14) days from the date in which companies such as our company
reported the adoption of the resolution pursuant to the Relief Regulations to its
shareholders. If such objection is duly and timely submitted, then the transaction or
compensation arrangement will require shareholders approval as detailed above.

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 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. As described above, our Articles currently
provide, under certain circumstances, including a merger of the Company, that two
directors may require that, in addition to the majority prescribed by the Companies Law, a
merger be approved by a resolution supported by shareholders present, in person or by
proxy, vested with at least 50.1% of our outstanding shares.

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.

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

If,
as a result of an acquisition of shares, the acquiror 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 acquiror 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;
| | - | ------------------------------

| |  | 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.

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

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 us and each of the investors, we were
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 as those provided to the Fortissimo Entities in connection
with their investment in Ellomay in late 2005 (as were reflected in a registration rights
agreement executed among us and the Fortissimo Entities) and were also provided with the
right to receive partial liquidated damages in the event the Company did 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 of default, subject to an overall limit of up to 24
months of partial liquidated damages. On June 29, 2007, we filed a registration statement
for the resale of certain ordinary shares and ordinary shares underlying warrants held by
several of our shareholders, including the shares and shares underlying warrants issued in
January and February 2007. The registration statement became effective on August 3, 2007
and temporarily lost its effectiveness on October 1, 2007, as it was not in compliance
with financial disclosure requirements, but regained its effective status on June 30,
2008.

Asset Purchase Agreement
with Hewlett-Packard Company

On
December 9, 2007, we entered into an Asset Purchase Agreement with HP, whereby HP agreed
to acquire, directly or through its subsidiaries, substantially all of our assets and
business for a cash consideration of $117.5 million and to assume substantially all our
business related liabilities. The shares of three of our wholly-owned subsidiaries, NUR
Europe, NUR Japan and NUR Do Brazil were also included in the assets HP agreed to acquire.
The purchase price was subject to upward or downward adjustment based on the net debt
(bank debt less cash balances) of us and our subsidiaries as of the closing date.

The
Asset Purchase Agreement includes representations and warranties made by us for the
benefit of HP, with respect to our structure and various aspects of the business
(including environmental and intellectual property issues), which generally survive for a
period of eighteen months following the closing of the transaction or, with respect to
representations and warranties made by us as to authorization and enforceability, the
expiration of the applicable statute of limitations.

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The
assets and liabilities connected to our business that were not assumed by HP include,
among other things, cash balances held by us and our subsidiaries that were not purchased
by HP, short and long term bank credit and loans, all costs incurred in respect to the HP
Transaction including severance liabilities, rights and obligations in respect to
employees not transferred to HP, rights and obligations related to outstanding litigation,
claims and disputes; intercompany balances, all tax benefits and obligations with the
exception of such benefits and obligations relating to continuing operations from the
closing date, assets and obligations in respect of certain government-supported research
and development projects and obligations due to or from shareholders.

We
agreed to indemnify HP against damages or losses arising from, among others, any breach or
inaccuracy of the representations and warranties, any assets or liabilities that were not
assumed by HP and certain environmental matters. Our indemnification liability pursuant to
the Asset Purchase Agreement is subject to certain customary minimal amount limitations
and is also generally limited to amounts deposited in an indemnity escrow ($9.5 million
deposited for a period of 18 months and $5 million deposited for a period of 24 months).
However, we agreed that claims for indemnity relating to certain liabilities, including,
among others, fraud, willing and intentional breach of warranties, liabilities arising in
connection with assets or liabilities that were not purchased by HP, failure to comply
with certain restrictive covenants, and environmental issues, will not be limited to the
amounts deposited in escrow.

The
Asset Purchase Agreement also contains ongoing covenants on our part, such as undertakings
with respect to confidential information and non-solicitation and non-compete
restrictions.

On the APA Closing Date (February 29,
2008), the sale of our business to HP was finalized. The base purchase price pursuant to
the Asset Purchase Agreement is $117.5 million. The purchase price was subject to upward
or downward adjustment based on the net debt (bank debt less cash balances) of the Company
and its subsidiaries that were not purchased by HP as of the APA Closing Date. The
purchase price adjustment on such date was approximately $4 million, increasing the total
consideration under the Asset Purchase Agreement from $117.5 million to $121.5 million.
Following the APA Closing Date, the parties reached a mutual resolution to assign NUR
Europes facilities and related capital lease to a third party. Therefore, we were
entitled to additional net proceeds (after deduction of HPs expenses in connection
with such capital lease and other expenses that were to be borne by us pursuant to the
Asset Purchase Agreement) in the amount of $1.1 million as additional consideration for
NUR Europes shares, increasing the aggregate consideration in connection with the HP
Transaction to $122.6 million.

Of
the total consideration:

| |  | $103.9
million was transferred to us on the APA Closing Date.
| | - | -------------------------------------------------------------

| |  | $1.6
million was withheld by HP until final calculation of the net debt as of the APA Closing
Date. Based on the final net debt calculation we were entitled only to an amount of
$1.504 million, which was transferred to us on July 30, 2008.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | $1.5
million was withheld by HP until the resolution of NUR Europes obligations with
respect to its capital lease and Government grants. Of the $1.5 million withheld, an
amount of $1 million was transferred to us on December 2, 2008 as a result of the
assignment of NUR Europes facilities and related capital lease to a third party.
The $0.5 million withheld in connection with NUR Europes obligations with respect
to the government grants is still being held by HP.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | Of
the additional proceeds in the amount of $1.1 million related to NUR Europes
facilities, a total amount of $0.4 million was transferred to us on December 18, 2008 and
an additional amount of approximately $0.7 million was transferred to us on March 13,
2009.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
remaining $14.5 million was deposited into an escrow account to secure the indemnity
obligations of the Company and its remaining subsidiaries. The escrow funds, net of
amounts distributed to HP in satisfaction of indemnity obligations, are to be distributed
to us in two installments: $9.5 million is to be distributed eighteen months following
the APA Closing Date and $5 million is to be distributed to us twenty-four months
following the APA Closing Date.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
foregoing description of the Asset Purchase Agreement is only a summary and does not
purport to be complete and is qualified by reference to the full text of the Asset
Purchase Agreement filed by us as Exhibit 4.7 in Item 19.

For
 details  with  respect  to  additional  consequences  of the HP  Transaction  see "Item
6.B: Compensation," "Item 6.D: Employees" and "Item 5.B: Liquidity and Capital
Resources."

Management Services Agreement with
Kanir and Meisaf

At
the annual shareholders meeting held on December 30, 2008, our shareholders approved the
terms of a management services agreement among us, Kanir and Meisaf, effective as of March
31, 2008 (the Management Agreement).

The
Management Agreement provides, among other things, that Meisaf and Kanir, through their
employees, officers and directors, will assist us in connection with the process of
identifying and evaluating opportunities to acquire operations, otherwise provide us with
management services and advise and provide assistance to our management concerning our
affairs and business. It is further agreed that the management services will be provided
primarily by Messrs. Nehama, Fridrich and Raphael.

In
addition, the Management Agreement notes that Kanirs and Meisafs
representatives on our Board of Directors, Messrs. Nehama, Fridrich and Raphael, or other
affiliates of such entities, serve and will continue to serve on our Board of Directors.
In providing the Board services, the directors and the Chairman of the Board will be
subject to any and all fiduciary and other duties applicable to them under law and under
our Articles and they are required to dedicate as much time as reasonably necessary for
the proper performance of such services.

In
consideration of the performance of the management services and the Board services, we
have agreed to pay to Meisaf and Kanir, in equal parts, an aggregate annual fee in the
amount of $250,000, to be paid on a quarterly basis. Meisaf and Kanir will also be
entitled to receive reimbursement for reasonable out-of-pocket business expenses borne by
them in connection with the provision of the services, as customary in the Company. In
connection with the Management Agreement, the Board representatives of Kanir and Mr.
Nehama waived any director fees and options to purchase our ordinary shares they may be
entitled to as a result of their service on our Board of Directors.

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The
Management Agreement will remain in effect until the earlier of: (i) the second
anniversary of the effective date of the Agreement or (ii) the termination of service of
either of the Kanir and Nechama Investments affiliates on our Board of Directors. Any
revision or amendment of the Management Agreement, or extension of its term, will require
the approvals set forth under applicable law and our Articles.

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

Dividends,
if any, paid by us to the holders of our ordinary shares, and any amounts payable upon our
dissolution, liquidation or winding up, as well as the proceeds of any sale in Israel of
our ordinary shares to an Israeli resident, may be paid in non-Israeli currency. If these
amounts are paid in Israeli currency, they may be converted into U.S. dollars at the rate
of exchange prevailing at the time of conversion. However, legislation remains in effect
pursuant to which currency controls can be imposed by administrative action at any time.

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 our shareholders and
us. 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, 29% in 2007, 27% in 2008, 26% in 2009 and is scheduled to decline to
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.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
February 2008, the inflation adjustment law was cancelled.

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

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

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

| |  | deduction
of purchase of know-how and patents over an eight-year period for tax purposes; and
| | - | ---------------------------------------------------------------------------------------------

| |  | the
right to elect, under specified conditions, to file a consolidated tax return with
additional related Israeli industrial companies and an industrial holding company.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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Before
the transaction with HP, the we were qualified as an industrial company within the
definition of the Industry Encouragement Law.

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.

Taxation of Israeli
Residents

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.

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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, real estate investment
trusts, regulated investment 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, U.S. expatriates 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 was in existence on August 20, 1996 and has validly
               elected 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 our ordinary shares that is not a
U.S. Holder and is not a partnership.

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 a dividend 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 and 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, 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.

Following
the consummation of the HP Transaction, our assets mainly consist of cash and cash
equivalents producing passive income. We believe that for fiscal year 2008 we met the
requirements set forth in Section 1298(b)(3) of the Internal Revenue Code, providing an
exception from the PFIC status for a change of business situation. We cannot
assure you, however, that the Internal Revenue Service or the courts would agree with our
conclusion if they were to consider our situation. Therefore, we cannot assure you that
we will not be treated as a PFIC for fiscal year 2008. Furthermore, the exception does
not apply unless we dont expect to be, and we in fact are not, a PFIC for the
following two years. Therefore, in the event we meet the definition of a PFIC for fiscal
year 2009, and as we cannot use the change of business exception for two
years in succession, we will be treated as a PFIC for fiscal year 2008 as well. Our
status as a PFIC in fiscal year 2009 (and, as a result, in fiscal year 2008 as well)
depends on the type of activity we conduct, the assets we hold and the income we generate
during 2009.

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,
| | --- | --------------------------------------------------------------------------------------------------------------------------

92

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| | (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 not 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 because we do not presently intend to prepare or provide information
necessary to make such election.

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 allowable 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 generally 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 (or by a company that was a PFIC in the year preceding the dividend) are
not qualified dividend income for purposes of the preferential tax rate on
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.

93

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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 withholding 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.

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
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.

94

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|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 this or other
annual reports or to a registration statement or other documents filed by us, 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.

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 our operations result primarily from weak economic conditions in the
markets in which we sell our 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

As
we did not have any outstanding long-term or short-term bank loans as of December 31,
2008, we are not exposed to interest rate variation on liabilities.

Following
the consummation of the HP Transaction in February 29, 2008, most of our assets are cash
and short-term U.S. dollar-denominated deposits with a U.S. bank. We carefully monitor
the banking institutions that we use with respect to their exposure to the current
financial market situation. Other than that, the major market risk is currently the
potential decline in the U.S. monetary interest rate that would impact our results of
operations.

95

---

---

We
do not otherwise believe the disclosure required by Item 11 of this annual report to be
material to us.

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

For
the current terms of our Articles, following the adoption of our Second Amended and
Restated Articles at our annual general meeting held on December 30, 2008, see Item
10.B: Memorandum of Association and Second Amended and Restated Articles. This Item
is otherwise not applicable to us.

ITEM 15: Controls and Procedures

(a) Disclosure Controls and
Procedures

Our
principal executive officer and 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 us 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 our disclosure controls and procedures were effective as of the end of the
period covered by this report.

In
order 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 our chief executive officer and chief financial officer
preformed several actions intended to assure the correctness of the information disclosed,
including personal discussions with employees involved in the recording, processing and
summarizing of information required to be disclosed.

96

---

---

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

Our
management is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is defined in Rule
13a-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by,
or under the supervision of, the companys principal executive and principal
financial officers and effected by the companys board of directors, management and
other personnel, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and procedures
that: (i) pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii)
provide reasonable assurance regarding prevention or timely protection of unauthorized
acquisition, use or disposition of the companys assets that could have a material
effect on the financial statements. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Projections of any
evaluation of effectiveness to future periods are subject to the risk that the controls
may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

During
2008 management carried out an evaluation of our internal control over financial
reporting using the criteria in Internal Control  Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In connection with such evaluation, our management assessed the risk and mapped all
processes over major classes of transactions that are applicable to our business and
situation following the consummation of the HP Transaction. Our management documented
these processes and controls and tested and evaluated the design and operating
effectiveness of our internal controls over financial reporting.

Based
on this assessment, our Interim Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2008, our internal control over financial reporting is
effective based on those criteria.

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

(c) Changes in Internal Control over
Financial Reporting

Other
than as set forth above, there were no changes in our internal control over financial
reporting that occurred during the year ended December 31, 2008 that have materially
affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

ITEM 16: Reserved

ITEM 16A: Audit Committee Financial
Expert

In
March 2004, our 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.

97

---

---

ITEM 16B: Code of Ethics

Our
Audit Committee and Board have adopted a code of ethics, as defined in Item 16B of Form
20-F, that applies to our chief executive officer, chief financial officer and any other
person bearing the title of vice president or higher in the Finance Department of Ellomay
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
Registered Public Accounting Firm

Our
principal accountants for the years 2007 and 2008 were Kost Forer Gabbay & Kasierer,
a member of Ernst & Young Global.

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

|                   | 2007 | 2008
|------------------ | ---- | ----
|
|
|
|
|Audit Fees(1)      |      |     
|Audit-Related Fees |      |     
|Tax Fees(2)        |      |     
|All Other Fees     |      |     
|                   |      |     
|Total              |      |     

---

|(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 international and local tax compliance and tax advice
services.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

98

---

---

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.

ITEM 16F: Change in Registrants
Certifying Accountants

Not
Applicable.

ITEM 16G: Corporate Governance

Not
Applicable.

PART III

ITEM 17: Financial Statements

Not
Applicable.

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 (translated from Hebrew)(1)
|--- |  | -----------------------------------------------------------------------

|1.2 |  | Second
Amended and Restated Articles of the Registrant
|--- |  | ------------------------------------------------------

|2.1 |  | Specimen
Certificate for ordinary shares(2)
|--- |  | -------------------------------------------

|2.2 |  | Form
of Warrant  Agreement,  dated February 12, 2002,  between the Registrant and Bank Leumi
le-Israel                B.M.(3)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.3 |  | Form
of Registration Rights Agreement,  dated February 12, 2002, between the Registrant and
Bank Leumi                le-Israel B.M.(3)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|2.4 |  | Form
of Warrant Agreement, dated April 17, 2005 between the Registrant and Dan Purjes(4)
|--- |  | ----------------------------------------------------------------------------------------

|2.5 |  | Form
of Registration Rights Agreement, dated March 7, 2005, between the Registrant and Dan
Purjes(5)
|--- |  | ----------------------------------------------------------------------------------------------------

99

---

---

|Number |  | Description
|------ |  | -----------

|2.6 |  | Form
of Warrant Agreement, dated October 31, 2005, among the Registrant and certain
investors(6)
|--- |  | ------------------------------------------------------------------------------------------------

|2.7 |  | Form
of  Registration  Rights  Agreement,  dated  September 12, 2005,  among the  Registrant,
 certain                investors, Bank Hapoalim, Bank Leumi and Israel Discount Bank(6)
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.8 |  | Form
of Warrant Agreement, dated December 8, 2005, between the Registrant and Bank Hapoalim
B.M.(6)
|--- |  | ---------------------------------------------------------------------------------------------------

|2.9 |  | Form
of Warrant  Agreement,  dated December 8, 2005,  between the Registrant and Bank Leumi
 le-Israel                B.M.(6)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.10 |  | Form
of Warrant  Agreement,  dated December 8, 2005,  between the Registrant and Israel
 Discount Bank                Ltd.(6)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.11 |  | Form
 of  Subscription  Agreement,  dated  January  25,  2007,  between  the  Registrant  and
 certain                investors(7)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------

|2.12 |  | Form
of Warrant Agreement, dated January 25, 2007, between the Registrant and certain
investors(7)
|---- |  | --------------------------------------------------------------------------------------------------

|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)(2)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 |  | Amendment
to the 1995 Israel Stock Option Plan(8)
|--- |  | -------------------------------------------------

|4.3 |  | 1997
Stock Option Plan(9)
|--- |  | -------------------------

|4.4 |  | 1998
Non-Employee Directors Share Option Plan(7)
|--- |  | ------------------------------------------------

|4.5 |  | 2000
Stock Option Plan(7)
|--- |  | -------------------------

|4.6 |  | Form
of Indemnification Agreement between the Registrant and its officers and directors(6)
|--- |  | ------------------------------------------------------------------------------------------

|4.7 |  | Asset
 Purchase  Agreement,  dated  December  9, 2007,  between  the  Registrant  and
 Hewlett-Packard                Company(10)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------

|4.8 |  | Management
 Services  Agreement,  by and among the Registrant,  Kanir Joint Investments (2005)
Limited                Partnership and Meisaf Blue & White Holdings Ltd., effective as of
March 31, 2008(11)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.9 |  | Form
of Offer to Repurchase Employee Stock Options, dated April 2, 2008(12)
|--- |  | ---------------------------------------------------------------------------

|8 |  | List
of Subsidiaries of the Registrant (Not Applicable)
|- |  | -------------------------------------------------------

|11 |  | Code
of Ethics(13)
|-- |  | ------------------

|12.1 |  | Certification
of Principal  Executive  Officer required by Rule 13a-14(a) and Rule 15d-14(a)  (Section
               302 Certification)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|12.2 |  | Certification
of Principal  Financial  Officer required by Rule 13a-14(a) and Rule 15d-14(a)  (Section
               302 Certification)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|13 |  | Certification
 of  Principal  Executive  Officer  and  Principal  Financial  Officer  required by Rule
               13a-14(b) and Rule 15d-14(b) (Section 906 Certification)
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|14.1 |  | Consent
of Kost Forer Gabbay & Kasierer
|---- |  | ---------------------------------------

|14.2 |  | Consent
of BDO McCabe Lo Limited
|---- |  | --------------------------------

100

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---

---

|(1) | Previously
 filed with the  Registrant's  Form 20-F for the year  ended  December  31,  2007 and
         incorporated by reference herein.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Previously
 filed with the  Registrant's  F-1 (File No.  33-93160) and incorporated by reference
 herein.
|--- | ---------------------------------------------------------------------------------------------------------

|(3) | Previously
 filed with the  Registrant's  Form 20-F for the year  ended  December  31,  2001 and
         incorporated by reference herein.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Previously
 filed with the  Registrant's  Form 6-K dated  February 6, 2005 and  incorporated  by
         reference herein.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(5) | Previously
 filed with the  Registrant's  Form 20-F for the year  ended  December  31,  2004 and
         incorporated by reference herein.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Previously
 filed with the  Registrant's  Form 6-K dated  October 14, 2005 and  incorporated  by
         reference herein.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(7) | Previously
 filed with the  Registrant's  Form 20-F for the year  ended  December  31,  2006 and
         incorporated by reference herein.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Previously
 filed  with the  Registrant's  Form F-1 (File No.  333-66103)  and  incorporated  by
         reference herein.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(9) | Previously
 filed with the  Registrant's  Form 6-K dated  October 14, 1997 and  incorporated  by
         reference herein.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(10) | Previously
 filed  with the  Registrant's  Form 6-K dated  January 3, 2008 and  incorporated  by
         reference herein.
|---- | ---------------------------------------------------------------------------------------------------------------------------

|(11) | Previously
 filed with the  Registrant's  Form 6-K dated  December 1, 2008 and  incorporated  by
         reference herein.
|---- | ---------------------------------------------------------------------------------------------------------------------------

|(12) | Previously
 filed  with the  Registrant's  Form CB  dated  April 3,  2008  and  incorporated  by
         reference herein.
|---- | ---------------------------------------------------------------------------------------------------------------------------

|(13) | Previously
 filed with the  Registrant's  Form 20-F for the year  ended  December  31,  2003 and
         incorporated by reference herein.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------

101

---

---

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.

| |  | Ellomay Capital Ltd.By: /s/ Ran FridrichRan FridrichInterim Chief Executive Officer
| |  | -------------------------------------------------------------------------------------------------

Dated: March 31, 2009

102

---

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ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2008

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 Income (Operations)             | F-5        
|                                                           |            
|Statements of Changes in Shareholders Equity (Deficiency) | F-6 - F-7  
|                                                           |            
|Consolidated Statements of Cash Flows                      | F-8 - F-9  
|                                                           |            
|Notes to Consolidated Financial Statements                 | F-10 - F-44



---

---

| | 
| | 
| | 

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors ofELLOMAY CAPITAL LTD.

We have audited the accompanying
consolidated balance sheets of Ellomay Capital Ltd. (the Company) and its subsidiaries
as of December 31, 2007 and 2008 and the related consolidated statements of income (operations),
changes in shareholders equity (deficiency) and cash flows for each of the three years in the
period ended December 31, 2008. 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
7% of total consolidated assets as of December 31, 2007 and whose revenues constitute 8% and 8% of
total consolidated revenues for the years ended December 31, 2006 and 2007, respectively. Those financial
statements were audited by another auditor, 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 auditor.

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 auditor provide a reasonable basis for our opinion.

In our opinion, based
on our audits and the report of the other auditor, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial position of the Company
and its subsidiaries at December 31, 2007 and 2008 and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles.

As discussed in Note 2o to the consolidated financial statements, the Company adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007.

|                 |                                 
|---------------- | --------------------------------
|                 | /s/ Kost Forer Gabbay & Kasierer
|Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER    
|March 31, 2009   | A Member of Ernst & Young Global

F - 2

---

---

|                                         
|-----------------------------------------
|ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES
|                                         
|CONSOLIDATED BALANCE SHEETS              
|                                         
|U.S. dollars in thousands                

|                                                                                                                       |  | December 31, |       
|---------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------
|                                                                                                                       |  |              |       
|                                                                                                                       |  | 2007         |       
|                                                                                                                       |  |              |       
|                                                                                                                      
|ASSETS                                                                                                                 |  |              |       
|                                                                                                                      
|CURRENT ASSETS:                                                                                                        |  |              |       
|Cash and cash equivalents                                                                                              |  | $            | 4,302 
|Short term deposits                                                                                                    |  |              |      
|Restricted cash                                                                                                        |  |              | 146   
|Trade receivables (net of allowance for doubtful accounts of $ 4,851 and $ 0 at December 31, 2007, 2008, respectively) |  |              | 15,670
|Other accounts receivable and prepaid expenses (Note 3)                                                                |  |              | 4,425 
|Inventories (Note 5)                                                                                                   |  |              | 20,091
|                                                                                                                       |  |              |       
|                                                                                                                       |  |              |       
|Total current assets                                                                                                   |  |              | 44,634
|                                                                                                                       |  |              |       
|                                                                                                                       |  |              |       
|LONG-TERM ASSETS:                                                                                                      |  |              |       
|Severance pay fund                                                                                                     |  |              | 1,275 
|Other assets                                                                                                           |  |              | 474   
|                                                                                                                       |  |              |       
|                                                                                                                       |  |              |       
|Total long-term assets                                                                                                 |  |              | 1,749 
|                                                                                                                       |  |              |       
|                                                                                                                       |  |              |       
|PROPERTY, PLANT AND EQUIPMENT, NET (Note 6)                                                                            |  |              | 5,944 
|                                                                                                                       |  |              |       
|                                                                                                                       |  |              |       
|Total assets                                                                                                           |  | $            | 52,327
|                                                                                                                       |  |              |       

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

F - 3

---

---

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

|                                                                                                                                                                   |  | December 31, |         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | --------
|                                                                                                                                                                   |  |              |         
|                                                                                                                                                                   |  | 2007         |         
|                                                                                                                                                                   |  |              |         
|                                                                                                                                                                  
|LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)                                                                                                                  |  |              |         
|                                                                                                                                                                   |  |              |         
|CURRENT LIABILITIES:                                                                                                                                               |  |              |         
|Short-term bank credit and loans (including subordinated notes issued to related parties of $ 5,000 at December 31, 2007) (Note 8)                                 |  | $            | 13,962  
|Current maturities of long-term loans (Note 9)                                                                                                                     |  |              | 649     
|Trade payables                                                                                                                                                     |  |              | 21,388  
|Deferred revenues                                                                                                                                                  |  |              | 2,434   
|Other accounts payable and accrued expenses (Note 10)                                                                                                              |  |              | 10,983  
|                                                                                                                                                                   |  |              |         
|                                                                                                                                                                   |  |              |         
|Total current liabilities                                                                                                                                          |  |              | 49,416  
|                                                                                                                                                                   |  |              |         
|                                                                                                                                                                   |  |              |         
|LONG-TERM LIABILITIES:                                                                                                                                             |  |              |         
|Long-term loans, net of current maturities (including accrued interest on restructured debt of $ 7,567 at December 31, 2007) (Note 9)                              |  |              | 19,835  
|Other long-term liabilities (Note 11, Note 15c)                                                                                                                    |  |              | 3,618   
|Accrued severance pay                                                                                                                                              |  |              | 1,637   
|                                                                                                                                                                   |  |              |         
|                                                                                                                                                                   |  |              |         
|Total long-term liabilities                                                                                                                                        |  |              | 25,090  
|                                                                                                                                                                   |  |              |         
|                                                                                                                                                                   |  |              |         
|COMMITMENTS AND CONTINGENT LIABILITIES (Note 12)                                                                                                                   |  |              |         
|                                                                                                                                                                   |  |              |         
|SHAREHOLDERS’ EQUITY (DEFICIENCY) (Note 14):                                                                                                                       |  |              |         
|Share capital -                                                                                                                                                    |  |              |         
|Ordinary shares of NIS 1 par value:                                                                                                                                |  |              |         
|Authorized: 170,000,000 at December 31, 2007 and 2008; Issued and 
      outstanding: 72,710,505 and 73,786,428 shares at December 31, 2007 and 2008, respectively |  |              | 16,522  
|Additional paid-in capital                                                                                                                                         |  |              | 66,328  
|Accumulated other comprehensive income                                                                                                                             |  |              | 127     
|Accumulated deficit                                                                                                                                                |  |              | (105,156
|                                                                                                                                                                   |  |              |         
|                                                                                                                                                                   |  |              |         
|Total shareholders’ equity (deficiency)                                                                                                                            |  |              | (22,179 
|                                                                                                                                                                   |  |              |         
|                                                                                                                                                                   |  |              |         
|Total liabilities and shareholders’ equity (deficiency)                                                                                                            |  | $            | 52,327  
|                                                                                                                                                                   |  |              |         

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

F - 4

---

---

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

|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|-------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                                       |  | Year ended December 31, |           
|                                                                                       |  |                         |           
|                                                                                       |  | 2006                    |            | 2007 |   | 2008       |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Revenues (Note 17):                                                                    |  |                         |            |      |   |            |   |   |            |  
|Products                                                                               |  | $                       | 72,576     |      | $ | 80,228     |   | $ | 10,568     |  
|Services                                                                               |  |                         | 5,392      |      |   | 5,379      |   |   | 842        |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Total revenues                                                                         |  |                         | 77,968     |      |   | 85,607     |   |   | 11,410     |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Cost of revenues:                                                                      |  |                         |            |      |   |            |   |   |            |  
|Products (a)                                                                           |  |                         | 43,060     |      |   | 46,549     |   |   | 7,927      |  
|Inventory write-off                                                                    |  |                         | 806        |      |   | 1,169      |   |   | 197        |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|                                                                                       |  |                         | 43,866     |      |   | 47,718     |   |   | 8,124      |  
|Services                                                                               |  |                         | 7,379      |      |   | 8,759      |   |   | 2,862      |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Total cost of revenues                                                                 |  |                         | 51,245     |      |   | 56,477     |   |   | 10,986     |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Gross profit                                                                           |  |                         | 26,723     |      |   | 29,130     |   |   | 424        |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Operating expenses:                                                                    |  |                         |            |      |   |            |   |   |            |  
|Research and development, net (Note 18a)                                               |  |                         | 5,827      |      |   | 7,046      |   |   | 1,942      |  
|Selling and marketing                                                                  |  |                         | 11,747     |      |   | 13,815     |   |   | 3,075      |  
|Doubtful accounts expenses (income)                                                    |  |                         | (314       | )    |   | 942        |   |   | 368        |  
|General and administrative                                                             |  |                         | 9,803      |      |   | 11,129     |   |   | 9,830      |  
|Amortization of other intangible assets                                                |  |                         | 167        |      |   | 42         |   |   |           |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Total operating expenses                                                               |  |                         | 27,230     |      |   | 32,974     |   |   | 15,215     |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Operating loss                                                                         |  |                         | (507       | )    |   | (3,844     | ) |   | (14,791    | )
|Gain on sale of Companys business, net                                                |  |                         |           |      |   |           |   |   | 95,137     |  
|Financial income (expenses), net (Note 18b)                                            |  |                         | (1,316     | )    |   | (1,738     | ) |   | 7,596      |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Income (loss) before taxes on income                                                   |  |                         | (1,823     | )    |   | (5,582     | ) |   | 87,942     |  
|Taxes on income (Note 15e)                                                             |  |                         | 98         |      |   | 838        |   |   | 966        |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Net income (loss)                                                                      |  | $                       | (1,921     | )    | $ | (6,420     | ) | $ | 86,976     |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Basic earnings (loss) per share                                                        |  | $                       | (0.03      | )    | $ | (0.09      | ) | $ | 1.19       |  
|                                                                                       |  |                         |            |      |   |            |  
|Diluted earnings (loss) per share                                                      |  | $                       | (0.03      | )    | $ | (0.09      | ) | $ | 1.01       |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Weighted average number of shares used for computing basic earnings (loss) per share   |  |                         | 60,506,854 |      |   | 71,537,501 |   |   | 72,972,565 |  
|                                                                                       |  |                         |            |      |   |            |  
|                                                                                       |  |                         |            |      |   |            |   |   |            |  
|Weighted average number of shares used for computing diluted earnings (loss) per share |  |                         | 60,506,854 |      |   | 71,537,501 |   |   | 86,102,748 |  
|                                                                                       |  |                         |            |      |   |            |  

|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Includes rent expenses charged by a related party totaling $ 248, $ 372 and $ 62 for
the years ended December 31, 2006, 2007 and 2008, respectively.

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

F - 5

---

---

|                                                          
|----------------------------------------------------------
|ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES                 
|                                                          
|STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (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, 2006                                                                      |  |                                                               | 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 SFAS 123R |  |                                                               |           |                       |   |                                           |  |                                                   | (77    | )                                             |   |                                                             |   |                             | 77  |                                          |   |                                               |   |   |        |   |   |        |   |   |        |  
|Compensation in connection with modifications of option                                            |  |                                                               |           |                       |   |                                           |  |                                                   | 23     |                                               |   |                                                             |   |                             |    |                                          |   |                                               |   |   |        |   |   |        |   |   | 23      |  
|Exercise of 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 - 6

---

---

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

|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|------------------------------------------------------ |  | ------------------------------------------------------------- | ---------- | --------------------- | - | ------------------------------------------ |  | --------------------------------------------------------------------- | ------ | --------------------------- | - | ------------------------------------------------- | - | ------------------------------------------------------- | -------- | - | - | ------ | - | - | ------- | -
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |         
|                                                       |  | Number of
        Ordinary
        Shares
        outstanding |            | Share
        capital |   | Additional
        paid-in
        capital |  | Accumulated
        other
        comprehensive
        income (loss) |        | Accumulated
        deficit |   | Total
        comprehensive
        income (loss) |   | Total
        shareholders’
        equity (deficiency) |         
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |         
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|Balance as of January 1, 2007                          |  |                                                               | 60,523,886 |                       |   | 13,635                                     |  |                                                                       | 61,956 |                             |   | (475                                              | ) |                                                         | (96,119  | ) |   |       |   |   | (21,003 | )
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|Issuance of shares and warrants, net                   |  |                                                               | 11,734,950 |                       |   | 2,774                                      |  |                                                                       | 3,303  |                             |   |                                                  |   |                                                         |         |   |   |       |   |   | 6,077   |  
|Stock - based compensation                             |  |                                                               |           |                       |   |                                           |  |                                                                       | 1,003  |                             |   |                                                  |   |                                                         |         |   |   |       |   |   | 1,003   |  
|Exercise of stock options                              |  |                                                               | 451,669    |                       |   | 113                                        |  |                                                                       | 66     |                             |   |                                                  |   |                                                         |         |   |   |       |   |   | 179     |  
|Cumulative effect adjustment upon adoption of FIN 48   |  |                                                               |           |                       |   |                                           |  |                                                                       |       |                             |   |                                                  |   |                                                         | (2,617   | ) |   |       |   |   | (2,617  | )
|Comprehensive loss:                                    |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|Net loss                                               |  |                                                               |           |                       |   |                                           |  |                                                                       |       |                             |   |                                                  |   |                                                         | (6,420   | ) | $ | (6,420 | ) |   | (6,420  | )
|Foreign currency translation adjustments               |  |                                                               |           |                       |   |                                           |  |                                                                       |       |                             |   | 602                                               |   |                                                         |         |   |   | 602    |   |   | 602     |  
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|Total comprehensive loss                               |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   | $ | (5,818 | ) |   |         |  
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|Balance as of December 31, 2007                        |  |                                                               | 72,710,505 |                       |   | 16,522                                     |  |                                                                       | 66,328 |                             |   | 127                                               |   |                                                         | (105,156 | ) |   |        |   |   | (22,179 | )
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|Stock - based compensation                             |  |                                                               |           |                       |   |                                           |  |                                                                       | 2,196  |                             |   |                                                  |   |                                                         |         |   |   |       |   |   | 2,196   |  
|Exercise of warrants                                   |  |                                                               | 1,065,923  |                       |   | 295                                        |  |                                                                       | 215    |                             |   |                                                  |   |                                                         |         |   |   |       |   |   | 510     |  
|Exercise of stock options                              |  |                                                               | 10,000     |                       |   | 3                                          |  |                                                                       | 1      |                             |   |                                                  |   |                                                         | -       |   |   |       |   |   | 4       |  
|Repurchase of employee stock options                   |  |                                                               |           |                       |   |                                           |  |                                                                       | (1,451 | )                           |   |                                                  |   |                                                         |         |   |   |       |   |   | (1,451  | )
|Cancellation of a subordinated note to related parties |  |                                                               |           |                       |   |                                           |  |                                                                       | 5,000  |                             |   |                                                  |   |                                                         |         |   |   |       |   |   | 5,000   |  
|Comprehensive income:                                  |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|Net income                                             |  |                                                               |           |                       |   |                                           |  |                                                                       |       |                             |   |                                                  |   |                                                         | 86,976   |   | $ | 86,976 |   |   | 86,976  |  
|Realization of foreign currency translation, net       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   | (127                                              | ) |                                                         |          |   |   | (127   | ) |   | (127    | )
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|Total comprehensive income                             |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   | $ | 86,849 |   |   |         |  
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  
|Balance as of December 31, 2008                        |  |                                                               | 73,786,428 |                       | $ | 16,820                                     |  | $                                                                     | 72,289 |                             | $ |                                                  |   | $                                                       | (18,180  | ) |   |        |   | $ | 70,929  |  
|                                                       |  |                                                               |            |                       |   |                                            |  |                                                                       |        |                             |   |                                                   |   |                                                         |          |   |   |        |   |   |         |  

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

F - 7

---

---

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

|                                                                                                   |  |                         |        |      |   |        |   |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ | - | - | ------- | -
|                                                                                                   |  | Year ended December 31, |       
|                                                                                                   |  |                         |       
|                                                                                                   |  | 2006                    |        | 2007 |   | 2008   |  
|                                                                                                   |  |                         |        |      |   |        |  
|                                                                                                   |  |                         |        |      |   |        |   |   |         |  
|Cash flows used in operating activities:                                                           |  |                         |        |      |   |        |   |   |         |  
|                                                                                                   |  |                         |        |      |   |        |   |   |         |  
|Net income (loss)                                                                                  |  | $                       | (1,921 | )    | $ | (6,420 | ) | $ | 86,976  |  
|Adjustments to reconcile net income (loss) to net cash used in
      operating activities:         |  |                         |        |      |   |        |   |   |         |  
|Gain from sale of Companys business                                                               |  |                         |       |      |   |       |   |   | (95,137 | )
|Depreciation and amortization                                                                      |  |                         | 1,341  |      |   | 1,387  |   |   | 256     |  
|Amortization of other intangible assets                                                            |  |                         | 167    |      |   | 42     |   |   |        |  
|Compensation in connection with modifications of options                                           |  |                         | 23     |      |   |       |   |   |        |  
|Stock – based compensation                                                                         |  |                         | 1,426  |      |   | 1,003  |   |   | 2,196   |  
|Foreign currency translation loss (gain) on inter company
      balances with foreign subsidiaries |  |                         | (499   | )    |   | (453   | ) |   | 109     |  
|Currency fluctuation of long-term debt                                                             |  |                         | 212    |      |   | 115    |   |   | 24      |  
|Amortization of accrued interest on restructured debt                                              |  |                         |       |      |   |       |   |   | (7,335  | )
|Accrued severance pay, net                                                                         |  |                         | 16     |      |   | 14     |   |   | (405    | )
|Decrease (increase) in trade receivables, net                                                      |  |                         | (2,442 | )    |   | (4,661 | ) |   | 4,812   |  
|Decrease (increase) in other accounts receivable and
      prepaid expenses                        |  |                         | 1,470  |      |   | (1,831 | ) |   | 1,103   |  
|Increase in inventories                                                                            |  |                         | (4,347 | )    |   | (4,478 | ) |   | (2,768  | )
|Write-off of inventories                                                                           |  |                         | 806    |      |   | 1,169  |   |   | 197     |  
|Increase in other assets                                                                           |  |                         | (23    | )    |   | (111   | ) |   | (26     | )
|Increase in trade payables                                                                         |  |                         | 1,494  |      |   | 9,833  |   |   | 2,192   |  
|Increase (decrease) in deferred revenues                                                           |  |                         | (2,628 | )    |   | 170    |   |   | 718     |  
|Decrease in other accounts payable and accrued expenses                                            |  |                         | (1,592 | )    |   | (726   | ) |   | (3,735  | )
|Increase in other long-term liability                                                              |  |                         |       |      |   | 811    |   |   | 1,661   |  
|                                                                                                   |  |                         |        |      |   |        |   |   |         |  
|                                                                                                   |  |                         |        |      |   |        |   |   |         |  
|Net cash used in operating activities                                                              |  |                         | (6,497 | )    |   | (4,136 | ) |   | (9,162  | )
|                                                                                                   |  |                         |        |      |   |        |   |   |         |  
|                                                                                                   |  |                         |        |      |   |        |   |   |         |  
|Cash flows used in investing activities:                                                           |  |                         |        |      |   |        |   |   |         |  
|                                                                                                   |  |                         |        |      |   |        |   |   |         |  
|Proceeds from (investment in) restricted cash                                                      |  |                         | 41     |      |   | (29    | ) |   | 146     |  
|Investment in short-term bank deposit                                                              |  |                         |       |      |   |       |   |   | (49,000 | )
|Purchase of property and equipment                                                                 |  |                         | (1,648 | )    |   | (1,170 | ) |   | (148    | )
|Proceeds from sale of the Companys business, net (Note 1b)                                        |  |                         |       |      |   |       |   |   | 103,554 |  
|                                                                                                   |  |                         |        |      |   |        |   |   |         |  
|                                                                                                   |  |                         |        |      |   |        |   |   |         |  
|Net cash provided by (used in) investing activities                                                |  |                         | (1,607 | )    |   | (1,199 | ) |   | 54,552  |  
|                                                                                                   |  |                         |        |      |   |        |   |   |         |  

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

F - 8

---

---

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

|                                                                    |  |  |                             |       
|------------------------------------------------------------------- |  |  | --------------------------- | ------
|                                                                    |  |  | **Year ended December 31,** |       
|                                                                    |  |  |                             |       
|                                                                    |  |  | **2006**                    |       
|                                                                    |  |  |                             |       
|                                                                    |  |  |                             |       
|Cash flows from financing activities:                               |  |  |                             |       
|                                                                    |  |  |                             |       
|Proceeds from issuance of shares and warrants, net                  |  |  |                             | 7,000 
|Proceeds from exercise of options and warrants                      |  |  |                             | 8     
|Repurchase of employee stock option                                 |  |  |                             |      
|Short-term bank credit and short-term loans, net                    |  |  |                             | (1,810
|Payment of long-term loans, including interest on restructured debt |  |  |                             | (1,561
|                                                                    |  |  |                             |       
|                                                                    |  |  |                             |       
|Net cash provided by (used in) financing activities                 |  |  |                             | 3,637 
|                                                                    |  |  |                             |       
|                                                                    |  |  |                             |       
|Effect of exchange rate changes on cash and cash equivalents        |  |  |                             | 39    
|                                                                    |  |  |                             |       
|                                                                    |  |  |                             |       
|Increase (decrease) in cash and cash equivalents                    |  |  |                             | (4,428
|Cash and cash equivalents at the beginning of the year              |  |  |                             | 9,296 
|                                                                    |  |  |                             |       
|                                                                    |  |  |                             |       
|Cash and cash equivalents at the end of the year                    |  |  | $                           | 4,868 
|                                                                    |  |  |                             |       

|                                                                              |  |  |   |       |  |   |       |  |   |       | 
|----------------------------------------------------------------------------- |  |  | - | ----- |  | - | ----- |  | - | ----- | 
|(1) Supplemental disclosure of cash flows activities:                         |  |  |   |       |  |   |       |  |   |       | 
|Cash paid during the year for:                                                |  |  |   |       |  |   |       |  |   |      
|                                                                              |  |  |   |       |  |   |       |  |   |       | 
|Interest                                                                      |  |  | $ | 1,407 |  | $ | 1,524 |  | $ | 527   | 
|                                                                              |  |  |   |       |  |  
|                                                                              |  |  |   |       |  |  
|Taxes                                                                         |  |  | $ |      |  | $ | 96    |  | $ |      | 
|                                                                              |  |  |   |       |  |  
|                                                                              |  | 
|(2)  Supplemental disclosure of non-cash investing activities:                |  | 
|                                                                              |  | 
|Transfer of equipment from inventory to property, plant and
        equipment |  |  | $ | 687   |  | $ | 227   |  | $ | 443   | 
|                                                                              |  |  |   |       |  |  
|                                                                              |  |  |   |       |  |   |       |  |   |       | 
|Proceeds to be received from HP (see Note 1b)                                 |  |  | $ |      |  | $ |      |  | $ | 1,183 | 
|                                                                              |  |  |   |       |  |  

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

F - 9

---

---

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

NOTE 1:-      GENERAL

| | a. | Ellomay Capital Ltd. (the Company) (formerly: NUR Macroprinters Ltd.), an Israeli Company,
is a shell company whose current plan of operations is to identify and evaluate suitable business
opportunities and strategic alternatives, including through the acquisition of all or part of an
existing business, pursuing business combinations or otherwise. Until February 29, 2008, the Company
and its subsidiaries (collectively, the Group) developed, manufactured, sold and provided
support services for digital wide format and super-wide format printing systems for on-demand, short-run
printing as well as related consumable products.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | Until February 29, 2008, the Company operated through wholly-owned subsidiaries for sales, support
services and marketing of the Companys products in their country or region of domicile, some
of which were sold to HP and some of which have been dissolved during 2008. Such entities include
NUR Europe S.A. (NUR Europe) in Belgium (sold to HP), NUR America, Inc. (NUR America)
in the U.S. (dissolved in 2008), NUR Asia Pacific Limited (NUR Asia Pacific) in Hong
Kong, NUR Do Brazil Ltda. (NUR Brazil) in Brazil (sold to HP) and NUR Japan Ltd. (NUR
Japan) in Japan (sold to HP).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| | b. | On December 9, 2007, the Company entered into an Asset Purchase Agreement (the Agreement)
with Hewlett-Packard Company (HP) for the sale of its business to HP (the HP Transaction).
The Agreement contemplated the sale of substantially all of the assets and liabilities relating to
the business with the exception of specific assets and liabilities as defined in the Agreement. In
connection with the Agreement, HP also agreed to acquire three of the Companys subsidiaries,
NUR Europe S.A., a company organized pursuant to the laws of Belgium, NUR Japan Ltd., a company organized
pursuant to the laws of Japan and NUR Do Brazil Ltda., a company organized pursuant to the laws of
Brazil. In addition to the transfer of the assets, liabilities and the shares of the aforementioned
subsidiaries, one of the conditions to the consummation of the HP Transaction was the transfer of
approximately 80% of the Companys employees to HP and HPs subsidiaries. The HP Transaction
was completed and all included assets, liabilities and employees were transferred from the Company
and its subsidiaries to HP and several of its subsidiaries on February 29, 2008 (the Closing
Date). As of the Closing Date, the carrying value of assets and liabilities sold to HP was as follows:
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| |                                                         |  |                                 |        |  
| | ------------------------------------------------------- |  | ------------------------------- | ------ | -
| |                                                         |  | **February 29,
      2008 (*)** |       
| |                                                         |  |                                 |       
| |                                                         |  |                                 |        |  
| | Cash                                                    |  | $                               | 2,883  |  
| | Trade receivables, net                                  |  |                                 | 11,207 |  
| | Other accounts receivable and prepaid expenses          |  |                                 | 2,569  |  
| | Inventories                                             |  |                                 | 22,454 |  
| | Severance pay fund                                      |  |                                 | 1,073  |  
| | Other assets                                            |  |                                 | 406    |  
| | Property, plant and equipment, net                      |  |                                 | 6,258  |  
| | Realization of foreign currency translation adjustments |  |                                 | (237   | )
| |                                                         |  |                                 |        |  
| |                                                         |  |                                 |        |  
| | Total assets                                            |  |                                 | 46,613 |  
| |                                                         |  |                                 |        |  
| |                                                         |  |                                 |        |  
| | Trade payables                                          |  |                                 | 23,589 |  
| | Other accounts payable and accrued expenses             |  |                                 | 5,406  |  
| | Deferred revenues                                       |  |                                 | 3,204  |  
| | Accrued severance pay                                   |  |                                 | 1,025  |  
| | Long term loans, including current maturities           |  |                                 | 831    |  
| |                                                         |  |                                 |        |  
| |                                                         |  |                                 |        |  
| | Total liabilities                                       |  |                                 | 34,055 |  
| |                                                         |  |                                 |        |  
| |                                                         |  |                                 |        |  
| | Net assets sold                                         |  | $                               | 12,558 |  
| |                                                         |  |                                 |        |  

| |     |                                                                                                                     
| | --- | --------------------------------------------------------------------------------------------------------------------
| | (*) | Reflects the amendment following the
Closing Date with respect to NUR Europes facilities and related capital lease.

F - 10

---

---

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

NOTE 1:-      GENERAL (Cont.)

| | On February 29, 2008, the sale of our business to HP was finalized. The base purchase price pursuant
to the agreement is $ 117,500. The purchase price was subject to upward or downward adjustment
based on the net debt (bank debt less cash balances) of the Company and its subsidiaries that were
not purchased by HP as of the Closing Date. The purchase price adjustment on such date was approximately
$ 4,000, increasing the total consideration under the Asset Purchase Agreement from $ 117,500
to $ 121,500. Following the Closing Date, the parties reached a mutual resolution to assign NUR Europes
facilities and related capital lease to a third party. Therefore, the Company was entitled to additional
net proceeds (after deduction of HPs expenses in connection with such capital lease and other
expenses that were to be borne by the Company pursuant to the Asset Purchase Agreement) in the amount
of $ 1,100 as additional consideration for NUR Europes shares, increasing the aggregate consideration
in connection with the HP Transaction to $ 122,600. Of the total consideration:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| | 1. | $ 103,900 was transferred to the Company on the Closing Date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 2. | $ 1,600 was withheld by HP until final calculation of the net debt at closing. Based on the final
net debt calculation the Company was entitled only to an amount of $ 1,504, which was transferred
to the Company on July 30, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 3. | $ 1,500 was withheld by HP until the resolution of NUR Europes obligations with respect to its
capital lease and Government grants. Of the $ 1,500 withheld, an amount of $ 1,000 was transferred
to the Company on December 2, 2008 as a result of the assignment of  NUR Europes
facilities and related capital lease to a third party. The $ 500 withheld in connection with NUR
Europes obligations with respect to the government grants is still being held by HP.                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 4. | Of the additional proceeds in the amount of $ 1,100 related to NUR Europes facilities, a total
amount of $ 400 was transferred to the Company on December 18, 2008 and an additional amount of approximately
$ 700 was transferred to the Company on March 13, 2009.                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 5. | The remaining $ 14,500 was deposited into an escrow account to secure the indemnity obligations
of the Company and its remaining subsidiaries. The escrow funds, net of amounts distributed to HP
in satisfaction of indemnity obligations, are to be distributed to the Company in two installments:
$ 9,500 is to be distributed eighteen months following the Closing Date and $ 5,000 is
to be distributed twenty-four months following the Closing Date. Due to the lack of clarity as to
the outcome and scope of indemnification to be requested by HP, the escrow funds were not recorded
as a receivable and were excluded from the calculation of the capital gain.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| | In 2008, the Company recorded a gain (before taxes) of $ 95,137 with respect to the HP Transaction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Assets and liabilities excluded from the Agreement, as amended, included, but were not limited to:
cash balances held by the Company and subsidiaries that were not purchased by HP, short and long
term bank credit and loans, all costs incurred in respect to the HP Transaction including severance
liabilities, rights and obligations in respect to employees not transferred to HP, rights and obligations
related to outstanding litigation, claims and disputes, intercompany balances, all tax benefits and
obligations with the exception of such benefits and obligations relating to continuing operations
from the Closing Date, assets and obligations in respect of certain government-supported research
and development projects and obligations due to or from shareholders.

F - 11

---

---

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

NOTE 1:-      GENERAL (Cont.)

| | As part of the Agreement, the Company agreed to change its corporate name. The Companys name
was changed to Ellomay Capital Ltd. in April 2008. In addition, the Company agreed not to solicit any former employees who were transferred to HP or to engage in any business engaged directly
in the same business as conducted by the Company at closing, both for a period of three years following
the Closing Date.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                        

| | In connection with the HP Transaction, the Companys Board of Directors approved the acceleration
of the vesting of all outstanding employee stock options following the Closing Date and the repurchase,
subject to the fulfillment of regulatory requirements, of the then outstanding employee stock options,
representing, in the aggregate, rights to purchase approximately 9.9 million ordinary shares of the
Company. The aggregate consideration for such employee stock options was approximately $ 3,800. Of
the total aggregate consideration, approximately $ 3,100 was paid in July 2008 and an additional
payment, up to the aggregate amount, will be calculated after all HP Transaction related issues and
other financial aspects of the Company are known and verified and will be paid following the release
of the funds deposited in escrow. The Company recorded an accrual in the amount of $ 414 with
respect to its future liability, which is included within other accounts payable and accrued expenses.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | Upon closing of the HP Transaction, the acceleration resulted in full recognition of the remaining
unrecognized compensation costs of $ 2,187. The repurchase was accounted for as a settlement
in accordance with SFAS No. 123 (revised 2004), Share-Based Payment and the amount paid
in excess of the fair value of the options repurchased was recognized as additional compensation
cost of $1,610 in the statements of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | In connection with the HP Transaction, the Companys Board of Directors also approved the payment
of transaction bonuses to certain employees in the aggregate amount of approximately $ 700 and
established that, subject to the aforementioned determination and verification of all transaction
related issues and other financial aspects of the Company, additional bonuses may be paid to certain
employees, based on criteria, amounts and percentages pre-determined by the Board. The amount of
$ 700 was paid during 2008 and was recorded as expense. In addition, the Company recorded a
liability for the additional transaction bonuses in the amount of $ 35.                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | As a result of the HP Transaction and the cessation of virtually all operations, a majority of the
Companys employees that have not transferred to HP, including the majority of the Companys
senior management, have been terminated by the Company. In connection with such terminations, the
Company recorded severance-related expenses in the approximate amount of $ 2,800.                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | In March 2008, following the consummation of the HP Transaction, the Company fully repaid its short-term
debt to its lender banks (the Banks) in the amount of $9,800. In April 2008, it fully
repaid outstanding long-term debt to its banks in the amount of $12,100. In May 2008, a $ 5,000
subordinated note due to a related party was cancelled effective as of March 30, 2008. In connection
with the cancellation of the subordinated note, the Company recognized a capital contribution of
$ 5,000. Upon full repayment of the loans, the Company recognized the remaining balance of accrued
interest on restructured debt as financial income of approximately $ 7,335.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | As the Company did not acquire a new
operating business during the year ended December 31, 2008, the results of operations
prior to the consummation of the sale of the business to HP are not reported as
discontinued operations in the consolidated financial statements in accordance
with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets.                                                                                                                                                                                                                                                                                                         

F - 12

---

---

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

NOTE 1:-      GENERAL (Cont.)

| | Following the consummation of the HP Transaction, the Companys primary asset is cash deposited in short term deposits and therefore, the sole source of income is the interest that such deposits earn.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 U.S. generally accepted accounting principles
requires management to make estimates, judgments and assumptions. The Companys management believes
that the estimates, judgments and assumptions used are reasonable based upon information available
at the time they are made. These estimates, judgments and assumptions can affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the
financial statements, and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| | b. | Financial statements in U.S. dollars:
| | -- | -------------------------------------
| |    |                                      

| | Following the HP Transaction, the Companys management believes that the currency of the primary
economic environment in which the Company and its remaining subsidiaries operate is the U.S. dollar
(dollar). Thus, the dollar is the reporting and functional currency of the Company and
its remaining subsidiaries.                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Therefore, 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
Statement of Financial Accounting Standard (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.                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Prior to the HP Transaction, for certain subsidiaries the functional currency was determined to be
their local currency. For those subsidiaries, assets and liabilities were translated at year-end
exchange rates and statement of operations items were translated at average exchange rates prevailing
during the year. Such translation adjustments were recorded as a separate component of accumulated
other comprehensive loss in shareholders equity (deficiency).
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| | c. | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                            

| | d. | 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 - 13

---

---

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

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

| | e. | Short-term deposits:
| | -- | --------------------
| |    |                     

| | Bank deposits with maturities of more than three months but less than one year are included in short-term
deposits. Such short-term deposits are stated at cost which approximates market values.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                  

| | f. | Restricted cash:
| | -- | ----------------
| |    |                 

| | Restricted cash was primarily invested in highly liquid deposits, which were used as security for certain
of the Companys liabilities and obligations.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                        

| | g. | Reclassifications:
| | -- | ------------------
| |    |                   

| |    | Certain amounts in prior years financial statements have been reclassified to conform to the
current years presentation.
| | -- | --------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                           
| | h. | Inventories:                                                                                                              
| |    |                                                                                                                           

| | Inventories were 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. 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 2006, 2007 and 2008, as a result of the demand for printers of older models, the Company began
utilizing related inventories that were written-off in prior years. In 2006, 2007 and 2008, inventory
previously written-off with a cost of $ 310, $ 803 and $ 908, 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.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Cost was 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.                                                                                                                                                                                                                                                                                                                                                                                                                                   

F - 14

---

---

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

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

| | Changes in the Groups inventory provision were as follows:
| | -----------------------------------------------------------
| |                                                            

| |                                 |  |  | Provision for
      slow-moving
    inventory |       
| | ------------------------------- |  |  | --------------------------------------------- | ------
| |                                 |  |  |                                               |       
| |                                 |  |  |                                               |       
| | Balance as of January 1, 2006   |  |  | $                                             | 3,738 
| | Charge to cost                  |  |  |                                               | 806   
| | Deduction                       |  |  |                                               | (1,570
| |                                 | 
| |                                 |  |  |                                               |       
| | Balance as of December 31, 2006 |  |  |                                               | 2,974 
| | Charge to cost                  |  |  |                                               | 1,169 
| | Deduction                       |  |  |                                               | (803  
| |                                 | 
| |                                 | 
| |                                
| | Balance as of December 31, 2007 |  |  |                                               | 3,340 
| | Charge to cost                  |  |  |                                               | 197   
| | Deduction                       |  |  |                                               | (908  
| | Assumed by HP (See Note 1b)     |  |  |                                               | (2,629
| |                                 | 
| |                                 | 
| | Balance as of December 31, 2008 |  |  | $                                             |      
| |                                 | 

| |    |                                    
| | -- | -----------------------------------
| | i. | Property, plant and equipment, net:
| |    |                                    

| | Property, plant and equipment were stated at cost, net of accumulated depreciation. Depreciation was
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

| |    |                                 
| | -- | --------------------------------
| | j. | Impairment of long-lived assets:
| |    |                                 

| | The Groups long-lived assets were 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, 2007 and 2008, no impairment losses were identified.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---

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

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

| | k. | Revenue recognition:
| | -- | --------------------
| |    |                     

| | Prior to the consummation of the HP Transaction, the Company generated revenues from the sale of its
printers, inks and consumable products and from services to its products. The Company generated revenues
from sale of its products directly to end-users and indirectly through independent distributors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Revenues from printer sales were recognized in accordance with Staff Accounting Bulletin No. 104, Revenue
Recognition in Financial Statements upon installation, provided that the collection of the
resulting receivable was probable, there was persuasive evidence of an arrangement, no significant
obligations in respect of installation remained and the price was fixed or determinable. The Company
did not grant a right of return.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Revenues from selling these products to independent distributors were deferred until the Companys
products were installed in their customers premises, provided that all other revenue recognition
criteria were met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | When a sale involved multiple elements, such as sales of printers that include a right to receive specified
upgrades or an extended warranty agreement, the entire fee from the arrangement was evaluated under
Emerging Issues Task Force (EITF) 00-21, Revenue Arrangements with Multiple Deliverables.
In such arrangements, the Company accounted for the separate elements as different units of accounting,
provided that the delivered element had value to the customer on a standalone basis and there was
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
accounted for the total arrangement as one unit of accounting. As such, the Company recognized revenue
for the arrangement only when all revenue recognition criteria were met for the undelivered element.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The Company considered all arrangements with payment terms extending beyond the standard payment terms
not to be fixed or determinable. If the fee was not fixed or determinable, revenue was 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 were generally recognized upon shipment assuming all
other revenue recognition criteria were met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Revenues from services were comprised of maintenance and support arrangements. Revenues from maintenance
and support arrangements were recognized on a straight-line basis over the term of the arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In cases where the Company traded-in old printers as part of sales of new printers, the fair value
of the old printer was recorded as revenue, provided that such value could be determined. If such
value could not be determined the old printers were recorded at zero value. The amount of revenues
recognized for the transaction equaled the fair value of the old printer plus any monetary consideration
received.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Deferred revenues included amounts received from customers for which revenue has not yet been recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F - 16

---

---

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

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

| | l. | Warranty costs:
| | -- | ---------------
| |    |                

| | The Group generally provided a warranty period of six to twelve months, at no extra charge. The Group
estimated the costs that may be incurred under its standard limited warranty and recorded a liability
in the amount of such costs at the time installation of the product was completed. Factors that affected
the Groups warranty liability included the number of installed units and historical warranty
cost. The Group periodically assessed the adequacy of its recorded warranty liabilities and adjusted
the amounts as necessary.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Changes in the Groups liability during the year were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| |                                                   |  |  | **December 31,** |       
| | ------------------------------------------------- |  |  | ---------------- | ------
| |                                                   |  |  |                  |       
| |                                                   |  |  | **2007**         |       
| |                                                   |  |  |                  |       
| |                                                   |  |  |                  |       
| | Balance at the beginning of the year              |  |  | $                | 1,505 
| | Utilization of warranties                         |  |  |                  | (1,945
| | Changes in liability for warranty during the year |  |  |                  | 2,033 
| | Assumed by HP (See Note 1b)                       |  |  |                  |      
| |                                                   |  |  |                 
| |                                                   |  |  |                 
| | Balance at the end of the year                    |  |  | $                | 1,593 
| |                                                   |  |  |                 

| |    |                                     
| | -- | ------------------------------------
| | m. | Research and development costs, net:
| |    |                                     

| | Research and development costs were charged to the statement of operations as incurred, net of grants
received.
| | ---------------------------------------------------------------------------------------------------------------
| |                                                                                                                

| | n. | Government grants:
| | -- | ------------------
| |    |                   

| | Royalty-bearing grants from the local authorities in Belgium and Israel for funding approved research
and development projects were recognized at the time the Group was entitled to such grants, and were
included as a reduction of the research and development costs. Related royalty obligations were recognized
on an accrual basis, as the Group became liable. No royalty expenses were accrued or paid during
2006, 2007 and 2008, other than an amount of  390 paid according to a settlement with
the Belgian authorities (see Note 12b).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | o. | Income taxes:
| | -- | -------------
| |    |              

| | The Company accounts for income taxes in accordance with FASB Statement No. 109 Accounting for
Income Taxes (SFAS 109). SFAS 109 prescribes the use of the liability method whereby
deferred tax assets and liability account balances are determined based on differences between the
financial reporting and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to reverse. The Company provides
a valuation allowance, if necessary, to reduce deferred tax assets to amounts more likely than not
to be realized. Deferred tax liabilities and assets are classified as current or non current based
on the classification of the related asset or liability for financial reporting, or according to
the expected reversal dates of the specific temporary differences if not related to an asset or liability
for financial reporting.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 17

---

---

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

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

| | On January 1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes - an interpretation of FASB Statement No. 109 (FIN 48). FIN 48
contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in
accordance with SFAS 109. The first step is to evaluate the tax position taken or expected to be
taken in a tax return by determining if the weight of available evidence indicates that it is more
likely than not that, on an evaluation of the technical merits, the tax position will be sustained
on audit, including resolution of any related appeals or litigation processes. The second step is
to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon
ultimate settlement. The Company accrues interest and penalties related to unrecognized tax benefits
in its provision for income tax.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | As a result of the adoption of FIN 48 on January 1, 2007, the Group recorded $ 2,617 to accumulated
deficit for uncertain tax positions which, if recognized, would affect the effective tax rate. This
amount includes accrued interest expenses and penalties related to the unrecognized tax benefit as
of that date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | p. | Concentrations of credit risk:
| | -- | ------------------------------
| |    |                               

| | Financial instruments that potentially subject the Group to concentrations of credit risk consist principally
of cash and cash equivalents and short-term deposits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The majority of the Groups cash and cash equivalents and short-term deposits are invested in
U.S. dollar and Euro instruments with major banks in Israel and United States. 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, low
credit risk exists with respect to these investments.                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | Prior to the HP Transaction, the trade receivables of the Group were derived mainly from sales to customers
located primarily in Europe, America and Asia. Management believed that credit risks were moderated
by the diversity of its end-customers and geographic sales areas. The Group performed ongoing credit
evaluations of its customers financial condition. The Group did not require collateral from
its customers. Management of the Company periodically performed an evaluation of its composition
of accounts receivable and expected credit trends and established an allowance for doubtful accounts
with respect to those amounts that were determined to be doubtful of collections and in accordance
with aging key and charge off receivables where they deemed uncollectible. The past-due status of
accounts receivable was determined primarily based upon contractual terms.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The Group has no off-balance-sheet concentration of credit risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F - 18

---

---

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

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

| |  | Changes in the Groups allowance for doubtful accounts were as follows:
| |  | -----------------------------------------------------------------------
| |  |                                                                        

| |                                 |  |                                                  |        |  
| | ------------------------------- |  | ------------------------------------------------ | ------ | -
| |                                 |  | Allowance for 
        doubtful
        accounts |       
| |                                 |  |                                                  |       
| |                                
| | Balance as of January 1, 2006   |  | $                                                | 5,510  |  
| | Provision, net of recoveries    |  |                                                  | (314   | )
| | Write-off and other             |  |                                                  | (302   | )
| |                                 |  |                                                  |        |  
| |                                 |  |                                                  |        |  
| | Balance as of December 31, 2006 |  |                                                  | 4,894  |  
| | Provision, net of recoveries    |  |                                                  | 942    |  
| | Write-off and other             |  |                                                  | (985   | )
| |                                 |  |                                                  |        |  
| |                                 |  |                                                  |        |  
| | Balance as of December 31, 2007 |  |                                                  | 4,851  |  
| | Provision, net of recoveries    |  |                                                  | 368    |  
| | Write-off and other             |  |                                                  |       |  
| | Assumed by HP (See Note 1b)     |  |                                                  | (5,219 | )
| |                                 |  |                                                  |        |  
| |                                 |  |                                                  |        |  
| | Balance as of December 31, 2008 |  | $                                                |       |  
| |                                 |  |                                                  |        |  

| |    |               
| | -- | --------------
| | 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. The Company records as expenses the increase in the severance liability,
net of the earnings (losses) from the related investment fund. 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 (losses) 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Severance expenses for the years ended December 31, 2006, 2007 and 2008 amounted to approximately $ 907,
$ 905 and $ 2,900 respectively. The severance expenses for the year ended December 31, 2008
are mainly attributed to the termination of certain of our employees and of a majority of our senior
management in connection with the HP Transaction.                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| | r. | Employee benefit plan:
| | -- | ----------------------
| |    |                       

| | The Company had a 401(K) defined contribution plan covering all employees in the U.S. All eligible
employees could have elected to contribute up to 15%, but generally not in excess of $ 15 per
year, of their annual compensation through salary deferrals, subject to IRS limits. The Companys
401(K) contribution plan included 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, 2007 and 2008, the Company
matched contributions in the amount of $ 23, $19 and $ 7, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 19

---

---

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

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

| | s. | Fair value of financial instruments:
| | -- | ------------------------------------
| |    |                                     

| | The carrying amounts of cash and cash equivalents, short-term deposits, restricted cash, trade receivables
and 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 Companys long-term loans (less accrued interest on restructured debt
as described in Note 9) 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. Book
values of long-term loans bearing fixed interest approximate fair values as it is not materially
different from the market rate for similar loans.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | t. | Advertising expenses:
| | -- | ---------------------
| |    |                      

| | Advertising expenses were expensed as incurred. Advertising expenses for the years ended December 31,
2006, 2007 and 2008 amounted to $ 287, $ 442 and $ 50, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                           

| | u. | Basic and diluted earnings (loss) per
share:
| | -- | --------------------------------------------
| |    |                                             

| | Basic earnings (loss) per share is
computed based on the weighted average number of Ordinary shares outstanding during each
year. Diluted earnings (loss) per share is computed based on the weighted average number
of Ordinary shares outstanding during the year plus dilutive potential Ordinary shares
considered outstanding during the year, in accordance with SFAS No. 128, Earnings
Per Share.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                           
| | The total weighted average number of
options and warrants excluded from the calculations of diluted earnings (loss) per share
was 50,163,084, 54,749,478 and 7,393,004 for the years ended December 31, 2006, 2007 and
2008, respectively.                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                           

| | v. | Accounting for stock-based compensation:
| | -- | ----------------------------------------
| |    |                                         

| | The Company accounts for stock-based compensation in accordance with SFAS No. 123 (revised 2004), Share-Based
Payment (SFAS No. 123(R)). SFAS No. 123(R) requires companies to estimate the fair
value of equity-based payment awards on the date of grant using an option-pricing model. The value
of the portion of the award that is ultimately expected to vest is recognized as an expense over
the requisite service periods in the Companys consolidated income statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The Company recognizes compensation expenses for the value of its awards granted based on the straight
line method over the requisite service period of each of the awards, net of estimated forfeitures.
SFAS No. 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.                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | The Company selected the Black-Scholes-Merton option pricing model as the most appropriate fair value
method for its stock-options awards and values restricted stock based on the market value of the
underlying shares at the date of grant. 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.                                                                          

F - 20

---

---

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

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

| | 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 2006, 2007 and 2008 is estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average assumptions:                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| |                          |  | Year ended December 31, |      
| | ------------------------ |  | ----------------------- | -----
| |                          |  |                         |      
| |                          |  | 2006                    |      
| |                          |  |                         |      
| |                         
| | Dividend yield           |  |                         | 0%   
| | Expected volatility      |  |                         | 1.12 
| | Risk-free interest       |  |                         | 4.67%
| | Expected life (in years) |  |                         | 3.5  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company applies SFAS No. 123 Accounting for Stock-Based Compensation 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 related to foreign currency translation adjustments.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | x. | Impact of recently issued accounting standards:
| | -- | -----------------------------------------------
| |    |                                                

| | In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R).
SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures
in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling
interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements
to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R
is effective for fiscal years beginning after December 15, 2008. Earlier adoption is prohibited.
The impact of SFAS 141R on the Companys consolidated results of operations and financial
condition will depend on the nature and size of acquisitions, if any, subsequent to the effective date.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 21

---

---

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

NOTE 2:-      SIGNIFICANT ACCOUNTING POLICIES (Cont.)

| | In February 2008, the FASB issued FSP No. FAS 157-1, Application of FASB Statement No. 157
to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements
for Purposes of Lease Classification or Measurement under Statement 13, and FSP No. FAS 157-2,
Effective Date of FASB Statement No. 157 (FSP No. FAS 157-2). Collectively,
the Staff Positions defer the effective date of Statement 157 to fiscal years beginning after November 15,
2008 for nonfinancial assets and nonfinancial liabilities except for items that are recognized or
disclosed at fair value on a recurring basis at least annually, and amend the scope of Statement
157. As described in Note 7, the Company adopted Statement 157 and the related FASB staff positions
except for those items specifically deferred under FSP No. FAS 157-2. The Company does not expect
the adoption of Statement 157, with respect to nonfinancial assets and liabilities under the scope
of the FSP No. FAS 157-2, will have an impact on its consolidated financial statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 3:-      OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

| |                                            |  |  | **December 31,** |      
| | ------------------------------------------ |  |  | ---------------- | -----
| |                                            |  |  |                  |      
| |                                            |  |  | **2007**         |      
| |                                            |  |  |                  |      
| |                                            |  |  |                  |      
| | Government authorities                     |  |  | $                | 2,752
| | Employees                                  |  |  |                  | 317  
| | Advances to suppliers                      |  |  |                  | 629  
| | Interest receivable                        |  |  |                  |     
| | Proceeds to be received from HP            |  |  |                  |     
| | Prepaid expenses                           |  |  |                  | 595  
| | Office of the Chief Scientist (See Note 4) |  |  |                  | 79   
| | Other                                      |  |  |                  | 53   
| |                                            |  |  |                 
| |                                            |  |  |                  |      
| |                                            |  |  | $                | 4,425
| |                                            |  |  |                 

NOTE 4:-      OFFICE OF CHIEF SCIENTIST

| | a. | During 1998-2003, the Company participated in a research and development consortium of industrial companies
and academic institutions within the framework of the MAGNET program of the Office of Chief Scientist
of the Ministry of Industry, Trade and Labor (OCS). No royalties were payable to the
OCS with respect to this funding.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                           

| | During 2005-2007, the Company participated in an ink technology project with the Technion - The Israel
Institute of Technology (the Technion), which received the approval of the Mini-MAGNET
(or Magneton) committee of the OCS. No royalties were payable to the OCS with respect to this funding;
however, the terms of the agreement with the Technion required the Company to pay royalties to the
Technion on the proceeds from sales of products resulting from this project when such sales commence.
Sales of products had not commenced and therefore no royalties were due. Grants relating to the Magneton
project in the amount of $ 379 were recorded during 2007. The agreement with the Techinion was
assumed by HP in connection with the HP Transaction.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 22

---

---

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

NOTE 4:-      OFFICE OF CHIEF SCIENTIST (Cont.)

| | b. | The Company entered into several project plans with the OCS in prior years.
| | -- | ---------------------------------------------------------------------------
| |    |                                                                            

| | Following the settlement as described in (d) below, the full balance of commitments for amounts received
in the past from the OCS was converted into and recorded as a settlement accrual. As of December
31, 2007, the liability of $ 79 was fully offset with the grant received from the Magneton project
in accordance with the terms of the settlement. The liability to the OCS was fully paid during 2008.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                  

| | c. | Under the terms of grants awarded in prior years by the Fund for the Encouragement of Marketing Activities
of the Ministry of Industry, Trade and Labor (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 increase
in export sales of products for which the Company received grants for in support of its marketing
activities, up to an amount equal to 100% - 150% of the grants received, linked to the U.S. dollar.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| | Following the settlement described in (d) below, all the contingent commitments for amounts received
in the past from the Marketing Fund were converted into and recorded as a settlement accrual.                                
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                   
| | As of December 31, 2007, the liability of $ 221 was fully offset with the grant received from the Magneton
project in accordance with the terms of the settlement. The liability to the Marketing Fund was fully
paid during 2008.
| |                                                                                                                                                                                                                                   

| | d. | In the first calendar quarter of 2006, the District Court in Jerusalem approved the settlement between
the Company and the OCS and 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 provided for the repayment of the outstanding debt in 36 equal monthly installments commencing
January 2006. The Company also agreed to accelerate the payment of the outstanding balance by advancing
payments equal to 5% of operating income. It was further agreed that all future grants due to the
Company from the OCS or the Marketing Fund would be applied to the settlement balance until the liability
was paid in full.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | e. | 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
(including Magnet and Magneton programs). 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.                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| | Following the HP Transaction (see Note 1b), all of the Companys intellectual property that was
used for its business was sold to HP, including intellectual property developed with the assistance
of the OCS. The OCS approved the transfer of the technology developed with OCS funding prior to the
closing of the HP Transaction, subject to an exclusive and irrevocable manufacturing license provided
by HP to its Israeli subsidiary. HP has approached the OCS and requested to transfer the technology
and manufacturing of products developed with the assistance of the OCS outside of Israel. The Company
may be required to reimburse HP for payments made to the OCS in connection with such transfer of
manufacturing. It is too early to determine what amounts will be paid by HP to the OCS or will be
required to be paid by the Company to HP. In the event that any payments are required, amounts due
are to be deducted from the escrow account (see Note 1b).
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 23

---

---

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

NOTE 4:-      OFFICE OF CHIEF SCIENTIST (Cont.)

| | f. | Composition:
| | -- | ------------
| |    |             

| |                                 |  |                         |      |  
| | ------------------------------- |  | ----------------------- | ---- | -
| |                                 |  | December 31,
      2007 |     
| |                                 |  |                         |     
| |                                 |  |                         |      |  
| | OCS Magneton grant receivable   |  | $                       | 379  |  
| |                                 |  |                         |      |  
| |                                 |  |                         |      |  
| | Debt to the OCS (i)             |  | $                       | (79  | )
| | Debt to the Marketing Fund (ii) |  |                         | (221 | )
| |                                 |  |                         |      |  
| |                                 |  |                         |      |  
| |                                 |  | $                       | (300 | )
| |                                 |  |                         |      |  
| |                                 |  |                         |      |  
| | Net OCS grants receivable       |  | $                       | 79   |  
| |                                 |  |                         |      |  

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

NOTE 5:-      INVENTORIES

| |                   |  |                         |           | 
| | ----------------- |  | ----------------------- | --------- | 
| |                   |  | December 31,
      2007 |          
| |                   |  |                         |          
| |                   |  |                         |           | 
| | Raw materials     |  | $                       | 4,651     | 
| | Work in-progress  |  |                         | 2,020     | 
| | Finished products |  |                         | *) 13,420 | 
| |                   |  |                         |           | 
| |                   |  |                         |           | 
| |                   |  | $                       | 20,091    | 
| |                   |  |                         |           | 

| |    |                                                                                                                        
| | -- | -----------------------------------------------------------------------------------------------------------------------
| | *) | Includes an amount of $ 2,329 with
respect to inventory delivered to customers but for which no revenue was recognized.
| |    |                                                                                                                        
| |    | As of February 29, 2008, the inventories were acquired by HP (see Note 1b).                                            
| |    |                                                                                                                        

NOTE 6:-      PROPERTY, PLANT AND EQUIPMENT, NET

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

| |                                    |  |                         |        | 
| | ---------------------------------- |  | ----------------------- | ------ | 
| |                                    |  | December 31,
      2007 |       
| |                                    |  |                         |       
| |                                    |  |                         |        | 
| | Cost:                              |  |                         |        | 
| | Machinery and equipment            |  | $                       | 3,998  | 
| | Motor vehicles                     |  |                         | 26     | 
| | Office furniture and equipment     |  |                         | 9,507  | 
| | Buildings (b)                      |  |                         | 1,626  | 
| | Leasehold improvements             |  |                         | 5,717  | 
| |                                    |  |                         |        | 
| |                                    |  |                         |        | 
| |                                    |  |                         | 20,874 | 
| | Accumulated depreciation           |  |                         | 14,930 | 
| |                                    |  |                         |        | 
| |                                    |  |                         |        | 
| | Property, plant and equipment, net |  | $                       | 5,944  | 
| |                                    |  |                         |        | 

| |  |                                                                                              
| |  | ---------------------------------------------------------------------------------------------
| |  | As of February 29, 2008, the property, plant and equipment were acquired by HP (see Note 1b).

F - 24

---

---

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

NOTE 6:-      PROPERTY, PLANT AND EQUIPMENT, NET (Cont.)

| | b. | Capital lease:
| | -- | --------------
| |    |               

| | NUR Europe, one of the Companys subsidiaries that were was sold to HP, leased certain spaces
under lease agreements which were recorded as capital leases. The related facilities were included
in property, plant and equipment and depreciated accordingly. The cost and accumulated depreciation
of facilities as of December 31, 2007 were $ 1,626 and $ 499, respectively. Following the consummation
of the HP Transaction, as a result of a mutual resolution of the parties, the facilities and relating
capital lease were assigned to a third party (see note 1b).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 7:-      FAIR VALUE MEASURMENTS

| | Effective January 1, 2008, the Company adopted SFAS 157, Fair Value Measurements and,
effective October 10, 2008, adopted FSP No. SFAS 157-3, Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active, except as it applies to the
nonfinancial assets and nonfinancial liabilities subject to FSP 157-2 Effective Date of FASB
Statement No. 157. SFAS 157 clarifies that fair value is an exit price, representing the amount
that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. As such, fair value is a market-based measurement that should be determined
based on assumptions that market participants would use in pricing an asset or a liability. As a
basis for considering such assumptions, SFAS 157 establishes a three-tier value hierarchy, which
prioritizes the inputs used in the valuation methodologies in measuring fair value:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

| |  | Level 1   -   Observable inputs that reflect quoted
prices (unadjusted) for identical assets or liabilities in active markets.
| |  | ------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                               
| |  | Level 2   -   Include other inputs that are directly
or indirectly observable in the marketplace.                             
| |  |                                                                                                                               
| |  | Level 3   -   Unobservable inputs which are supported by
little or no market activity.                                        
| |  |                                                                                                                               

| | The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                 
| | Cash equivalents and short-term deposits are classified with level 2.                                                                                           

NOTE 8:-      SHORT-TERM BANK CREDIT AND LOANS

| |                                                        |  |                   |      |                             |      |              |        |  
| | ------------------------------------------------------ |  | ----------------- | ---- | --------------------------- | ---- | ------------ | ------ | -
| |                                                        |  | Linkage
    terms |      | Interest rate               |      | December 31, |       
| |                                                        |  |                   |      |                             |      |              |       
| |                                                        |  |                   | 2007 |                             | 2007 |             
| |                                                        |  |                   |      |                             |      |              |        |  
| |                                                        |  |                   |      | %                           |      |              |        |  
| |                                                        |  |                   |      |                             |      |              |        |  
|
| | Short-term bank credit (a)                             |  | U.S. dollar       |      | LIBOR +
        0.25 - 0.75 |      | $            | 8,801  |  
| | Short-term bank credit (a)                             |  | NIS               |      | Prime + 2%                  |      |              | 161    |  
| | Note from related parties (b)                          |  |                   |      |                             |      |              | 5,000  |  
| |                                                        |  |                   |      |                             |      |              |        |  
|
| |                                                        |  |                   |      |                             |      | $            | 13,962 |  
| |                                                        |  |                   |      |                             |      |              |        |  
| | Weighted average interest rates at the end of the year |  |                   |      |                             |      |              | 5.66   | %
| |                                                        |  |                   |      |                             |      |              |        |  

F - 25

---

---

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

NOTE 8:-      SHORT-TERM BANK CREDIT AND LOANS (Cont.)

| | a. | Short-term bank credit:
| | -- | -----------------------
| |    |                        

| | In 2005 the Banks provided the Company with a credit facility that could have been utilized in U.S.
dollars, NIS, GBP or Euro. The credit facility was renewable, at the request of the Company, on an
annual basis through December 2011. The credit facility bore interest at a rate of LIBOR + a range
between 0.25% - 0.75% or Prime + 2% for borrowings denominated in NIS and was payable on a quarterly
basis.                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | As of December 31, 2007, $ 8,962 was utilized in the form of a short-term loan, $ 944
was utilized in guarantees, and $ 1,040 was utilized in the form of long-term loans. The total utilization
of a $ 10,002 credit line exceeded the approved line of $ 9,850 (excluding guarantees) by $
152 due to the increase in the Euro exchange rate in respect to the Euro-denominated long-term loan.
The Banks did not request an immediate reduction in the short-term bank credit or the long-term loan
balance. The credit facility was subject to immediate repayment upon the occurrence of certain events
as defined in the agreement with the Banks.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | During January and February 2008, an additional amount of approximately $ 800 was utilized by the Company
in the form of a short-term loan. In March 2008, in connection with the HP Transaction, the credit
facility was cancelled and all open balances were paid-in-full (see Note 1b).                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | b. | The note from related parties of $ 5,000 bore no interest and was scheduled to expire on December 8,
2008. Prior to that date, the note was repayable only in the event of either bankruptcy, insolvency
or reorganization proceeding under any bankruptcy, whether voluntary or involuntary, which proceedings
were not lifted or stayed within 90 days. The note was assigned to Fortissimo by the Banks as part
of the Debt Restructuring Agreement (see Note 9).
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| | In May 2008, in connection with the sale of the Companys securities by the Fortissimo entities,
the note was cancelled and recognized as a capital contribution (see Note 1b).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 9:-      LONG-TERM LOANS

| | On September 12, 2005, the Company entered into a debt restructuring agreement (the Debt Restructuring
Agreement) with the 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 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 Banks to Fortissimo (Note from related
parties) and the remaining $ 21,505 was refinanced under new short and long term loan agreements.
Following the HP Transaction, the Company used its right for early termination of the long-term loans,
and in April 2008 fully repaid the long-term loans.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F - 26

---

---

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

NOTE 9:-      LONG-TERM LOANS (Cont.)

| | a. | Composed as follows:
| | -- | --------------------
| |    |                     

| |                                                        |  |                       |      |                      |      |              |        |  
| | ------------------------------------------------------ |  | --------------------- | ---- | -------------------- | ---- | ------------ | ------ | -
| |                                                        |  | Linkage
        terms |      | Interest rate        |      | December 31, |       
| |                                                        |  |                       |      |                      |      |             
| |                                                        |  |                       | 2007 |                      | 2007 |             
| |                                                        |  |                       |      |                      |      |              |       
| |                                                        |  |                       |      | %                    |      |              |        |  
| |                                                        |  |                       |      |                      |      |              |       
| |                                                        |  |                       |      |                      |      |              |        |  
| | From banks (b)                                         |  | U.S. dollar           |      | LIBOR +
        2.50 |      | $            | 11,000 |  
| | From banks (b)                                         |  | Euro                  |      | LIBOR +
        0.75 |      |              | 1,040  |  
| | Capital leases                                         |  | Euro                  |      | 4.95-6.30            |      |              | 877    |  
| |                                                        |  |                       |      |                      |      |              |        |  
| |                                                        |  |                       |      |                      |      |              |        |  
| |                                                        |  |                       |      |                      |      |              | 12,917 |  
| | Less - current maturities                              |  |                       |      |                      |      |              | 649    |  
| |                                                        |  |                       |      |                      |      |              |        |  
| |                                                        |  |                       |      |                      |      |              |        |  
| |                                                        |  |                       |      |                      |      |              | 12,268 |  
| | Accrued interest on restructured debt (c)              |  |                       |      |                      |      |              | 7,567  |  
| |                                                        |  |                       |      |                      |      |              |        |  
| |                                                        |  |                       |      |                      |      |              |        |  
| |                                                        |  |                       |      |                      |      | $            | 19,835 |  
| |                                                        |  |                       |      |                      |      |              |        |  
| | Weighted average interest rates at the end of the year |  |                       |      |                      |      |              | 7.115  | %
| |                                                        |  |                       |      |                      |      |              |        |  

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | The long-term loans of $ 11,000 were repayable by the end of 2015. The Company was granted a 28-month
grace period on the quarterly payments on account of principal. The revolving loan of $ 1,040
was renewable on an annual basis as long as the Company continued to meet the covenants mentioned
in Note 9.e. The long-term loans bear interest at a rate of LIBOR+2.5% and LIBOR +0.75% per annum,
payable on a quarterly basis. The long-term loans were subject to immediate repayment upon the occurrence
of certain events as defined in the agreement with the Banks.                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | c. | The restructuring of the outstanding bank debt was accounted for in accordance with the provisions
of SFAS 15 Accounting by Debtors and Creditors for Troubled Debt Restructurings. 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 was recorded as a reduction of the carrying amount of the
debt instead of interest expenses. Interest payments in the amounts of $ 500 and $ 1,500 for
2008 and 2007, respectively, 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.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | Upon full repayment of the loans, the Company recognized the remaining balance of accrued interest
on restructured debt as financial income of approximately $ 7,335 (see Note 1b).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 27

---

---

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

NOTE 9:-      LONG-TERM LOANS (Cont.)

| | d. | The aggregate annual maturities of long-term loans were as follows:
| | -- | -------------------------------------------------------------------
| |    |                                                                    

| |                                 |  |                         |        | 
| | ------------------------------- |  | ----------------------- | ------ | 
| |                                 |  | December 31,
      2007 |       
| |                                 |  |                         |       
| |                                 |  |                         |        | 
| | First year (current maturities) |  | $                       | 649    | 
| |                                 |  |                         |        | 
| |                                 |  |                         |        | 
| | Second year                     |  |                         | 658    | 
| | Third year                      |  |                         | 1,167  | 
| | Fourth year                     |  |                         | 2,217  | 
| | Fifth year                      |  |                         | 1,726  | 
| | Sixth year and thereafter       |  |                         | 6,500  | 
| |                                 |  |                         |        | 
| |                                 |  |                         |        | 
| |                                 |  |                         | 12,268 | 
| |                                 |  |                         |        | 
| |                                 |  |                         |        | 
| |                                 |  | $                       | 12,917 | 
| |                                 |  |                         |        | 

| |    |           
| | -- | ----------
| | e. | Covenants:
| |    |           

| | Under the Debt Restructuring Agreement, the Company agreed to maintain the following ratios of (1)
the total amounts owed to the Banks plus available credit under the new short-term loans plus debts
of subsidiaries to outside lenders incurred above an aggregate of $ 2,048 to (2) EBITDA as defined
in the Debt Restructuring Agreement.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                               

| |                                                    |  |                                
| | -------------------------------------------------- |  | -------------------------------
| | Period                                             |  | Ratio of debt
        to EBITDA
| |                                                    |  |                                
| |                                                    |  |                                
| | 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 was scheduled to 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 was to be measured on a quarterly basis thereafter, which measurement was to take into
account the previous four calendar quarters.               
| |                                                                                                                                                                                                                                                                                                                                                                    
| | In any case of certain breaches by the Company; (i) the Company might have been required by the Banks
to repay all amounts then owed under any or all documentation between the Company and the Banks,
to the Banks, and (ii) the Banks were to be entitled to exercise any and all rights set forth in
any or all documentation between the Banks and the Company.

F - 28

---

---

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

NOTE 10:-     OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

| |                                |  |  | **December 31,** |       
| | ------------------------------ |  |  | ---------------- | ------
| |                                |  |  |                  |       
| |                                |  |  | **2007**         |       
| |                                |  |  |                  |       
| |                                |  |  |                  |       
| | Employees and payroll accruals |  |  | $                | 3,690 
| | Government authorities         |  |  |                  | 340   
| | Royalties payable              |  |  |                  | 152   
| | Warranty provision             |  |  |                  | 1,593 
| | Professional services          |  |  |                  | 588   
| | Advance from customers         |  |  |                  | 964   
| | Provision for legal claims     |  |  |                  | 2,103 
| | Accrued expenses               |  |  |                  | 1,553 
| |                                |  |  |                 
| |                                |  |  |                 
| |                                |  |  | $                | 10,983
| |                                |  |  |                 

NOTE 11:-     OTHER LONG-TERM LIABILITIES

| |                                               |  |  |   |       |  |   |       | 
| | --------------------------------------------- |  |  | - | ----- |  | - | ----- | 
| | Unrecognized tax benefits (refer to Note 15c) |  |  | $ | 3,618 |  | $ | 4,584 | 
| | Other long-term liabilities                   |  |  |   |      |  |   | 695   | 
| |                                               |  |  |  
| |                                               |  |  |  
| |                                               |  |  | $ | 3,618 |  | $ | 5,279 | 
| |                                               |  |  |  

NOTE 12:-     COMMITMENTS AND CONTINGENT LIABILITIES

| | a. | Operating and capital lease commitments:
| | -- | ----------------------------------------
| |    |                                         

| | Prior to the HP Transaction, the Company and most of its subsidiaries rented their facilities under
various operating lease agreements.                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                             
| | Total rental lease expenses, net for the years ended December 31, 2006, 2007 and 2008 were $ 1,501,
$ 1,691 and $ 282, respectively.                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                             
| | Following the HP Transaction, most of the operating and capital lease commitments were assumed by HP
(see Note 1b).                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                             
| | The following table summarizes the remaining annual rental commitments as of the periods indicated
under 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, 2008:
| |                                                                                                                                                                                                                                                                                             

| | Year ended December 31,                 |  |  | Operating
      lease |     | **Sub-lease** |   | **Total** |  
| | --------------------------------------- |  |  | --------------------- | --- | ------------- | - | --------- | -
| |                                         |  |  |                       |     |               |   |           |  
| |                                         |  |  |                       |     |               |   |           |  
| | 2009                                    |  |  | $                     | 363 |               | $ | (428      | )
| | 2010                                    |  |  |                       | 363 |               |   | (428      | )
| | 2011                                    |  |  |                       | 30  |               |   | (35       | )
| |                                         |  |  |                       |     |              
| |                                         |  |  |                       |     |              
| | Total minimum lease payments (proceeds) |  |  | $                     | 756 |               | $ | (891      | )
| |                                         |  |  |                       |     |              

F - 29

---

---

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

NOTE 12:-     COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

| | Total sub-lease income for the years ended December 31, 2006, 2007 and 2008 was $ 361, $ 378 and
$ 416, respectively.            
| | ---------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                  
| | Total vehicle lease expenses for the years ended December 31, 2006, 2007 and 2008 were $ 1,359,
$ 1, 524 and $ 254, respectively.
| |                                                                                                                                  

| | b. | Royalty commitments:
| | -- | --------------------
| |    |                     

| | During the period 1998-2003, the Companys European subsidiary received research and development
grants totaling  2,435 ($ 3,583 at December 31, 2007) from the local authorities
in Belgium. Under the terms of the grants, the Companys European subsidiary had an obligation
to pay royalties at the higher of a certain minimum annual amount or at a rate of 4% of the sales
derived from the applicable products developed within the framework of such research and development
projects, 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 was contingent upon the Companys European subsidiary generating sales from products
developed under these grants. The grants were not repayable in the event that 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
decided to cease exploitation of the products developed under these grants, a notification thereof
should have been 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. The Companys European subsidiary did not
submit notification of this cessation to the local authorities and, instead, continued to pay royalties
with a total of  659 ($ 970 at December 31, 2007) remitted through 2005. As of December
31, 2007, the aggregate amount of grants received from the Belgian authorities, which had not yet
been repaid amounted to $ 2,613 ( 1,776 as of December 31, 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | In respect to 2006 and 2007, the European subsidiary received notice from the Belgian authorities requesting
the annual minimum royalty payments of $ 285 and $ 368, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The European subsidiary did not pay the amounts requested as it believes that the royalty payment for
2006 and 2007 should have been only $ 184 and $ 250, respectively and that it has overpaid
its royalty obligations for prior years. During discussions held with the Belgian authorities in
February 2008, the authorities confirmed the Companys position with respect to the amounts
owed for 2006 and 2007. It was also agreed that the Companys European subsidiary will submit
a proposal to the authorities with respect to the overall open balance as described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | During November 2008 the Companys European subsidiary reached a settlement with the Belgian authorities
by which the authorities waived the repayment of a portion of the grants and, in return, the Company
paid back on December 2, 2008 a total of  390 ($ 494) as full and final settlement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F - 30

---

---

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

NOTE 12:-     COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

| | c. | Charges and guarantees:
| | -- | -----------------------
| |    |                        

| | As security for the Companys liabilities to the Banks, the Banks placed fixed charges on
the Companys share capital, as well as a floating lien on all of the Companys assets.
  A second ranking floating lien was also placed on the Companys assets in connection
with the Note from related parties.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                             
| | Following the consummation of the HP Transaction, the Company used its right for early termination,
fully repaid its loans and was released from all charges and guarantees.                                                                                                                                
| |                                                                                                                                                                                                                                                                                                             

| | d. | Litigation:
| | -- | -----------
| |    |            

| | 1. | During 2008, a former employee of a subsidiary filed a lawsuit against the Company in the amount of
$ 322.5 alleging the Company did not provide him with the appropriate amount
of time to exercise his stock options following the termination of the applicable
blackout period. The Company and the former employee are negotiating a settlement
proposal by which the Company undertakes to pay an amount of $ 33 and this amount shall be considered
as the gross, exhaustive and final consideration paid to the former employee. A provision was
recorded in the amount offered.                                                                                                                                                         
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 2. | In January 2008, a former distributor of a subsidiary filed a lawsuit against the subsidiary claiming
his distribution agreement was terminated in violation of its terms and seeking damages in the amount of
$AUD 5,562 thousand. The subsidiary filed a statement of defense denying the claims and filed a  counterclaim
against the former distributor for non-payment and other damages in the amount of $ 882. The parties
reached a settlement agreement by which the subsidiary paid the former distributor an amount of $
175 in October 2008.                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 3. | During 2003, a former supplier filed a lawsuit against a subsidiary, in the amount of  943
thousand ($ 1,462), 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 ($ 1,931), including penalties and accrued interest. The subsidiary filed an appeal,
which was rejected by the court of appeals. During 2007, the Company reached an agreement with the
supplier to pay the amount due plus interest on the principal amount over a period of 40 months.
Following the consummation of the HP Transaction a second settlement agreement was reached by which
the full amount was paid in a lump sum during August 2008.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 4. | During 2001, a client filed a lawsuit against a subsidiary in the amount of $ 450 alleging bad quality
of products and damages. The subsidiary filed a counter claim of $ 216 in respect of unpaid
invoices. In October 2007, the court ruled that the client is not entitled for any damages and the
subsidiary should credit the client for the unpaid balance. The client was ordered to return the
product to the Companys subsidiary. The ruling was deemed final in April 2008 when the official
time for appeal passed.                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 5. | During 2002, an end-user filed a lawsuit in China against a subsidiary alleging bad quality of products.
The court ruled that the subsidiary should reimburse the client with the amount of $ 186. Following
an appeal filed by the subsidiary, the court ruled in September 2003 in favor of the end-user. The
subsidiary is in the process of liquidation and has no assets; therefore the plaintiff has no remedy
against the subsidiary.                                                                                                                                                                                                                                                                                                     

F - 31

---

---

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

NOTE 12:-     COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

| | The customer may elect to start new proceedings against another subsidiary operating in Hong Kong.
However, to date, the customer has not filed any claim in Hong Kong. Based on managements estimation
and the opinion of its legal counsel, it is less than likely that the second subsidiary will be required
to pay the amount ruled against the subsidiary in China. Therefore, no provision was recorded
with respect to this claim.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                            

| | 6.  | During 2002, a client filed a lawsuit in China against a subsidiary seeking reimbursement in the amount
of $ 400 alleging bad quality of products. In July 2005, the court ruled that the subsidiary
is to reimburse the client an amount of $ 286. The subsidiary no longer operates in China and under
current law the ruling in China is not enforceable in Hong Kong. The subsidiary notified the customer
in March 2006 that it intends to vigorously defend its claims if submitted to court in Hong Kong.
To date, the customer has not filed any claim in Hong Kong. Based on managements estimation
and the opinion of its legal counsel, it is less than likely that the subsidiary will be required
to pay the amount ruled against it in China. Therefore, no provision was recorded with respect to this claim.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 7.  | In September 2003, the Company 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 $ 210. 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.                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 8.  | 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 of $ 145 was recorded with respect to this claim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 9.  | In May 2007, a former managing director of a subsidiary filed a lawsuit against the Company and two
of its subsidiaries claiming his resignation was for just cause due to demotion and therefore should
be deemed as a termination of his employment by the subsidiary. The Company denied all the claims
made by the former employee. The ruling in favor of the Company was deemed final in March 2009 when
the official time for appeal passed.                                                                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 10. | In February 2007, a claim was filed against the Company and one of its former officers by a person
claiming to have been an agent of the Company in West Africa for commissions on sales of printers.
The claim is for NIS 3,000 thousand ($ 789). The Company filed a statement of defense denying
all claims, both with respect to the causes of action and with respect to the factual allegations
in the claim. Based on managements estimation and the opinion of its legal counsel, no provision
was recorded with respect to this claim.                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 11. | 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 a Voting Agreement
between the Former Director and the Company. The complaint filed by the Former Director seeks to
have the Voting Agreement declared unenforceable.                                                                                                                                                                                                                                                                                                                                                          

F - 32

---

---

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

NOTE 12:-     COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

| | In 2006, the Court dismissed part of the case with prejudice and the rest of the case was dismissed
with leave to re-file. In February 2008, all of the Former Directors shares and warrants were
sold by him to another investor and the Company and the Former Director filed a stipulation of discontinuance
with prejudice.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                 

| | 12. | 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.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                            
| | 13. | The Company has an outstanding indemnification obligation pursuant to the terms of the Asset Purchase
Agreement with HP (see note 1b)                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                            

NOTE 13:-     TRANSACTIONS AND BALANCES WITH RELATED PARTIES

| | a. | On December 30, 2008, the Companys shareholders approved the terms of a management services agreement
entered into among the Company, Kanir Joint Investments (2005) Limited Partnership (Kanir)
and Meisaf Blue & White Holdings Ltd. (Meisaf), a company controlled by Shlomo Nehama,
the Companys chairman of the board and controlling shareholder,  effective as of
March 31, 2008 (the Management Agreement). According to the Management Agreement, Kanir
and Meisaf, through their employees, officers and directors, provide assistance to the Company in
all aspects of the new operations process, including but not limited to, any activities to be conducted
in connection with identification and evaluation of the business opportunities, the negotiations
and the integration and management of any new operations and including discussions with the Companys  management
to assist and advise them on such matters and on any matters concerning the Companys affairs
and business. In consideration of the performance of the management services and the board services
pursuant to the Management Agreement, the Company agreed to pay Kanir and Meisaf an aggregate annual
management services fee in the amount $ 250.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

| | 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 Fortissimo Management Agreement). According to the Fortissimo
Management Agreement, Fortissimo, through its employees, officers and directors, provided management
services, advice and assistance to the Companys management concerning the Companys affairs
and business.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| | The Management Agreement also gave Fortissimo the right 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 Fortissimo Management Agreement,
the Company agreed to pay Fortissimo an aggregate annual management services fee in the amount $
250.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                
| | Pursuant to the Fortissimo Management Agreement, its terms were to remain in effect for so long as
the position of chairman of the board of directors and another position of the Board of Directors
are filled by Fortissimo directors.                                                                                                                                                                       

F - 33

---

---

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

NOTE 13:-     TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.)

| | In March 2008, all of the shares and a majority of the warrants held by Fortissimo were sold, all of
the Fortissimo directors resigned from the Companys board of directors and the Fortissimo Management
Agreement was terminated
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                    

| | c. | On January 24, 2006, the Company entered into a lease agreement with Telrad Networks Ltd. the owner
of an industrial park in Lod, Israel and a company controlled by the Companys then controlling
shareholders, the Fortissimo entities. The lease is for industrial space commencing 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, 2007 and 2008 the Company paid a total of $ 287, $ 372 and $ 62, respectively,
to Telrad for the use of the production area in the facility. This agreement was assumed by HP on
February 29, 2008.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 14:-     SHAREHOLDERS EQUITY (DEFICIENCY)

| | a. | The Ordinary shares of the Company were traded until May 2005 on the Nasdaq Capital Market. From May
19, 2005, the Companys Ordinary shares have been 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 was approved 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 January 30, 2007 and February 12, 2007, the Company, in connection with a private placement of its
Ordinary shares, issued 7,105,320 and 4,629,630 of its Ordinary shares, respectively at $ 0.54
per share to various investors. The Company received from these investments proceeds in the amount
of $ 6,100, net of issuance expenses in the amount of $ 250. The Company also issued to
the investors warrants to purchase up to 2,131,596 and 1,388,889 Ordinary shares, respectively, of
NIS 1 par value at an exercise price of $ 0.65 per share. The warrants are exercisable for five
years from the closing date of the private placement. In accordance with EITF 00-19, the warrants
are classified as permanent equity.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | The securities offered in the private placement may not be offered or sold in the United States absent
registration, or an applicable exemption from registration. The Company agreed to use its best efforts
to file a registration statement registering all the private placement related Ordinary shares (both
those purchased and those issuable upon exercise of the warrants) prior to July 1, 2007.            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                        
| | In the event that the Company either failed to file a registration statement prior to July 1, 2007,
or if such registration statement loses its effectiveness thereafter, the Company is committed to
the payment of partial damages in cash equal to 1% of the aggregate purchase price paid by the investors
for each month of default, subject to an overall limit of up to 24 months of partial liquidated damages.

F - 34

---

---

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

NOTE 14:-     SHAREHOLDERS  EQUITY (DEFICIENCY) (Cont.)

| | On June 29, 2007, the Company filed a registration statement for the resale of certain Ordinary shares
and Ordinary shares underlying warrants held by several of its shareholders, including the shares
and shares underlying warrants issued in January and February 2007. The registration statement became
effective on August 3, 2007, temporarily lost its effectiveness on October 1, 2007 and regained such
effectiveness on June 30, 2008.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | d. | On March 31, 2008 the principal shareholders, the Fortissimo entities, completed the sale of all of
the shares and a majority of the warrants held by them to Kanir Joint Investments (2005) Limited
Partnership, which was also previously a controlling shareholder of the Company and to S. Nechama
Investments (2008) Ltd., which became a controlling shareholder of the Company as a result of the
purchase from the Fortissimo entities and from several other shareholders.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | e. | Stock Option Plans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| | 1. | In December 1998, the Companys shareholders approved the non-employee director stock option plan
(the 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 granted
is vested immediately and expires 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 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. During June 2008 the Companys
board of directors extended the 2000 Plan by an additional 10 years and the current expiration date
of the 2000 Plan is August 31, 2018. 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 November 2003, the Companys shareholders approved the increase of the number of Ordinary shares
authorized for issuance under the 2000 Plan by the number of Ordinary shares available for grant
under the Companys 1995 and 1997 option plans, thereby terminating such plans (other than with
respect to outstanding options under such plans) (representing an increase of 497,590 Ordinary shares).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 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, the 1995 and 1997 option
plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F - 35

---

---

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

NOTE 14:-     SHAREHOLDERS   EQUITY (DEFICIENCY) (Cont.)

| | During 2008, in connection with the HP Transaction (see Note 1b), the Board of Directors approved the
acceleration of the vesting of all outstanding employee stock options following the Closing Date
and the repurchase, subject to the fulfillment of regulatory requirements, of the then outstanding
employee stock options to purchase approximately 9.9 million Ordinary shares of the Company. The
repurchase was completed in July 2008.                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Any options not repurchased (due to their relatively high exercise price) were canceled during 2008
pursuant to their terms and the terms of the 2000 Plan).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | During 2006, 2007 and 2008, the Company granted to directors 36,667, 30,000 and 43,333 options, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Following the increases in options reserved for issuance under the Companys 1998 and 2000 Plans,
the Company reserved for issuance 750,000 and 17,724,590 Ordinary shares, respectively. As of December
31, 2008, 146,667 options are outstanding and 519,166 Ordinary shares are available for future grants
under the 1998 Plan and no options are outstanding and 7,272,028 Ordinary shares are available for
future grants under the 2000 Plan (the number of Ordinary shares available for issuance under the
2000 Plan was reduced by the number of Ordinary shares underlying options repurchased by the Company
as more fully detailed above). Options that are cancelled or forfeited before expiration become available
for future grant.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

| | 2. | A summary of the Companys employee and director share option activity through December 31,
2008 for the Plans is as follows:
| | -- | -----------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                              

| |                                     |  |  | **Options outstanding and 
    exercisable** |           
| | ----------------------------------- |  |  | -------------------------------------------- | ----------
| |                                     |  |  |                                              |           
| |                                     |  |  | **Number 
      of options**                 |           
| |                                     |  |  |                                              |           
| |                                     |  |  |                                              |           
| | Balance as of January 1, 2006       |  |  |                                              | 6,697,281 
| | Options granted                     |  |  |                                              | 5,821,667 
| | Options exercised                   |  |  |                                              | (25,824   
| | Options forfeited or expired        |  |  |                                              | (641,060  
| |                                     |  |  |                                              |           
| |                                     |  |  |                                              |           
| | Balance as of December 31, 2006     |  |  |                                              | 11,852,064
| | Options granted                     |  |  |                                              | 1,490,000 
| | Options exercised                   |  |  |                                              | (451,669  
| | Options forfeited or expired        |  |  |                                              | (2,662,194
| |                                     |  |  |                                             
| |                                     |  |  |                                             
| | Balance as of December 31, 2007     |  |  |                                              | 10,228,201
| | Options granted                     |  |  |                                              | 43,333    
| | Options exercised                   |  |  |                                              | (10,000   
| | Options Repurchased                 |  |  |                                              | (9,893,550
| | Options forfeited or expired        |  |  |                                              | (221,317  
| |                                     |  |  |                                             
| |                                     |  |  |                                             
| | Balance as of December 31, 2008     |  |  |                                              | 146,667   
| |                                     |  |  |                                             
| | Exercisable as of December 31, 2008 |  |  |                                              | 146,667   
| |                                     |  |  |                                             
| | Exercisable as of December 31, 2007 |  |  |                                              | 3,817,120 
| |                                     |  |  |                                             

| |                                                                   
| | ------------------------------------------------------------------
| | As of December 31, 2008 all options outstanding were fully vested.

F - 36

---

---

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

NOTE 14:-     SHAREHOLDERS EQUITY (DEFICIENCY) (Cont.)

| |                                                     |  |  | **Year ended 
      December 31, 2008** |            
| | --------------------------------------------------- |  |  | --------------------------------------- | -----------
| |                                                     |  |  |                                         |            
| |                                                     |  |  |                                         | **Options**
| |                                                     |  |  |                                         |            
| |                                                     |  |  |                                         |            
| | Outstanding as of January 1, 2008                   |  |  |                                         | 10,228,201 
| | Granted                                             |  |  |                                         | 43,333     
| | Exercised                                           |  |  |                                         | (10,000    
| | Repurchased                                         |  |  |                                         | (9,893,550 
| | Forfeiture or expired                               |  |  |                                         | (221,317   
| |                                                     |  | 
| |                                                     |  | 
| |                                                     | 
| | Outstanding and exercisable as of December 31, 2008 |  |  |                                         | 146,667    
| |                                                     |  | 
| |                                                     | 

| |     |                                                                                                                                                                                                                            
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *)  | Represents intrinsic value of 9,947,167 options that are in-the-money as of December 31, 2007. The
remaining 281,034 options are out of the money as of December 31, 2007 and their intrinsic value
was considered as zero.
| |     |                                                                                                                                                                                                                            
| | **) | Represents intrinsic value of 63,333 options that are in-the-money as of December 31, 2008. The remaining
83,334 options are out of the money as of December 31, 2008 and their intrinsic value was considered
as zero.    
| |     |                                                                                                                                                                                                                            
| |     | Total intrinsic value of options exercised during 2006 and 2007 was $ 6 and $ 140, respectively.                                                                                                                           

| | 
| | 

| | 3. | The options outstanding as of December 31, 2008, all of them options granted to directors under the
1998 Plan,  have been separated into ranges of exercise price, as follows:
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                               

| |                                     |           |                             |         |                                                                             |  |                                                         |  |   |      | 
| | ----------------------------------- | --------- | --------------------------- | ------- | --------------------------------------------------------------------------- |  | ------------------------------------------------------- |  | - | ---- | 
| | Outstanding and excercisable        |          
| |                                     |          
| | Range of
      exercise
      price |           | Options
        outstanding |         | Weighted
        average
        remaining
        contractual
        life |  | Weighted
        average
        exercise
        price | 
| |                                     |           |                             |         |                                                                             |  |                                                         | 
| |                                     |           |                             |         | Years                                                                       |  |                                                         | 
| |                                     |           |                             |         |                                                                             |  |                                                         | 
|
| | $                                   | 0.31-0.40 |                             | 20,000  |                                                                             |  | 6.59                                                    |  | $ | 0.31 | 
| | $                                   | 0.48-0.80 |                             | 100,000 |                                                                             |  | 8.78                                                    |  | $ | 0.58 | 
| | $                                   | 0.92-1.17 |                             | 20,000  |                                                                             |  | 6                                                       |  | $ | 0.92 | 
| | $                                   | 1.63-1.88 |                             | 6,667   |                                                                             |  | 4.88                                                    |  | $ | 1.86 | 
| |                                     |           |                             |         |                                                                             |  |                                                         |  |   |      | 
| |                                     |           |                             |         |                                                                             |  |                                                         |  |   |      | 
| |                                     |           |                             | 146,667 |                                                                             |  | 7.92                                                    |  | $ | 0.65 | 
| |                                     |           |                             |         |                                                                             |  |                                                         |  |   |      | 

| |    |                                                                                                                                                                                                                              
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4. | All options granted during 2006, 2007 and 2008, were granted with exercise price equal to the market
price on the date of grant. Weighted average fair values and exercise price of options on dates of
grant are as follows:
| |    |                                                                                                                                                                                                                              

| |                                           |  |  | **Equal market price** |     
| | ----------------------------------------- |  |  | ---------------------- | ----
| |                                           |  |  |                        |     
| |                                           |  |  | **2006**               |     
| |                                           |  |  |                        |     
| |                                           |  |  |                        |     
| | Weighted average exercise prices          |  |  | $                      | 0.61
| |                                           |  |  |                        |     
| | Weighted average fair value on grant date |  |  | $                      | 0.45
| |                                           |  |  |                        |     

F - 37

---

---

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

NOTE 14:-     SHAREHOLDERS EQUITY (DEFICIENCY) (Cont.)

| | g. | The Companys outstanding warrants as of December 31, 2008, are as follows:
| | -- | ---------------------------------------------------------------------------
| |    |                                                                            

| | **Issuance date** |  | **Number of
    warrants 
    issued** |  | **Exercise 
    price** **per share** |      | **Warrants 
    exercisable** |            | **Expiration
    date** |              
| | ----------------- |  | -------------------------------------- |  | ------------------------------------- | ---- | ----------------------------- | ---------- | ----------------------- | -------------
| |                   |  |                                        |  |                                       |      |                               |            |                         |              
| |                   |  |                                        |  |                                       |      |                               |            |                         |              
| | August 2003       |  | 953,000                                |  | $                                     | 0.62 |                               | 953,000    |                         | January 2009 
| | 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   
| | February 2002     |  | 50,000                                 |  | $                                     | 5.00 |                               | 50,000     |                         | August 2009  
| | April 2005        |  | 3,000,000                              |  | $                                     | 0.75 |                               | 3,000,000  |                         | April 2010   
| | October 2005      |  | 25,714,286                             |  | $                                     | 0.40 |                               | 25,714,286 |                         | October 2010 
| | December 2005     |  | 8,000,000                              |  | $                                     | 0.35 |                               | 8,000,000  |                         | December 2010
| | January 2007      |  | 2,131,596                              |  | $                                     | 0.65 |                               | 2,131,596  |                         | January 2012 
| | February 2007     |  | 1,388,889                              |  | $                                     | 0.65 |                               | 1,388,889  |                         | February 2012
| |                   |  |                                        |  |                                       |      |                               |            |                         |              
| |                   |  | 42,126,526                             |  |                                       |      |                               | 42,126,526 |                         |              
| |                   |  |                                        |  |                                       |      |                               |            |                         |              

| |                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In September 2008, warrants to purchase 240,000 ordinary shares, at an exercise price of $ 0.52
per share, were exercised. In October 2008, warrants to purchase 825,923 ordinary shares at an exercise
price of $0.34 per share, held equally by Kanir and Shlomo Nehama, were exercised. These exercises
resulted in the receipt by us of aggregate consideration in the amount of $ 510.
| |                                                                                                                                                                                                                                                                                                                                                                                            

| | h. | 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 15:-     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. | 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 2b, 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. Subsequent to balance sheet date, in February 2008,
the inflation adjustment law was cancelled.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 38

---

---

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

NOTE 15:-     TAXES ON INCOME (Cont.)

| | 3. | Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:
| | -- | ------------------------------------------------------------------------------
| |    |                                                                               

| | Before the transaction with HP, the Company was an industrial Company, as defined by this
law and, as such, was entitled to certain tax benefits, including accelerated rates of depreciation,
in accordance with regulations published under the inflationary adjustments law. The Company was
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. The determination of the deferred tax liability
is not practicable.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

| | c. | Uncertain tax positions:
| | -- | ------------------------
| |    |                         

| | As of December 31, 2008, the total amount of unrecognized tax benefits was $ 4,584 which, if recognized,
would affect the effective tax rates in future periods. Included in that amount are cumulative accrued
interest and penalties in respect to uncertain tax positions of $ 966 at December 31, 2008,
of which $ 318 for interest and penalties expenses were recorded during 2008.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                          
| | A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                          

| |                                         |  |  | 2007 |       | 2008 |  
| | --------------------------------------- |  |  | ---- | ----- | ---- | -
| |                                         |  |  |      |       |      |  
| |                                         |  |  |      |       |      |  
| | Beginning balance                       |  |  | $    | 2,617 |      | $
| | Additions for prior year tax positions  |  |  |      | 837   |      |  
| | Additions for current year tax position |  |  |      | 164   |      |  
| |                                         |  |  |     
| |                                         |  |  |     
| | Ending balance                          |  |  | $    | 3,618 |      | $
| |                                         |  |  |     

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The amount of income taxes paid by the Group is subject to ongoing audit by federal, state and foreign
tax authorities, which often results in proposed assessments. Management performs a comprehensive
review of its global tax positions on an annual basis and accrues amounts for contingent tax liabilities.
Based on these reviews, the result of discussions and resolutions of matters with certain tax authorities
and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future
results may include favorable or unfavorable adjustments to estimated tax liabilities in the period
the assessments are determined or resolved. Additionally, the jurisdictions in which earnings and/or
deductions are realized may differ from current expectations used as a basis for the above estimates.
The Company does not expect that any tax audit would be completed within the next twelve months;
therefore, the Company does not anticipate any significant impact on its unrecognized tax benefit
balance in 2009.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The Company has tax assessments that are considered to be final up to 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F - 39

---

---

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

NOTE 15:-     TAXES ON INCOME (Cont.)

| | d. | Theoretical tax expenses:
| | -- | -------------------------
| |    |                          

| | Statutory rate applied to corporations in Israel and the actual tax expense, is as follows:
| | -------------------------------------------------------------------------------------------
| |                                                                                            

| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| | ----------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ | - | - | ------- | -
| |                                                                                                             |  | Year ended December 31, |       
| |                                                                                                             |  |                         |       
| |                                                                                                             |  | 2006                    |        | 2007 |   | 2008   |  
| |                                                                                                             |  |                         |        |      |   |        |  
| |                                                                                                            
| | Income (loss) before taxes on income                                                                        |  | $                       | (1,823 | )    | $ | (5,582 | ) | $ | 87,942  |  
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| | Statutory tax rate                                                                                          |  |                         | 31     | %    |   | 29     | % |   | 27      | %
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| | Theoretical tax expense (benefit)                                                                           |  | $                       | (565   | )    | $ | (1,619 | ) | $ | 23,744  |  
| | Increase (decrease) in taxes:                                                                               |  |                         |        |      |   |        |   |   |         |  
| | Approved enterprise                                                                                         |  |                         | 734    |      |   | 1,225  |   |   | 490     |  
| | Income subject to reduced tax rate                                                                          |  |                         | (27    | )    |   | 226    |   |   | (920    | )
| | Permanent differences                                                                                       |  |                         | 105    |      |   | 1,168  |   |   | (17,500 | )
| | Foreign exchange differences (see 2 above)                                                                  |  |                         | 478    |      |   | 180    |   |   | 1,279   |  
| | Utilization of carryforward losses for which valuation allowance was provided                               |  |                         | (175   | )    |   | (1,327 | ) |   | (10,294 | )
| | Deferred taxes on losses, reserves and allowances for which a valuation allowance was provided              |  |                         | (452   | )    |   | 985    |   |   | 4,167   |  
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| | Actual tax expense                                                                                          |  | $                       | 98     |      | $ | 838    |   | $ | 966     |  
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| | Basic net Income (loss) per share amount of the tax benefit resulting from Approved Enterprise status     |  |                         | *)    |      |   | *)    |   |   |        |  
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  
| | Diluted net Income (loss) per share amount of the tax 
   benefit resulting fromApproved Enterprisestatus |  |                         | *)    |      |   | *)    |   |   |        |  
| |                                                                                                             |  |                         |        |      |   |        |   |   |         |  

| |     |                                                                     
| | --- | --------------------------------------------------------------------
| | *)  | Less than $ 0.01                                                    
| |     |                                                                     
| | **) | Carryforward losses of subsidiaries sold to HP were assumed by them.
| |     |                                                                     

| | e. | Taxes on income included in the statements of income (operations):
| | -- | ------------------------------------------------------------------
| |    |                                                                   

| |          |  |  | **Year ended December 31,** |   
| | -------- |  |  | --------------------------- | --
| |          |  |  |                             |   
| |          |  |  | **2006**                    |   
| |          |  |  |                             |   
| |          |  |  |                             |   
| | Current: |  |  |                             |   
| | Domestic |  |  | $                           |  
| | Foreign  |  |  |                             | 98
| |          |  |  |                             |   
| |          |  |  |                             |   
| |          |  |  | $                           | 98
| |          |  |  |                             |   

F - 40

---

---

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

NOTE 15:-     TAXES ON INCOME (Cont.)

| | f. | 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,** |        
| | ------------------------------------------------ |  |  | ---------------- | -------
| |                                                  |  |  |                  |        
| |                                                  |  |  | **2007**         |        
| |                                                  |  |  |                  |        
| |                                                  |  |  |                  |        
| | Deferred tax asset:                              |  |  |                  |        
| | Net operating losses and deductions carryforward |  |  | $                | 30,068 
| | Stock-based compensation                         |  |  |                  | 649    
| | Others                                           |  |  |                  | 1,247  
| |                                                  |  |  |                 
| |                                                  |  |  |                 
| | Deferred tax assets before valuation allowance   |  |  |                  | 31,964 
| | Valuation allowance (1)                          |  |  |                  | (31,725
| |                                                  |  |  |                 
| |                                                  |  |  |                 
| | Net deferred tax assets (2)                      |  |  | $                | 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
will not be utilized in the foreseeable future. The net change in the valuation allowance in the year ended 31 December, 2008 was approximately $ 6,127,
which primarily relates to utilization of net operating losses in connection with the HP Transaction. Carryforward losses of subsidiaries sold to HP were assumed by them.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | (2) | As of December 31, 2007 deferred taxes are recorded in current other accounts receivable and other
assets.
| | --- | ----------------------------------------------------------------------------------------------------------
| |     |                                                                                                           

| | g. | Carryforward tax losses and deductions:
| | -- | ---------------------------------------
| |    |                                        

| | As of December 31, 2008, Ellomay Capital Ltd. had available carryforward tax losses and deductions
aggregating to approximately $ 35,000, which have no expiration date.                                                                                                                                                                                                                                                                                                                                        
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | NUR Asia Pacific had available carryforward losses as of December 31, 2008 aggregating to approximately
$ 2,000, which have no expiration date.                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | NUR Media Solutions had available carryforward losses as of December 31, 2008 aggregating to approximately
$ 6,000, which have no expiration date.                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Additional carryforward losses of NUR America and NUR Salsa, which are located in the U.S, amount to
approximately $ 33,000. 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. As NUR America and NUR Salsa were dissolved during 2008,
upon submitting the final tax returns of these companies, the remaining unutilized carryforward losses
will expire.

F - 41

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

NOTE 15:-     TAXES ON INCOME (Cont.)

| | h. | Income (loss) before taxes on income consists of the following:
| | -- | ---------------------------------------------------------------
| |    |                                                                

| |          |  |  | **Year ended December 31,** |       
| | -------- |  |  | --------------------------- | ------
| |          |  |  |                             |       
| |          |  |  | **2006**                    |       
| |          |  |  |                             |       
| |          |  |  |                             |       
| | Domestic |  |  | $                           | (4,588
| | Foreign  |  |  |                             | 2,765 
| |          |  |  |                             |       
| |          |  |  |                             |       
| |          |  |  | $                           | (1,823
| |          |  |  |                             |       

NOTE 16:-     EARNINGS PER SHARE

| |  | The following table sets forth the computation of basic and diluted earnings per share:
| |  | ---------------------------------------------------------------------------------------
| |  |                                                                                        

| |                                                      |  |  | **Years ended December 31,** |           
| | ---------------------------------------------------- |  |  | ---------------------------- | ----------
| |                                                      |  |  |                              |           
| |                                                      |  |  | **2006**                     |           
| |                                                      |  |  |                              |           
| |                                                      |  |  |                              |           
| | Net income (loss)                                    |  |  | $                            | (1,921    
| |                                                      |  |  |                              |           
| |                                                      |  |  |                              |           
| | Weighted average Ordinary shares outstanding         |  |  |                              | 60,506,854
| |                                                      |  |  |                              |           
| |                                                      |  |  |                              |           
| | Dilutive effect:                                     |  | 
| | Employee stock options and warrants                  |  |  |                              |          
| |                                                      |  |  |                              |           
| |                                                      |  |  |                              |           
| | Diluted weighted average Ordinary shares outstanding |  |  |                              |          
| |                                                      |  |  |                              |           
| |                                                      |  |  |                              |           
| | Basic earnings (loss) per share                      |  |  | $                            | (0.03     
| |                                                      |  |  |                              |           
| |                                                      |  |  |                              |           
| | Diluted earnings (loss) per share                    |  |  | $                            | (0.03     
| |                                                      |  |  |                              |           

NOTE 17:-     MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

| | a. | Summary information about geographic areas:
| | -- | -------------------------------------------
| |    |                                            

| | The Company managed 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 were
attributed to geographical areas based on location of end customers.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 42

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

NOTE 17:-     MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)

| | The following table presents total revenues for the years ended December 31, 2006, 2007 and 2008
and long-lived assets as of December 31, 2007 and 2008:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                         

| |                        |  |  | **2006**                  |        | **2007**                  |   | **2008**                           | 
| | ---------------------- |  |  | ------------------------- | ------ | ------------------------- | - | ---------------------------------- | 
| |                        |  |  |                           |        |                           |   |                                    | 
| |                        |  |  | **Total 
      revenues** |        | **Total 
      revenues** |   | **Long-
      lived
      assets** | 
| |                        |  |  |                           |        |                           |   |                                    | 
| |                        |  |  |                           |        |                           |   |                                    | 
| | Asia                   |  |  | $                         | 8,740  |                           | $ | 10,811                             | 
| | Europe and Middle East |  |  |                           | 42,391 |                           |   | 48,344                             | 
| | America                |  |  |                           | 26,837 |                           |   | 26,452                             | 
| |                        |  |  |                           |        |                           |   |                                   
| |                        |  |  |                           |        |                           |   |                                   
| |                        |  |  | $                         | 77,968 |                           | $ | 85,607                             | 
| |                        |  |  |                           |        |                           |   |                                   

| |    |               
| | -- | --------------
| | b. | Product lines:
| |    |               

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

| |                          |  |  | **Year ended December 31,** |       
| | ------------------------ |  |  | --------------------------- | ------
| |                          |  |  |                             |       
| |                          |  |  | **2006**                    |       
| |                          |  |  |                             |       
|
| | Printers and spare parts |  |  | $                           | 50,120
| | Ink                      |  |  |                             | 22,456
| | Services                 |  |  |                             | 5,392 
| |                          |  |  |                             |       
| |                          |  |  |                             |       
| |                          |  |  | $                           | 77,968
| |                          |  |  |                             |       

| |    |                                                       
| | -- | ------------------------------------------------------
| | c. | Major customer data as a percentage of total revenues:
| |    |                                                       

| | The Group did not have any major customers that represented 10% or more of the consolidated revenues
for 2006, 2007 and 2008.
| | -----------------------------------------------------------------------------------------------------------------------------

NOTE 18:-     SELECTED STATEMENTS OF INCOME (OPERATIONS) DATA

| | a. | Research and development, net:
| | -- | ------------------------------
| |    |                               

| |                                                                                |  |  | **Year ended December 31,** |      
| | ------------------------------------------------------------------------------ |  |  | --------------------------- | -----
| |                                                                                |  |  |                             |      
| |                                                                                |  |  | **2006**                    |      
| |                                                                                |  |  |                             |      
| |                                                                                |  |  |                             |      
| | Research and development expenses                                              |  |  | $                           | 5,827
| | Less – participation of the government in
   research and development projects |  |  |                             |     
| |                                                                                |  |  |                             |      
| |                                                                                |  |  |                             |      
| |                                                                                |  |  | $                           | 5,827
| |                                                                                |  |  |                             |      

F - 43

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---

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

NOTE 18:-     SELECTED STATEMENTS OF INCOME (OPERATIONS) DATA (Cont.)

| | b. | Financial expenses, net:
| | -- | ------------------------
| |    |                         

| |                                                          |  |  | **Year ended December 31,** |       
| | -------------------------------------------------------- |  |  | --------------------------- | ------
| |                                                          |  |  |                             |       
| |                                                          |  |  | **2006**                    |       
| |                                                          |  |  |                             |       
| |                                                          |  |  |                             |       
| | Expenses:                                                |  |  |                             |       
| | Interest on short-term bank credit and other
    charges |  |  | $                           | (385  
| | Interest on long-term loans                              |  |  |                             | (80   
| | Foreign currency loss                                    |  |  |                             | (6,423
| |                                                          |  |  |                             |       
| |                                                          |  |  |                             |       
| |                                                          |  |  |                             | (6,888
| |                                                          |  |  |                             |       
| | Income:                                                  |  | 
| | Interest on bank deposits and other                      |  |  |                             | 193   
| | Interest on restructured debt (see Note 1b)              |  |  |                             |      
| | Foreign currency gain                                    |  |  |                             | 5,379 
| |                                                          |  |  |                             |       
| |                                                          |  |  |                             |       
| |                                                          |  |  |                             | 5,572 
| |                                                          |  |  |                             |       
| |                                                          |  |  |                             |       
| |                                                          |  |  | $                           | (1,316
| |                                                          |  |  |                             |       

F -44

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[BDO McCabe Lo Limited Letterhead]

Report of IndependentRegistered
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, 2007 and the related
statements of operations, stockholders deficit and cash flows the two years in the period ended December 31, 2007. 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, 2007, and
the results
of its operations and cash
flows for the two years in the period ended December 31, 2007,
in conformity with accounting principles generally accepted in the United
States of America.

/s/BDO McCabe Lo Limited

BDO McCabe Lo LimitedCertified
Public Accountants

Hong Kong, 26 June 2008



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