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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, 2005
| | -------------------------------------------

# OR

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

# OR

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

| | Date
of event requiring this shell company report.....................................
| | --------------------------------------------------------------------------------------

| | For
the transition period from ______ to ______
| | -----------------------------------------------

# Commission File Number
000-26498



NUR MACROPRINTERS LTD. (Exact Name of Registrant as specified in its charter)

ISRAEL (Jurisdiction of incorporation or organization)

12 Abba Hillel Silver Street
P.O. Box 1281, Lod 71111, Israel(Address of principal executive offices)

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

Securities registered or to be registered pursuant to Section 12(g) of the Act:

|ordinary sharesNIS 1.0 par value per share
|------------------------------------------
|                                          
|Title of Class                            

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

|None          
|--------------
|              
|Title of Class

Indicate
the number of outstanding shares of each of the issuers classes of capital or common
stock as of December 31, 2005: 60,498,062 ordinary shares, NIS 1.0 par value per share



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

Yes o   No  x

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

Yes o  No  x

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

Yes x     No o

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

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

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

Item 17 oItem 18 x

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

Yes o   No x



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Table of Contents

|                           |                                                         | Page          
|-------------------------- | ------------------------------------------------------- | --------------
|Forward-Looking Statements | 4                                                      
|                          
|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                                         | 5             
|                           | Selected Financial Data                                 | 5             
|                           | Risk Factors                                            | 7             
|                          
|Item 4:                    | Information on NUR                                      | 13            
|                           | History and Development of NUR                          | 13            
|                           | Business Overview                                       | 14            
|                           | Organizational Structure                                | 25            
|                           | Property, Plants and Equipment                          | 26            
|                          
|Item 4A:                   | Unresolved Staff Comments                               | Not applicable
|                          
|Item 5:                    | Operating and Financial Review and Prospects            | 27            
|                           | Operating Results                                       | 27            
|                           | Liquidity and Capital Resources                         | 41            
|                           | Research and Development, Patents and Licenses          | 46            
|                           | Trend Information                                       | 46            
|                           | Off-Balance Sheet Arrangements                          | 47            
|                           | Contractual Obligations                                 | 47            
|                          
|Item 6:                    | Directors, Senior Management and Employees              | 48            
|                           | Directors and Senior Management                         | 48            
|                           | Compensation of Officers and Directors                  | 53            
|                           | Board Practices                                         | 55            
|                           | Employees                                               | 59            
|                           | Share Ownership                                         | 60            
|                          
|Item 7:                    | Major Shareholders and Related Party Transactions       | 63            
|                           | Major Shareholders                                      | 63            
|                           | Related Party Transactions                              | 64            
|                          
|Item 8:                    | Financial Information                                   | 66            
|                           | Consolidated Statements and Other Financial Information | 66            
|                           | Significant Changes                                     | 68            

2

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|          |                                                                              |               
|--------- | ---------------------------------------------------------------------------- | --------------
|Item 9:   | The Offer and Listing                                                        | 68            
|          | Stock Price History                                                          | 68            
|          | Markets                                                                      | 69            
|         
|Item 10:  | Additional Information                                                       | 70            
|          | Memorandum of Association and Amended and Restated Articles of Association   | 70            
|          | Material Contracts                                                           | 75            
|          | Exchange Controls                                                            | 81            
|          | Taxation                                                                     | 81            
|          | Documents on Display                                                         | 93            
|         
|Item 11:  | Quantitative and Qualitative Disclosures about Market Risk                   | 93            
|         
|Item 12:  | Description of Securities Other than Equity Securities                       | Not applicable
|         
|Part II   |                                                                              |               
|         
|Item 13:  | Defaults, Dividend Arrearages and Delinquencies                              | 94            
|         
|Item 14:  | Material Modifications to the Rights of Security Holders and Use of Proceeds | 94            
|         
|Item 15:  | Controls and Procedures                                                      | 95            
|         
|Item 16:  | [Reserved]                                                                   | 95            
|         
|Item 16A: | Audit Committee Financial Expert                                             | 95            
|         
|Item 16B: | Code of Ethics                                                               | 95            
|         
|Item 16C: | Principal Accountant Fees and Services                                       | 96            
|         
|Item 16D: | Exemptions from the Listing Standards for Audit Committees                   | 96            
|         
|Item 16E: | Purchases of Equity Securities by the Company and Affiliated Purchasers      | 96            
|         
|Part III  |                                                                             
|         
|Item 17:  | Financial Statements                                                         | Not applicable
|         
|Item 18:  | Financial Statements                                                         | 97            
|         
|Item 19:  | Exhibits                                                                     | 97            

3

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

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

| | our
ability to attain necessary working capital;
|- | ------------------------------------------------

| | the
growth of the market for wide format and super wide format digital printing systems;
|- | ----------------------------------------------------------------------------------------

| | the
market demand for our products;
|- | -----------------------------------

| | our
ability to retain key technical and management personnel;
|- | -------------------------------------------------------------

| | our
ability to retain our current suppliers and subcontractors;
|- | ---------------------------------------------------------------

| | the
possibility of future litigation; and
|- | -----------------------------------------

| | our
future performance, sales, gross margins, expenses (including stock-based compensationexpenses) and cost of revenues.
|- | -------------------------------------------------------------------------------------------------------------------------

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

4

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# PART I

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

Not Applicable.

# ITEM 2: Offer Statistics
and Expected Timetable

Not Applicable.

# ITEM 3: Key Information

Not
Applicable except for Items 3.A and 3.D, which are detailed below.

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

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

Pursuant
to Item 3.A.1 of Form 20-F, selected financial data as of and for the year ended December
31, 2001 has been omitted because such information cannot be provided on an audited or
unaudited basis without unreasonable effort or expense. We believe that preparation of
such information would involve unreasonable effort or expense because (1) certain of
NURs offices have been moved, resulting in significant personnel turnover and (2)
certain subsidiaries that were relevant to the results of operations for those periods are
no longer active, making securing certain financial records extremely difficult.

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

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

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

5

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Consolidated Statements of Operations
(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 expenses, net           |                        
|Selling and marketing                            |                        
|General and administrative                       |                        
|Doubtful accounts expenses (income)              |                        
|Impairment of goodwill                           |                        
|Amortization  and  impairment  of technology     |                        
|and other intangible assets                      |                        
|Restructuring charges                            |                        
|                                                 |                        
|                                                 |                        
|Total operating expenses                         |                        
|                                                 |                        
|                                                 |                        
|Operating loss                                   |                        
|Financial expenses, net                          |                        
|Fair value of warrants issued to former director |                        
|Other expenses, net                              |                        
|                                                 |                        
|                                                 |                        
|Loss before taxes on income                      |                        
|Taxes on income                                  |                        
|                                                 |                        
|                                                 |                        
|Net loss                                         |                        
|                                                 |                        
|                                                 |                        
|Basic and diluted net loss per share             |                        
|                                                 |                        
|                                                 |                        
|Weighted  average  number  of  shares  used  in  |                        
|computing basic and diluted net loss per share   |                        
|                                                 |                        
|                                                 |                        

6

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

|                                        | 2002 | 2003 | 2004 | 2005      
|--------------------------------------- | ---- | ---- | ---- | ----------
|
|
|
|
|Working capital (deficiency)            |      |      | $    | 31,009    
|Total assets                            |      |      | $    | 85,860    
|Total liabilities                       |      |      | $    | 68,402    
|Total shareholders' equity (deficiency) |      |      | $    | 17,458    
|Capital stock                           |      |      | $    | 49,899    
|Ordinary shares outstanding             |      |      | $    | 17,155,859

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

Investing
in our securities involves significant risk. Currently, there is no liquid trading market
for our securities and we cannot guarantee you that a market will develop. You should be
able to bear a complete loss of your investment. To understand the level of risk, you
should carefully consider the following risk factors, as well as the other information in
this annual report.

Because
our ordinary shares are quoted on the pink sheets and their trading is 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
NURM.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 are 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 is subject to
the requirements of Rule 15g-9 under the Securities Exchange Act of 1934, as amended (the
Exchange Act). Pursuant to Rule 15g-9, brokers and dealers who recommend such
low-priced securities 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.

7

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

We
depend on a few key products in a business subject to rapid technological change and any
decline in demand for these products could severely harm our ability to generate
revenues. We  depend  upon the  sale of our  principal  products  - the NUR  Fresco  printers,  the NUR  Tempo
printers and the NUR Expedio  printers,  and upon the sale of ink products.  The markets for our products
are characterized by rapid changes in technology,  customer  preferences and evolving industry  standards.
Our future  financial  performance will depend upon our ability to update our current products and develop
and market new products to keep pace with  technological  advances in the industry.  During 2003, 2004 and
2005, we invested  approximately $7.1 million,  $8.0 million and $7.1 million,  respectively,  in research
and  development  projects.  Although  we plan to  continue to invest in  research  and  development,  our
business could  seriously  suffer if we fail to anticipate or respond  adequately to changes in technology
and customer preferences,  or if our products are delayed in their development or introduction.  We cannot
assure  you  that we will  successfully  develop  any  new  products.  If our  competitors  introduce  new
products, the sales of our existing products and our financial results could be negatively affected.

If
we are unable to comply with certain covenants concerning our bank loans, our lender banks
may demand immediate repayment of the loans and we may not be able to continue our
operations.If we do not meet certain  covenants  provided for in our loan  agreements  with our lender banks,  we
may be required by the banks to immediately  repay our  outstanding  bank debt. We also agreed to maintain
certain  financial  ratios,  which will be measured on each quarter following the end of the third quarter
of 2008. If we were to violate  certain  covenants of our agreements  with our lender banks,  they will be
able to enforce a lien against all of our assets and we may not be able to continue our operations.

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

8

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

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

We
face strong competition in the market for printing supplies. If we do not compete
successfully, our revenues will decline. We  compete  with  independent  manufacturers  in the market for printer  supplies.  During  2003,  we
decided to cease to sell substrates,  which then accounted for  approximately  3.4% of our total sales, as
a result of a highly  competitive  market that is characterized by a large number of suppliers  worldwide.
We cannot  assure you that we will be able to remain the  exclusive  or even  principal  ink  manufacturer
and/or  supplier for our printers.  We also cannot assure you that we will be able to compete  effectively
or achieve significant revenues in the ink business.

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

9

---

---

We
are subject to significant legal action and may incur substantial costs related to
pursuing or settling such litigation.We participate in an industry that is subject to
significant product liability and other litigation. Many of these actions involve large
claims and significant defense costs. For a further description of this matter, please see
Item 8.A: Legal Proceedings.

We
depend on our executive officers and other key employees and the loss of their services
could adversely affect our business and results of operations. Our senior management
has undergone significant changes in the last few years and we believe that our success
depends to a large extent upon the contributions of key personnel, and especially our
executive officers. Our business could seriously suffer if David Reis or Yosef Zylberberg,
our recently appointed principal executive officers, or other key personnel, were to leave
our company. In addition, we do not have, and do not plan to apply for,
key-man life insurance for any of our key employees. Our future success will
also depend in part on our continuing ability to attract highly qualified employees. We
cannot assure our continued success in attracting or retaining highly qualified personnel.

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

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

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

10

---

---

Political
instability in Israel may disrupt important operations and our business. Our
headquarters and research  facilities,  operations and some of our  subcontractors  and suppliers
are located in the State of Israel.  Although  most of our sales are currently  made to customers  outside
of Israel,  we are  nonetheless  directly  influenced by the political,  economic and military  conditions
affecting  Israel.  Our  business  could  be  harmed  by  any  major  hostilities  involving  Israel,  the
interruption or curtailment of trade between Israel and its trading  partners,  or a significant  downturn
in the  economic  condition  of Israel.  The  prospect  of peace in the Middle East is  uncertain  and has
deteriorated  due to the continued  violent  conflicts  between  Israelis and  Palestinians.  Furthermore,
several countries  restrict  business with Israeli  companies.  We could be adversely  affected by further
setbacks  to the peace  process or by  restrictive  laws or  policies  directed  toward  Israel or Israeli
businesses.  In addition, all nonexempt male adult citizens of Israel,  including some of our officers and
employees,  are  obligated  to perform  military  reserve  duty and are subject to being called for active
duty under emergency  circumstances.  While we have operated  effectively under these  requirements  since
our formation,  we cannot predict the full impact of such conditions on us in the future,  particularly if
emergency  circumstances  occur.  If many of our employees are called for active duty,  our  operations in
Israel may be slowed and our business may be harmed.

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

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

11

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

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

Our
stock price has decreased significantly and may continue to be volatile, which
could adversely affect the market liquidity of our ordinary shares and our ability to
raise additional funds. Our  ordinary  shares have  experienced  substantial  price  volatility,  particularly  as a result of
variations between our anticipated and actual financial results,  the published  expectations of analysts,
and  announcements  by our  competitors  and us.  The  market  price  for our  ordinary  shares  has had 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  NURM.PK.  In addition,  the stock market has  experienced  extreme  price and
volume  fluctuations  that have negatively  affected the market price of many technology and manufacturing
companies,  in  particular,  and that have often been  unrelated  to the  operating  performance  of these
companies.  These factors, as well as general economic and political conditions,  may materially adversely
affect the market  price of our  ordinary  shares in the  future.  Additionally,  volatility  or a lack of
positive  performance in our stock price may adversely  affect our ability to retain key  employees,  many
of whom have been granted stock  options,  and  negatively  affect our ability to raise funds through both
debt and equity,  discourage  potential  customers  and partners  from doing  business  with us, and could
result in a material adverse effect on our business, financial condition, and results of operations.

If
we fail to implement  and maintain  effective  internal  controls  over  financial  reporting,  our
business,  operating results and share price could be materially  adversely  affected.  Beginning with our
annual  report for our fiscal year ending  December 31,  2007,  Section 404 of the  Sarbanes-Oxley  Act of
2002 will  require  us to include a report by our  management  on our  internal  controls  over  financial
reporting.  This report must contain an  assessment by  management  of the  effectiveness  of our internal
controls  over  financial  reporting as of the end of our fiscal year and a statement as to whether or not
our  internal  controls are  effective.   The report must also  contain a statement  that our  independent
auditors have issued an  attestation  report on  managements  assessment of such internal  controls.  Our
efforts to comply with Section 404 are likely to result in significant  costs,  the commitment of time and
operational  resources and the  diversion of  managements  attention.   If by the time we are required to
comply with  Section 404 of the  Sarbanes-Oxley  Act of 2002,  our annual  report  continues  to include a
report  that  identifies  one  or  more  material  weaknesses  in our  internal  controls  over  financial
reporting,  we will be unable to assert that our  internal  controls are  effective.   If we are unable to
assert that our internal controls over financial reporting are effective,  or if our independent  auditors
are  unable to attest  that our  managements  report is fairly  stated or they are  unable to  express an
opinion on our  managements  evaluation or on the  effectiveness of our internal  controls,  our business
may be harmed.   Market  perception of our  financial  condition and the trading price of our stock may be
adversely affected and customer perception of our business may suffer.

The
implementation of the Statement of Financial Accounting Standard No. 123 (revised 2004),
which requires us to record compensation expenses in connection with equity share based
compensation, may significantly reduce our reported profitability.On December 16,
2004, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment (SFAS No.
123R). SFAS No. 123R requires, as of the first quarter of 2006, all share-based
payments to employees to be recognized based on their fair values. SFAS No. 123R also
revises, clarifies and expands guidance in several areas, including those relating to fair
value measuring, classifying an award as equity or as a liability and attributing
compensation cost to reporting periods. The adoption of SFAS No. 123R may significantly
reduce our reported profitability, although we do not expect it will have any impact on
our overall financial position. Had we adopted SFAS No. 123R in 2005, the impact of that
standard would have approximated $0.5 million, as described in the disclosure of pro forma
net loss and loss per share in our consolidated financial statements included elsewhere in
this report. In addition, such adoption could also limit our ability to continue to use
stock options as an incentive and retention tool, which could, in turn, hurt our ability
to recruit employees and retain existing employees.

12

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We
are controlled by a small number of shareholders, who may make decisions with which you
may disagree.In October 2005, a group of investors led by Fortissimo Capital Fund GP, LP  (Fortissimo),  invested
$12 million in our company.  Consequently,  these  shareholders  are  currently the  beneficial  owners of
69.58% of our  ordinary  shares  and  acting  together,  could  exercise  significant  influence  over our
business,  including  with respect to the election of our  directors and the approval of change in control
transactions.  This  concentration  of control may have the effect of delaying  or  preventing  changes in
control  or  changes  in  management,  or  limiting  the  ability  of our other  shareholders  to  approve
transactions that they may deem to be in their best interest.

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

# ITEM 4: Information on
NUR

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

Our
legal and commercial name is NUR Macroprinters Ltd. Our main office is located at 12 Abba
Hillel Silver Street, P.O. Box 1281, Lod 71111, Israel, and our telephone number is (011)
972-8-914-5555. NURs registered agent in the United States is CT Corporation System,
1633 Broadway, New York, New York 10019.

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

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

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

13

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Recent Developments

On  December 29, 2004, we reached an agreement  with Inspire  Investments  Ltd. for the  investment by
Inspire of $10 million in NUR. In June 2005,  Inspire  notified us that it had  terminated  the investment
agreement.  As a result,  the debt  restructuring  agreement with our lender banks,  dated March 21, 2005,
was also terminated.

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

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

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

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

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

During  2005, NUR did not have material capital  expenditures or  divestitures.  During the first half
of 2006 we made leasehold  improvements  in our new  manufacturing  site in Lod,  Israel.  We invested and
expect to further  invest in these  leasehold  improvements  approximately  $0.50  million  until the site
preparations are completed.

For
a historical view of our financing activities please refer to Item 5: Operating and
Financial Review and Prospects.

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

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

14

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

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

Our
wide format printers are headed by the NUR Fresco family, the NUR Tempo and the NUR
Expedio 3200. In the super wide category we offer the NUR Expedio 5000. We ceased sales of
the NUR Ultima printers during 2004. As customary with respect to other printers we
no longer sell, we continue to service and provide ink products to the NUR Ultima
printers. These four families of printers are sometimes referred to collectively herein as
the NUR printers or our printers.

We also sell  specialized ink products for use with our printers.  The ink products sold by NUR to its
customers for use with the NUR Fresco, the NUR Ultima,  the NUR Salsa,  the NUR Blueboard,  the NUR Tempo
and the NUR Expedio  printers are resistant to water and  ultraviolet  rays and are well suited for indoor
and outdoor use without lamination.

We
sell our printers and related products primarily to commercial digital printers, design
and service firms, screen printers, commercial photo labs, outdoor media companies and
trade shops. The NUR printers are installed in more than 700 sites throughout Europe,
North and South America, Africa and Asia.

# Industry Background

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

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

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Traditional Wide Format
and Super Wide Format Printing Methods

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

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

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

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

Wide Format and Super
Wide Format Digital Printing

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

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

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.

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.

# Our Strengths and
Strategy

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

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NURs
strategy is to:

| | n | strengthen
our position as a world leader in the wide format and super wide format digital printing
markets by supplying the productive and cost-effective wide format and super wide format
digital printers and totally digitally-based printing solutions for the out-of-home
advertising market;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | enable
print service providers to digitally produce a large portion of the graphics currently
produced with screen printing processes;
| | - | --------------------------------------------------------------------------------------------------------------------------------------

| | n | be
our customers' vendor of choice for their ink needs;
| | - | -------------------------------------------------------

| | n | enable
our customers to develop new ways to profit from our printing systems; and
| | - | ---------------------------------------------------------------------------------

| | n | provide
our customers with highly responsive and capable support, service and supplies.
| | - | ---------------------------------------------------------------------------------------

# Products

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

Printers

Super Wide Format Digital
Printers

In
May 2004, we introduced the NUR Expedio 5000, a 5-meter/16-feet super wide inkjet
production printer that uses UV-curable inks. The machine is the first roll-fed
wide-format inkjet production press equipped with UV-curable inks to reach the market. Its
speed, quality, environmental friendliness, and ability to print on a very wide variety of
media give this new super wide printer the potential to revolutionize the wide-format
inkjet production printing marketplace.

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

Wide Format Digital
Printers

In
September 2005, we introduced the NUR Expedio 3200, capable of output to 3.2 meters wide
(approximately 10 feet).

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The NUR Expedio 3200 offers 4- and 8-color  printing modes with easy  changeover  between modes and is
designed to be used to print a wide range of products,  including indoor signage for close-up viewing,  as
well as billboards and other  wide-format  applications,  at resolutions up to 720 dpi and at speeds of up
to 120 square meters (1300 square feet) per hour.

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

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

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

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

In April 2004,  NUR released the NUR Fresco II series that  replaced the NUR Fresco HiQ models.  It is
possible to upgrade  former  Fresco  models to the Fresco II level of  performance.  The Fresco II entails
improved  printing  speed,  which  allows the machine to print up to 120 square  meters (1300 square feet)
per hour.

Flatbed Digital Printers

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

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In April 2004, NUR introduced the Tempo L, a new mid-range,  4-color  flatbed  printer joining the NUR
Tempo flatbed  inkjet press  product line.  The new NUR Tempo L model is targeted at customers who wish to
enter the  UV-curable  inks flatbed  printing  market with a lower  up-front  capital  investment  than is
required  for the  top-of-the-line  8-color NUR Tempo  model,  while  securing  the growth path for future
increase in  performance.  The NUR Tempo L prints at a speed of up to 50 square  meters (540 square  feet)
per hour and is based on the platform of the  top-of-the-line  NUR Tempo with the same printing format and
robust  design.  It is possible to easily  upgrade  the Tempo L to the Tempo  level of  performance,  thus
allowing for a two-step  entry to the flatbed arena.  This may expand the potential market for the Tempo
product line.

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

In  April  2006,  we  introduced  the NUR Tempo II  model,  which is based on the  original  NUR Tempo
platform,  but is capable of printing at higher  quality and higher print speeds.  The higher  performance
NUR Tempo II retains the ability to print in both 4- and 8-colors (with fast  changeover  between the two)
and also features both roll-to-roll and white  ink-printing.  NUR Tempo II provides three new speed modes,
including,  Fine  Press II mode,  capable  of output at 42 square  meters  (450  square  feet) per hour in
8-colors,  Press II mode for output 62 square  meters (670 square feet) per hour in 4-colors,  and X-Press
mode for output at 120 square  meters  (1300  square  feet) per hour in  4-colors.  An upgrade kit also is
available to enable NUR Tempo  customers  upgrading  their  printers to the Tempo II improved  performance
level.

The NUR Printers 
General

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

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

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

20

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Currently,
the retail prices of the NUR printers generally range from $180,000 to $500,000 per
machine.

Consumables

Inks

The
NUR Tempo and the NUR Expedio printers use specialized UV curable inks designed for the
needs of the wide and super wide format market. The ink is resistant to water and
ultraviolet rays, making it fairly durable and thus well suited for outdoor conditions.
The NUR Tempo, through the utilization of the ink, can print on almost an unlimited
variety of substrates, including corrugated board, foam-core paperboard, acrylic sheets,
PVC, polycarbonate, fluted polypropylene, glass, wood and standard rolled media. The NUR
Expedio prints on a variety of media, including standard less expensive uncoated
substrates that ensure low operating costs and higher profit margins. The ink enables the
output of the NUR Tempo and NUR Expedio to be used both for indoor and outdoor advertising
with out additional lamination.

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

As of  September  2003,  we  manufacture  ink in our plant in  Ashkelon,  Israel,  and during  2004 we
completed  the transfer of our ink  research and  development  activities  from Belgium to Israel.  During
2003, we decided to cease to sell substrates for use with our printers and ink.

# Sales and Marketing

We
distribute and sell our products through the following wholly owned subsidiaries: NUR
Europe (which sells to the Middle East and Africa as well), NUR America, NUR Asia Pacific,
NUR DO Brazil and NUR Japan.

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

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

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The  Israeli  Government,  through  the Fund for the  Encouragement  of  Marketing  Activities  of the
Ministry of Industry,  Trade and Labor (the Marketing Fund),  awarded participation grants for marketing
expenses incurred  overseas.  During 2005, we did not receive grants from the Marketing Fund and we are no
longer  eligible  to  receive  such  grants.  Under  the  terms of grants  awarded  in prior  years by the
Marketing  Fund,  NUR was  obligated to pay a royalty of 3-4% of the export  added value to the  Marketing
Fund until  100%-150%  of the grants  received  in prior  years have been  repaid.  In  connection  with a
dispute with the Ministry of Industry,  Trade and Labor NUR withheld  payments owed to the Marketing Fund.
In February 2006,  the District Court in Jerusalem has approved a settlement  between NUR and the Ministry
of  Industry,  Trade and  Labor.  Under  the terms of the  approved  settlement,  NUR will make  aggregate
payments of approximately  $0.78 million to the Marketing Fund over a three-year  period. For more details
regarding the settlement agreement see Item 8.A: Legal Proceedings.

# Production and Sources
of Supply

On January 24, 2006, we entered into a lease agreement with Telrad  Networks Ltd.  (Telrad) to lease
approximately  3,400  square  meters  (36,597  square  feet) in the Telrad  Campus in Lod,  Israel for the
purpose of housing our manufacturing  facility.  The Fortissimo entities,  which as a group are considered
a major  shareholder  of Telrad,  are together with Kanir Joint  Investments  (2005)  Limited  Partnership
(Kanir),  the beneficial owners of 69.58% of NURs ordinary shares and have appointed 4 members to NURs
board of directors.  For more  information see Item 7.B:  Related Party  Transaction.  NUR  manufactures
and assembles the NUR printers at a single large  manufacturing  facility  located in the Telrad Campus in
Lod, Israel.

Full  system  integration  and  acceptance  and  quality  control  testing  of the  printers  are
conducted by our employees at the manufacturing  facility.  Product quality control tests and inspections
are performed at various steps  throughout  the  manufacturing  process,  and each product is subject to a
final test prior to delivery.

We
believe that, if increases in sales occur,  we can expand our  production  capabilities  or engage
subcontractors  to carry out certain of the  manufacturing  or the assembly of our  printers.  Most of the
components  used for the assembly of the NUR printers are available  from several  sources;  however,  the
printheads  used in each series of  printers  and  certain  other  components  are  purchased  from single
suppliers. For additional information see Item 3.D: Risk Factors.

To
date, we have been able to obtain adequate supplies of the components necessary to produce
our printers and have not had any serious problems with our subcontractors. If our
business grows, however, we will need to purchase greater quantities of components on a
timely basis. Any delay in supply could ultimately hurt our business. The prices of our
principal components have not materially changed during 2005. NUR is unable to anticipate
whether or not the prices of these principal components may become volatile in the future.

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

22

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# Service and Support

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

# Research and Development

NURs
research and development center, which currently engages 40 employees, is focused on
developing new products, enhancing the quality and performance relative to price of our
existing products, reducing manufacturing costs, upgrading and expanding our product line
through the development of additional features and improving functionality in response to
market demand.

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

Total  research and  development  expenses,  before royalty bearing grants,  were  approximately  $7.1
million,  $8.0  million  and  $7.1  million  in  the  years  ended  December  31,  2003,  2004  and  2005,
respectively.  Royalty  bearing  grants  amounted  to $0.6  million in 2003.  We did not  receive  royalty
bearing grants in 2004 and 2005.

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

Between 1997 and 2003, NUR Europe and NUR Media Solutions,  our subsidiaries,  received three research
and development  grants in the aggregate  amount of approximately  $2.5 million from local  authorities in
Belgium.  These grants are subject to certain terms and  conditions  pursuant to  agreements  entered into
between  the  subsidiaries  and the local  authorities  in  Belgium.  Under the  terms of the  grants  the
subsidiaries  have an  obligation to repay the higher of a certain  minimum  annual amount or royalties of
3% to 6% of the revenues  generated from the sale of the products  developed  under the grants,  until the
grants  are  repaid  in full.  Payments  to the local  authorities  in  Belgium  are  contingent  upon the
subsidiaries  generating sales from products developed under these grants. The grants are not repayable in
the event that the subsidiaries  decide to cease (1) the research and development  activities,  or (2) the
exploitation of the products  developed under these grants,  provided,  that a notification  regarding the
decision  to cease the  exploitation  is to be given to the local  authorities  in Belgium,  and  provided
further,  that all know how and results of the  research  and  development  are  transferred  to the local
authorities in Belgium.  NUR Europe and NUR Media Solutions paid a total of  approximately  $0.09 million,
$0.23  million  and  $0.23  million  in 2003,  2004 and  2005,  respectively,  in  royalties  to the local
authorities  in Belgium in accordance  with the terms of the grants.  Following the receipt of the grants,
the  subsidiaries  decided to cease research and  development  activities and the  exploitation of certain
supported  products.  As of  December  31,  2005,  the  subsidiaries  have  not yet  repaid  to the  local
authorities  in Belgium  an amount of $2.1  million  related to the  grants.  The  subsidiaries  intend to
address the local  authorities in Belgium regarding the  subsidiaries  compliance  with certain terms of
the grants.  NUR cannot  predict the outcome of the  discussions  with the local  authorities  in Belgium;
accordingly,  no provision was recorded in relation to these grants in the audited consolidated  financial
statements of NUR set forth in Item 18: Financial Statements.

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In the past,  NUR  received  grants  from the  Government  of Israel,  through the Office of the Chief
Scientist (the OCS),  for the development of our systems and products.  The terms of the grants prohibit
the  manufacture  of products  developed with  government  grants outside of Israel or the transfer out of
Israel of the  technology  developed  pursuant to these grants without the prior consent of the OCS. These
restrictions  do not bar exports from Israel of products  developed with such  technologies.  In addition,
the  know-how  from  the  research  and  development  that is  used  to  produce  the  product  may not be
transferred  to  third  parties  or  out  of  Israel  without  the  approval  of  the  OCS.  NUR  received
approximately  $0.3  million in the year ended  December  31,  2000,  but has not  received  research  and
development  grants  from  the OCS  since  2001.  The  OCS  awards  grants  of up to 50%  (and in  certain
circumstances  up to 66%) of a projects  approved  expenditures in return for royalties.  Under the terms
of  previously  granted  funding,  royalties  were  payable  generally  at a rate of 2% to 3% on  sales of
products  developed  from the funded project and ending when 100% to 150% of the dollar value of the grant
is repaid.  During 2001,  we made  royalty  payments of $0.2 million in respect of such grants to the OCS.
In February 2005,  NUR filed suit with the District  Court in Jerusalem  against the OCS for a declaratory
judgment denying an alleged  liability for unpaid  royalties to the OCS of approximately  $0.8 million and
for the recovery of  approximately  $0.3 million that were  previously  paid to the OCS. In February 2006,
the court approved a settlement between NUR and the OCS. Under the terms of the approved  settlement,  NUR
will make aggregate  payments of  approximately  $0.6 to the OCS over a three year period.  For additional
information regarding the OCS dispute please see Item 8.A: Legal Proceedings.

# Competition

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

Our
main competitors in the super wide format arena are EFI/Vutek,  Hewlett-Packard/Scitex  Vision and
Gandi  Innovations.  Said companies have  introduced  products that directly  compete with the NUR Expedio
super wide format printers.  In the wide format market,  the main  competitors are  Hewlett-Packard/Scitex
Vision,  EFI/Vutek and Gandi Innovations.  These companies have introduced  products that compete with the
NUR Fresco and NUR Expedio  printers.  In the market for flatbed  printers  utilizing  UV curable ink, the
main competitors are Durst Phototechnik,  Inca Digital Printers,  Hewlett-Packard/Scitex Vision, Leggett &
Platt (Spuhl),  Gandi and EFI/Vutek.  These companies have  introduced  products that compete with the NUR
Tempo.  We have also witnessed  continued  growth of a local Chinese market where  approximately  15 local
competitors  are developing,  manufacturing  and selling  inexpensive  printers.  Recently,  these Chinese
manufacturers have begun penetrating the international market.

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

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# Trade Secrets, Patents
and Proprietary Rights

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

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

# Insurance

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

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

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

The
following chart presents, as of June 2006, our corporate structure, the jurisdiction of
incorporation of our significant subsidiaries and the percentage of shares that we hold in
those subsidiaries.

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

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

Israel

NURs
main facilities of approximately 42,500 square feet are located in the high-tech
industrial park in Lod, Israel. We use this facility as our headquarters and for research
and development activities. We have invested a total of approximately $2 million in
improving this facility. The Lod lease expires in April 2008. We sublet to a third party
approximately 7,500 square feet out of the space leased by us in Lod. The sublease expires
in April 2008.

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

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

United States

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

Our
North American headquarters and training center are located in Moonachie, New Jersey. The
11,000 square feet facility replaces NURs former facility in San Antonio, Texas. The
new headquarters houses NURs North American sales, marketing, administrative, and
support staff and includes a fully equipped training center and demo site. The New Jersey
lease expires in October 2008. NUR America leases warehouse space in San Antonio, Texas
consisting of 8,500 square feet. The San Antonio lease expires in September 2006.

Europe

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

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Asia Pacific

NUR
Asia Pacific leases approximately 3,561 square feet for use as office space in Hong Kong.
The lease for the Hong Kong facility will expire in November 2006. We intend to expand our
Hong Kong facilities in the near future by approximately 1,500 square feet. This
additional space will house the subsidiarys demonstration center.

Japan

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

We
believe that our facilities worldwide are fully utilized.

Environmental Matters

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

# ITEM 4A: Unresolved
Staff Comments

Not
applicable.

# ITEM 5: Operating and
Financial Review and Prospects

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

# General

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

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

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NURs  total  revenues  increased  from $68.7  million in the year ended  December  31,  2003 to $76.7
million in the year ended  December 31, 2004 and declined to $71.4 million in the year ended  December 31,
2005. Our net loss for the years ended December 31, 2003,  2004 and 2005 was $26.4 million,  $22.0 million
and $14.7 million, respectively.

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

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

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

Research  and  development   expenses   include  mainly  labor,   materials   consumed,   expenses  by
subcontractors,  consultants and others.  Research and  development  expenses are carried to the statement
of operations as incurred.  Grants are deducted  from research and  development  costs on an accrual basis
as the related expenses are incurred.

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

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

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

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

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# Certain Critical
Accounting Policies

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

These  accounting  principles require management to make certain estimates,  judgments and assumptions
based upon information  available at the time that they are made,  historical experience and various other
factors that are  believed to be  reasonable  under the  circumstances.  These  estimates,  judgments  and
assumptions  can affect the reported  amounts of assets and  liabilities  as of the date of the  financial
statements,  as well as the  reported  amounts of revenues  and  expenses  during the  periods  presented.
Changes made to our revenue  recognition  policy  resulted in restatement of our financial  statements for
2002 and 2003.

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

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

The
following is a summary of certain critical principles, which have a substantial impact
upon our financial statements and which we believe are most important while assessing our
financial condition and operating results:

Revenue Recognition

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

29

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

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

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

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

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

In  cases we  traded-in  old  printers  as part of sales of new  printers,  the fair  value of the old
printer is recorded  as  revenue,  provided  that such value can be  determined.  If such value can not be
determined, the old printer is recorded at a zero value.

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

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

We
restated our financial statements for 2002 and 2003 to reflect revised accounting
treatment of revenue recognition accounting policies to revenues consummated in 2001, 2002
and 2003.

Allowance For Doubtful
Accounts

NUR  maintains an allowance for doubtful  accounts for estimated  losses  resulting from the inability
of its customers to make required  payments,  which is included in bad debt expense.  NUR  determines  the
adequacy of this  allowance by regularly  reviewing  the  structure of its accounts  receivable  aging and
evaluating individual customer  receivables,  considering  customers financial condition,  credit history
and current  economic  conditions.  If the financial  condition of NURs  customers  were to  deteriorate,
resulting in an impairment of their ability to make  payments,  additional  allowances  may be required in
future periods.  NURs customers include commercial  printing companies,  sign printers,  screen printers,
billboard and media companies,  professional  photo labs, and digital printing  service  providers.  Among
NURs  customers,  there are small and medium size  businesses,  which are sensitive to adverse changes in
the market.  Such adverse changes include  declines in demand for services  offered by customers and their
inability to obtain financing. The nature of those customers and the market recession,  together with NUR
incurring  significant  losses in 2003 and the diminished  probability of collecting these past due debts
caused  NUR to  record  an  increased  allowance  for  doubtful  accounts  in 2004.  As a result  of NURs
requirement  for additional  funding in 2005, NUR increased its efforts  collecting  outstanding  doubtful
accounts from customers with low collectivity profile.  Furthermore,  during 2005 NUR completed collection
procedures  that were  previously  initiated  against a portion of its  doubtful  accounts  and decided to
write-off such accounts from the balance sheet. As a result,  NURs  allowance for doubtful  accounts as a
percentage of accounts  receivable  decreased  from over 50% as of December 31, 2004 to 43% as of December
31, 2005.

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On
December 31, 2003, 2004 and 2005, our accounts receivable balance, net of allowance
for doubtful accounts, was approximately $13.1 million, $11.0 million and $7.3 million,
respectively.

Inventory Valuation

At
each balance sheet date, we evaluate our inventory balance for excess quantities and
obsolescence. This evaluation includes analysis of sales levels by product line and
projections of future demand. In addition, we write off inventories that are considered
obsolete. Remaining inventory balances are adjusted to the lower of cost or market value.
If future demand or market conditions are less favorable than our projections, additional
inventory write-downs may be required and would be reflected in cost of sales in the
period the revision is made. During 2003, 2004 and 2005, we recognized inventory
write-offs of $13.2, $9.7 million and $2.7 million, respectively.

31

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Deferred Income Taxes

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

We
restated our financial statements for 2003 to reflect revised accounting treatment of
deferred tax valuation in 2003.

Litigation

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

Stock-Based Compensation

To date,  we have  accounted for  stock-based  compensation  by using the  intrinsic  value based
method in accordance  with the provision of Accounting  Principles  Board Opinion No. 25,  Accounting for
Stock Issued to Employees (APB No. 25) and related interpretation.  Accordingly,  we have only recorded
compensation  expense  for any stock  option  granted  with an  exercise  price that is less than the fair
market  value of the  underlying  stock at the  date of  grant.  Refer  to the  section  entitled  Recent
Accounting  Pronouncements  in our  Consolidated  Financial  Statements  included in Item 18:  Financial
Statements  for a  discussion  of the  impact  of the  recently  SFAS  No.  123R,  on  our  recording  of
stock-based compensation for interim or annual reporting periods beginning on or after December 15, 2005.

32

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# Recently issued
accounting guidance

In  November  2004, the FASB issued  Statement of Financial  Accounting  Standard No. 151,  Inventory
Costs,  an Amendment of Accounting  Research  Bulletin  (ARB) No. 43, Chapter 4 (SFAS No. 151).  SFAS
No. 151 amends ARB No. 43, Chapter 4, to clarify that abnormal amounts of idle facility  expense,  freight
handling  costs and wasted  materials  (spoilage)  should be  recognized  as  current-period  charges.  In
addition,  SFAS No.  151  requires  that the  allocation  of fixed  production  overheads  to the costs of
conversion be based on the normal  capacity of the  production  facilities.  SAFS No. 151 is effective for
inventory  costs incurred  during fiscal years  beginning  after June 15, 2005. NUR adopted SFAS No.
151 in 2005, prior to its mandatory effective date, and recognized  $1.1 million as current  period  charges  related to indirect costs which were
not allocated to printers that were  manufactured  during that period.  Allocation of production  indirect
costs was based on the normal capacity of our production facilities.

In  December 2004, the FASB issued SFAS No. 123R.  SFAS No. 123R requires that the  compensation  cost
relating to share-based  payment  transactions  be recognized in financial  statements.  That cost will be
measured  based on the fair value of the equity or liability  instruments  issued.  SFAS No. 123R covers a
wide range of share-based  compensation  arrangements  including  share options,  restricted  share plans,
performance-based  awards,  share  appreciation  rights and employee share purchase  plans.  SFAS No. 123R
replaces SFAS No. 123,  Accounting for Stock-Based  Compensation (SFAS No. 123) and supersedes APB No.
25. We have adopted SFAS No. 123R using the modified  prospective  method.  The  modified  prospective
method  requires  compensation  cost to be recognized  beginning  with the effective date (a) based on the
requirements  of SFAS No. 123R for all  share-based  payments  granted  after the  effective  date and (b)
based on the  requirements  of SFAS No. 123 for all awards  granted to  employees  prior to the  effective
date of SFAS No. 123R that remain  unvested on the  effective  date.  The exact impact of adoption of SFAS
No.  123R  cannot be  predicted  at this time  because it will  depend on levels of  share-based  payments
granted  in the  future.  However,  had we  adopted  SFAS No.  123R in prior  periods,  the impact of that
standard  would have  approximated  the impact of SFAS No. 123 as described in the disclosure of pro forma
net loss and loss per share in Note 2v to our  financial  statements  set forth  elsewhere  in this annual
report.

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In
March 2005,  the SEC released SEC Staff  Accounting  Bulletin No. 107,  Share Based Payment (SAB
107).  SAB 107 provides the SECs staff position  regarding the application of SFAS No. 123R and contains
interpretive  guidance  relating  to the  interaction  between  SFAS No.  123R and  certain  SEC rules and
regulations,  and also  provides the SEC staffs view  regarding  the  valuation  of  share-based  payment
arrangements for public  companies.  SAB 107 highlights the importance of disclosures made relating to the
accounting for  share-based  payment  transactions.  We evaluated the expected term of the options granted
in 2005 in accordance with the guidance of SAB 107.

In May 2005, the FASB issued Statement of Financial  Accounting Standard No. 154,  Accounting Changes
and Errors Corrections  (SFAS No. 154). SFAS No. 154 replaces  Accounting  Principles Board Opinion No.
20,  Accounting  Changes, and Statement of Financial  Accounting  Standard No. 3, Reporting  Accounting
Changes in Interim Financial  Statements, although it carries forward some of their provisions.  SFAS No.
154 requires  retrospective  application to prior periods  financial  statements of changes in accounting
principle,  unless it is impracticable to determine either the  period-specific  effects or the cumulative
effect of the  change.  A change in  depreciation,  amortization,  or  depletion  method  for  long-lived,
non-financial assets will be accounted for as a change in accounting  estimate.  SFAS No. 154 is effective
for changes in accounting  principle  made in fiscal years  beginning  after  December 15, 2005. We do not
expect the  adoption  of SFAS No. 154 to have  material  impact on our  financial  position  or results of
operations.

# Geographic Breakdown of
Revenues

We sell our products and services  throughout  the world.  Revenues are  generally  attributed  to the
location of the sale of the product or service to the  end-user.  The tables below shows the  breakdown of
revenues by categories of activities  and into  geographic  markets in the years ended  December 31, 2005,
2004 and 2003.

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

|               | Year Ended December 31,
|-------------- | -----------------------
|
|
|
|
|Printers       |                        
|Ink            |                        
|Substrates     |                        
|Services       |                        
|               |                        
|Total Revenues |                        
|               |                        

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# Results of Operations

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

|                                                               | 2003 | 2004 | 2005
|-------------------------------------------------------------- | ---- | ---- | ----
|
|
|
|
|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 and impairment of technology and other intangible |      |     
|assets                                                         |      |      |     
|Restructuring  charges                                         |      |      |     
|Operating loss                                                 |      |      |     
|Financial expenses, net                                        |      |      |     
|Fair value of warrants issued to former Director               |      |      |     
|Other expense                                                  |      |      |     
|Taxes on income                                                |      |      |     
|Net loss                                                       |      |      |     

The  above  table  presents  the  financial  data for NUR  together  with our  subsidiaries  NUR Media
Solutions,  NUR America, NUR Europe, NUR Shanghai,  NUR Asia Pacific,  Salsa Digital Printers, NUR Hungary
Trading and Software  Licensing Limited Liability Company,  NUR DO Brazil,  Encre Consumables B.V. and NUR
Japan.  Financial  data for  Stillachem  is included  only with respect to the first three months of 2003,
and financial data for NUR Pro Engineering is included only with respect to 2004.

Certain  amounts from prior years have been reclassified to conform to the current year  presentation.
The  reclassification  had no effect on previously reported net loss and shareholders  deficiency.  Among
other things,  prior years  balances in the  consolidated  statements of cash flows were  reclassified to
appropriately  present net cash used in operating  activities,  net cash provided by financing  activities
and the effect of exchange  rates changes on cash and cash  equivalents.  These amounts were  reclassified
to properly  present the effect of  adjustments  of foreign  currency  translation  on change in operating
assets and  liabilities,  short-term bank credit and adjustment to net loss of foreign  currency  exchange
differences on inter-company balances with foreign subsidiaries.

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

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

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

NUR
expects that revenues during 2006 will increase in all geographical regions. NUR expects
that the release of new products, such as the NUR Expedio 3200 wide-format UV inkjet in
March 2006 and the NUR Tempo II in April 2006, will have a positive effect on revenues in
2006.

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

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

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

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

Cost
of revenues.  The cost of revenues was  approximately  $52.0 million (or 72.8% of total  revenues) in the year ended
December 31, 2005,  compared to $60.5 million (or 78.9% of total  revenues) in the year ended December 31,
2004.

NUR adopted SFAS No. 151 in 2005,  prior to its mandatory  effective date, and recognized $1.1 million
as current  period  charges  related to indirect  costs  which were not  allocated  to printers  that were
manufactured  during  that  period.  Allocation  of  productions  indirect  costs was based on the normal
capacity of our production facilities.

NUR  implemented  a cost  reduction  plan  and  therefore  expects  that  the  cost of  revenues  as a
percentage of revenues will decrease during 2006 compared to the percentage reported in 2005.

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

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

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

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

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

We  implemented a cost  reduction  plan and therefore we expect that the gross profit during 2006 will
increase compared to the gross profit reported for 2005.

Expenses.
          Research and development  costs were  approximately  $7.1 million in the year ended December 31, 2005,
compared to $8.0 million in the year ended  December 31,  2004.  The decrease in research and  development
costs was  attributed to NURs  decision to reduce its research and  development  activities  and withhold
certain  development  projects as a result of its  concentration  on securing  additional funds during the
second  half of 2005.  Repayment  of  government  grants in 2005 and 2004  were  $0.23  million  and $0.23
million,  respectively.  In 2006,  NUR expects to continue to invest in research  and  development  of new
products and enhancements of existing products.

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

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

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

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

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We  intend to increase  our market reach and  therefore  expect that  selling and  marketing  expenses
during 2006 will be higher than those reported for 2005.

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

Other  expenses  in the  amount of $1.4  million  were  recorded  in 2005  based on the fair  value of
warrants granted to Dan Purjes,  a former chairman and controlling  shareholder of NUR, in connection with
a voting trust  agreement.  For more  information  see Item 7.B:  Related Party  Transactions  and Item
10.C: Material Contracts.

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

Year Ended December 31,
2004 Compared with Year Ended December 31, 2003

Revenues.
          Revenues from product sales and services were approximately $76.7 million in the
          year ended December 31, 2004, compared to approximately $68.7 million in the
          year ended December 31, 2003.

The
increase of revenues of $8.0 million was primarily due to the increased sale efforts in
NURs North American subsidiary, following its reorganization under a new local
management and the relocation of its headquarters from San Antonio, Texas to Moonachie,
New Jersey. Revenues from North and Latin America increased by 44.1% (or $8.2 million)
from $18.6 million in 2003 to $26.8 million in 2004. The remaining increase is
attributable to sales in Asia-Pacific of 6.5% (or $0.7 million) which is offset by a
decrease of sales in Europe, the Middle East and Africa of 2.5% (or $1.0 million).

Revenues-products.
          Revenues  from products  were  approximately  $71.3  million (or 93.0% of total  revenues) in the year
ended  December 31, 2004,  compared to  approximately  $64.3  million (or 93.6% of total  revenues) in the
year ended December 31, 2003.

The  increase in revenues from products of approximately  $7.0 million was mainly  attributable to the
introduction  of the NUR Tempo  flatbed  printer  during  the fourth  quarter of 2003 and the NUR  Expedio
during  2004.  This  increase  was offset by a decrease of $0.6  million  attributable  to our decision to
cease the sales of substrates as of July 2003.

Revenues-services.
          Revenues from services were  approximately  $5.4 million (or 7.0% of total revenues) in the year ended
December 31, 2004,  compared to  approximately  $4.4 million (or 6.4% of total revenues) in the year ended
December 31, 2003.

The  increase in revenues from services of approximately  $1.0 million was mainly  attributable to the
increase in NURs printer installed base.

Cost
of revenues.  The cost of revenues was  approximately  $60.5 million (or 78.9% of total  revenues) in the year ended
December 31, 2004,  compared to $54.5 million (or 79.3% of total  revenues) in the year ended December 31,
2003.

38

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---

Cost
of Revenues-products.  Total cost of  revenues-products  was approximately  $54.3 million (or 70.7% of total revenues) in the
year ended  December 31, 2004,  compared to $47.7  million (or 69.3% of total  revenues) in the year ended
December 31, 2003.

The  inventory  charge  reported in 2004 is mainly  associated with our decision to cease the sales of
the NUR Salsa and NUR Ultima  printers  due to  diminished  customer  demand and in order to optimize  our
current and future product lines.  The inventory  charge  includes $7.7 million in raw material which will
become obsolete as a result of slow usage for this product line, and $2.0 million in finished goods.

Cost
of revenues-services.  Cost of  revenues-services  was  approximately  $6.3  million (or 8.2% of total  revenues) in the year
ended December 31, 2004,  compared to $6.8 million (or 9.9% of total  revenues) in the year ended December
31, 2003.

Gross
Profit. The  gross profit was  approximately  $16.2 million in the year ended  December 31, 2004,  compared to
$14.2  million in the year ended  December  31, 2003.  The gross  profit as a  percentage  of revenues has
increased from 20.7% in the year ended December 31, 2003 to 21.1% in the year ended December 31, 2004.

The  increase in gross  profit as a percentage  of revenue is mainly  attributed  to the  write-off of
$9.7 million in the year ended  December 31, 2004 compared to $13.2 million in the year ended December 31,
2003. The effect of the inventory  write-off was offset by a 15% decline in the average  selling prices of
our products during 2004 which resulted from  competition  pressures,  decrease in  revenues-services  and
the impact of fixed cost components in the form of labor and labor related expenses.

Expenses.
          Research  and development  costs, net of government  grants,  were  approximately  $8.0 million in the
year ended  December 31, 2004,  compared to $6.5  million in the year ended  December 31, 2003.  Excluding
government  grants,  the costs  were  approximately  $8.0  million in the year ended  December  31,  2004,
compared to $7.1 million in the year ended  December 31,  2003.  The increase in research and  development
costs was  attributed  to our efforts  during 2004 to develop new  technologies  that would  extend  NURs
market within 2-3 years.  The government  grants charges in 2004 are  attributable to repayments of grants
of $0.23 million and an additional  accrual of $0.40 million  relating to a dispute with the OCS (for more
information see Item 8.A: Legal Proceedings).

Selling and marketing  expenses were  approximately  $9.5 million in the year ended December 31, 2004,
compared to  approximately  $11.3 million in the year ended  December 31, 2003.  The majority of sales and
marketing expenses were incurred by our subsidiaries,  NUR Europe,  NUR America and NUR Asia Pacific.  The
decrease in expenses is mostly attributable to organizational  changes implemented during 2003,  including
the appointment of a local senior  management in our  subsidiaries in North America and Asia Pacific and a
more focused marketing activities.

39

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---

General and administrative  expenses were approximately  $10.8 million for the year ended December 31,
2004,  compared to  approximately  $11.1 million in the year ended December 31, 2003.  The  restatement of
accounting  for  the  $3.5  million  credit  line   commitment  of  July  2003  reduced  the  general  and
administrative  expenses  recorded for the year ended December 31, 2003 by approximately  $0.07 million as
detailed in the table below.

Doubtful
 accounts  expenses were $6.3 million for the year ended December 31, 2004,  compared to
$6.7 million for the year ended  December 31, 2003.  NUR made its  determination  to
write-off the bad debts in 2003 and 2004 primarily  because of the decrease of NURs
operations in the Chinese market,  deterioration in financial  state of many of NURs
 customers and prolonged  commercial  disputes or legal  proceedings. The  write-off of
bad debts in 2003 and 2004  followed  NURs  efforts to collect  these bad debts,  which
were  primarily  incurred in prior years,  by commencing  legal action  through local
legal counsel in the relevant  jurisdictions.  During the preparation of its 2003 and
2004 annual  reports,  NUR reassessed the collectibility  of these  bad  debts  and
 determined  that  there was a low  probability  of  success  in collecting these bad
debts.

Amortization
 and impairment of technology and other  intangible  assets was $0.9 million for the year
ended  December  31,  2004,  compared  to $0.1  million for the year ended  December  31,
 2003.  The increase  in the  amortization  and  impairment  of  technology  and other
 intangible  assets  was mainly attributed  to impairment  of acquired  technology  and
customer list in the amount of $0.7 million in the year ended  December 31, 2004.
 Amortization  expenses  during the years ended  December 31, 2004 and 2003 were $0.1 and
$0.1, respectively.

During
 the second  quarter of 2003,  NUR  decided to perform a series of  strategic
 initiatives intending to further reduce costs and increase  efficiency.  As a result,
 approximately 58 positions were eliminated by the group in 2003. The  restructuring
 charges  consisted of consolidating the operations of NUR Media Solutions S.A. and NUR
Europe,  relocating Salsa Digital Printers Ltd.  operations to Israel and relocating the
operations of NUR Macroprinters (Shanghai) Ltd. to NUR Asia Pacific.

Financial
expenses increased to $2.6 million in the year ended December 31, 2004, compared to $1.4
million in the year ended December 31, 2003. This increase was mainly due to increases in
interest rates paid by NUR in respect of bank loans taken to finance the cash portion of
the Salsa Digital acquisition in 2000 and foreign exchange gains.

Taxes.
          Taxes on income were $0.02 million in the year ended December 31, 2004, as
          compared to taxes on income of $1.2 million in the year ended December 31, 2003.
          The charges for 2003 include a charge of a tax asset of $1.0 million.

Impact of Inflation,
Devaluation and Fluctuation of Currencies

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

NUR may also be affected  by the U.S.  dollar  exchange  rate to the Euro.  Our sales of products  and
service in Europe,  as well as purchases of  components,  are  dominated by the Euro.  The  existence of a
balance of Euro based  assets  which are mostly  derived from sale of products and service over Euro based
liabilities  which are mostly related to purchase of components,  exposes us to financial  losses deriving
from a potential  devaluation  of the U.S.  dollar  against the Euro.  In order to reduce such exposure to
the Euro,  we offset  balances  of Euro  based  assets by  taking  loans in Euro.  The Euro was  evaluated
against the U.S. dollar by  approximately  20.4% and 7.9% in 2003 and 2004,  respectively,  and devaluated
by  approximately  13.3% in 2005. NUR cannot predict whether these conditions will have a material adverse
effect on it.

The annual rate of inflation in Israel was (1.88)% in the year ended  December 31, 2003,  increased to
1.2% in the year ended  December 31, 2004 and increased to 2.38% in the year ended  December 31, 2005. The
New Israeli  Shekel was  evaluated  against  the U.S.  dollar by  approximately  7.6% and 1.6% in 2003 and
2004,  respectively,  and devaluated by approximately 6.8% in 2005. NUR cannot predict whether the rate of
devaluation  of the New  Israeli  Shekel  against  the U.S.  dollar  will  continue  to exceed the rate of
inflation in the future and whether these conditions will have a material adverse effect on NUR.

40

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The  representative  dollar  exchange rate for converting the New Israeli Shekel to U.S.  dollars,  as
reported  by the  Bank  of  Israel,  was  NIS  4.603  for  one-dollar  U.S.  on  December  31,  2005.  The
representative  dollar  exchange  rate was NIS 4.308 on December  31,  2004 and NIS 4.379 on December  31,
2003.

Certain  transactions  and balances of NUR and certain  subsidiaries  are denominated by U.S.  dollars
and presented at their original  amounts.  Non-dollar  transactions  and balances have been  remeasured to
dollars in  accordance  with  Statement  of  Financial  Accounting  Standards  No. 52,  Foreign  Currency
Translation.  All  transaction  gains and losses  from  remeasurement  of  monetary  balance  sheet items
denominated in non-dollar  currencies  are reflected in the  statements of operations as financial  income
or expenses,  as appropriate.  For those subsidiaries whose functional  currency has been determined to be
their local currency,  assets and  liabilities are translated at year-end  exchange rates and statement of
operations  items are translated at average  exchange rates  prevailing  during the year. Such translation
adjustments  are  recorded  as  a  separate   component  of  accumulated  other   comprehensive   loss  in
shareholders  equity  (deficiency).  The average exchange rates during the years ended December 31, 2003,
2004 and 2005 were 4.548, 4.482 and 4.487 NIS for one U.S. dollar,  respectively.  The exchange rate as of
June 30, 2006 was NIS 4.44 for one U.S. dollar.

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

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

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

We  have  historically  funded  our  operations  primarily  through  the  private  sale of our  equity
securities  and commercial  bank loans.  We invest our excess cash in cash and cash  equivalents  that are
highly  liquid.  At  December  31, 2005 we had  approximately  $9.3  million of cash and cash  equivalents
compared with $8.7 million at December 31, 2004 and $10.3 million at December 31, 2003.

As
of December 31, 2005, NUR does not have material commitments for capital expenditures.
During the first half of 2006 we made leasehold improvements in our new manufacturing site
in Lod, Israel. We invested and expect to further invest in these leasehold improvements
approximately $0.50 million until the site preparations are completed.

41

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Prior
  years  balances  in  the  consolidated   statements  of  cash  flows  were
  reclassified  to appropriately  present net cash used in operating  activities,  net
cash provided by financing  activities and the effect of exchange  rates changes on cash
and cash  equivalents.  These amounts were  reclassified to properly  present the effect
of  adjustments  of foreign  currency  translation  on change in operating assets and
 liabilities,  short-term bank credit and adjustment to net loss of foreign  currency
 exchange differences on inter-company balances with foreign subsidiaries.

Operating activities

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

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

In
the year ended December 31, 2003, NUR had a net loss of $26.4 million. Net cash used in
operating activities was approximately $10.0 million. The main changes in NURs
working capital were: (i) a decrease of approximately $11.3 million in trade accounts
receivable and long-term trade accounts receivable; and (ii) a decrease of approximately
$7.2 million in trade payables.

Investing activities

Net cash used in investing  activities was  approximately  $0.1 million in the year ended December 31,
2005,  which is  primarily  due to  purchase  of office  furniture  and  equipment  in the  amount of $0.8
million,  which was offset by a release of restricted  cash in the amount of $0.5  million.  Net cash used
in investing  activities was  approximately  $2.0 million in the year ended December 31, 2004,  consisting
mainly of $2.1 million that were  attributed to the purchase of property and  equipment.  Net cash used in
investing  activities  was  approximately  $1.1 million in the year ended  December  31, 2003,  consisting
mainly of purchase of property and equipment.

Financing activities

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

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

42

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In  October  2005, we raised $12 million  through the private  placement of 34,285,714 of our ordinary
shares to a group of investors led by Fortissimo at a price of $0.35 per share.  The Fortissimo  investors
also received  warrants to purchase up to  25,714,286  ordinary  shares at an exercise  price of $0.40 per
warrant  share,  exercisable  until October 2010. As of December 31, 2005,  out of the total funds raised,
only the first  installment  of $5  million  was  received  in  accordance  with the terms of the  private
placement. For more information see Item 10.C: Material Contracts.

NUR
maintained long and short-term  credit  facilities in an aggregate amount of approximately  $43.6
million and $39.0  million as of December 31, 2004 and December  31,  2005,  respectively.  As of December
31, 2005,  NUR has an unutilized  short-term  credit in the amount of $3.2 million.  During 2004 and 2005,
NUR repaid  approximately  $0.8  million and $2.1  million on its  long-term  loans,  respectively.  As of
December 31, 2005, NURs long-term loans which are linked  primarily to the U.S. dollar,  bear interest at
rates of LIBOR plus  0.75%-2.5%  per annum.  As of December 31, 2005,  debt to leasing  companies  carries
interest at a rate ranging between 4.95% and 6.3% per annum.

The  following  table shows the  outstanding  amounts owed to Bank  Hapoalim,  Bank Leumi and Discount
Bank as of June 30, 2006:

Outstanding Debt
(in thousands of U.S. dollars)

|              | Credit Lines and short term loans(1) | Long-term loans (2) | Total
|------------- | ------------------------------------ | ------------------- | -----
|
|
|
|
|Bank Hapoalim |                                      |                     | $    
|Bank Leumi    |                                      |                     | $    
|Discount Bank |                                      |                     | $    
|              |                                      |                     |      
|Total         |                                      |                     | $    
|              |                                      |                     |      

---

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

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

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

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

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

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Under the new agreements,  NUR also agreed to extend the expiration period of 1,340,000  warrants that
were  previously  issued to the Lender  Banks.  The value of the 8,000,000  warrants  issued to the Lender
Banks together with the value of the extension of expiration of the previously  issued  warrants  amounted
to $4 million,  which is recorded as an increase in NURs additional  paid-in capital.  Under Statement of
Financial   Accounting   Standard  No.  15,  Accounting  by  Debtors  and  Creditors  for  Troubled  Debt
Restructuring,  the balance between (a) the $14.5 million converted into 8 million warrants,  and (b) the
sum of the  additional  paid-in  capital  related to the Lender  Banks  warrants,  is attributed to NURs
long-term bank debt and is deemed to be accrued  interest on the restructured  bank debt.  Future interest
on the  restructured  debt will be  recorded  as a reduction  to accrued  interest  and not as an interest
expense.  As of December 31, 2005, this accrued interest aggregates to $10.4 million.

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

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

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

As of December 31, 2005, total current assets of NUR amounted to approximately  $34.0 million,  out of
which  $9.3  million  was in cash and  cash  equivalents,  compared  with  total  current  liabilities  of
approximately  $37.5  million.  The decrease in current  assets is  attributable  primarily to decrease in
inventory and account receivables.

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

Net
cash provided by financing activities in the year ended December 31, 2004 was
approximately $1.4 million, deriving primarily from the issuance of shares and warrants in
the aggregate amount of $4.3 million, and decrease in short-term bank credit and
short-term loans of $2.2 million.

44

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

Outstanding Warrants

As of June 30, 2006, NUR had  outstanding  warrants  exercisable  into a total of 40,273,271  ordinary
shares.  Of such  warrants (i) 70,000 were issued to Bank  Hapoalim as part of the  rescheduling  of NURs
long-term  debt,  (ii)  50,000 were issued to Bank Leumi as part of the  rescheduling  of NURs  long-term
debt (iii) 140,000 were issued to Bank Hapoalim as part of the  amendments of the covenants  governing the
rescheduling  of NURs  long-term  debt,  (iv) 100,000 were issued to Bank Leumi as part of the amendments
of the covenants  governing the  rescheduling  of NURs  long-term  debt, (v) 11,000 were issued to Poalim
Capital Markets as part of an out-of-court  settlement,  (vi) 505,000 were issued to Bank Hapoalim as part
of the amendments of the covenants  governing NURs debt,  (vii) 350,000 were issued to Bank Leumi as part
of the  amendments of the covenants  governing  NURs debt,  (viii) 27,000 were issued to Bank Discount as
part of the amendments of the covenants  governing  NURs debt,  (ix) 98,000 were granted to Bank Discount
as part of the agreement  regarding the covenants  governing  NURs debt,  (x) 951,922 were granted to the
investors  participating  in NURs credit line commitment in October 2003, (xi) 67,308 were granted to the
placement  agent in  connection  with NURs credit line  commitment  in October  2003,  (xii) 112,903 were
granted to the placement  agent in connection  with NURs credit line  commitment in October 2003,  (xiii)
646,542  were granted to the  investors  participating  in NURs  private  placement in March 2004,  (xiv)
129,310 were issued to Duncan  Capital  Group,  LLC as placement  agent in  connection  with NURs private
placement  of March 2004,  (xv)  3,000,000  were granted to Dan Purjes in  connection  with a voting trust
agreement  and voting  agreement  discussed in Item 10.C:  Material  Contracts;  (xvi)  25,714,286  were
granted to investors  participating  in NURs  private  placement in August 2005  discussed in Item 10.C:
Material  Contracts;  (xvii)  8,000,000  were granted to Bank  Hapoalim,  Bank Leumi and Discount Bank in
September  2005 in  connection  with a debt  restructuring  agreement  discussed  in Item 10.C:  Material
Contracts;  and (xvii)  300,000  were  granted to the former  president  and chief  executive  officer in
connection  with the  termination  of his  engagement.  The Bank  Hapoalim  and Bank  Leumi  warrants  are
exercisable  at $5.00 per share no later than August 2007.  The  additional  Bank  Hapoalim and Bank Leumi
warrants are  exercisable  at $0.34 per share no later than September  2008.  The Poalim  Capital  Markets
warrants  are  exercisable  at $0.784  per share no later than  November  2006.  The first  Bank  Discount
warrant is exercisable  at $0.72 per share no later than December 2008. The second Bank Discount  warrant,
the third Bank Hapoalim and Bank Leumi  warrants are  exercisable at $0.62 per share no later than January
2009. The credit line commitment  warrants and the first credit line  commitment  placement agent warrants
are  exercisable  at $0.52 per share no later  than  October  2008.  The  second  credit  line  commitment
placement  agent  warrants  are  exercisable  at $0.62 per share no later than  March  2009.  The  private
placement  warrants  are  exercisable  at $1.54 per share no later than  March  2009.  The Duncan  Capital
warrants  are  exercisable  at $1.16 per share no later  than March  2009.  The Dan  Purjes  warrants  are
exercisable  at $0.75  per share no later  than  April  2010.  The 2005  private  placement  warrants  are
exercisable at $0.40 per share no later than October 2010. The 2005 bank debt  restructuring  warrants are
exercisable  at $0.35 per share no later than December  2010.  The former  president  and chief  executive
officer warrants are exercisable at $0.51 per share no later than December 2007.

45

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

NURs
research and development center, which currently engages 40 employees, is focused on
developing new products, enhancing the quality and performance relative to price of our
existing products, reducing manufacturing costs, upgrading and expanding our product line
through the development of additional features and improving functionality in response to
market demand.

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

Total  research and  development  expenses,  before royalty bearing grants,  were  approximately  $7.1
million,  $8.0  million  and  $7.1  million  in  the  years  ended  December  31,  2003,  2004  and  2005,
respectively.  Royalty  bearing  grants  amounted  to $0.6  million in 2003.  We did not  receive  royalty
bearing grants in 2004 and 2005.

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

Losses

Operating  losses during the years ended  December 31, 2003,  2004 and 2005 were $23.6,  $19.3 and $9.8
million,  respectively.  Most of our  operating  losses  during the last  three  years are  attributed  to
charges and  write-offs of assets which were purchased  during prior years and to our financial  situation
at the relevant periods.

Printers Sales

Revenues  from sales of the NUR  printers,  which  comprised  65.5% of NURs  total  revenues in 2005,
decreased by $4.4 million in 2005  compared to 2004.  This decrease in revenues was primarily due to NURs
unstable  financial  situation  during  the  second  half of  2005  and  managements  focus  on  securing
additional funding for ongoing operations.

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

Consumables Sales

During
the past few years, NUR has refocused its recurring revenues strategy for consumables. NUR
ceased selling substrates in 2003 and has concentrated its efforts in selling and
marketing consumables only to ink products. Revenues from consumables remained relatively
the same and were only increased by 0.8% in 2005 compared to 2004. Revenues from ink
products were increased by 4.6% in 2005 compared to 2004. NUR is constantly working on
development of new products intended to maintain a differentiation between our ink
products and those of our competitors.

There
can be no assurance that NUR will succeed in maintaining its market share in the
consumables market or increase its revenues from sales of its consumables.

46

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---

Gross Margins

The
increase in gross margins in 2005 was primarily due to the significant reduction in
inventory write-offs.

Industry

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

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

During  2005, we  experienced  a decline in our  printers  average  selling  prices by  approximately
12.5%.  The decline in selling prices was fueled by a price  pressure  introduced by our  competitors.  We
expect that the price  pressure  will  continue  to  characterize  the wide and super wide format  digital
printing market. We are devoting  substantial  efforts to increase  production  efficiency and reduce cost
of revenues in order to maintain and improve our gross  margins.  Our ability to  successfully  compete in
those markets depends on our capability to increase our production efficiency.

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

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

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

The
following table of our material  contractual  obligations as of December 31, 2005,
 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)          |                                                      
|Capital (Finance) Lease obligations(2) |                                                      
|Operating Lease Obligations(3)         |                                                      
|Accrued severance pay(4)               |                                                      
|Long term loans(5)                     |                                                      
|                                       |                                                      
|Total                                  |                                                      
|                                       |                                                      

---

|(1) | We  operate  from leased  premises  in Lod and  Ashkelon in Israel.  We also lease  premises  for our
subsidiaries activities in the United States, Hong Kong and Japan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | NUR
Europe conducts its activities in Belgium from premises leased by it. Upon
                    completion of payments, NUR Europe will own the premises.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Operating lease obligations relate to leases of motor vehicles.
|--- | ---------------------------------------------------------------

|(4) | Accrued
 severance pay relates to obligations to our Israeli  employees as required under Israeli
         labor law. These obligations are payable,  among others,  upon  termination,
 retirement or death          of the respective employee. Of this amount, only $332 is
unfunded.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Certain
of our debt  contain  variable  interest  components.  The data  included in the table is
         based on the indexed  rate in effect on the  balance  sheet date.  Any
 perspective  changes as a          result of such variability are excluded.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

47

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# ITEM 6: Directors,
Senior Management and Employees

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

In
October 2005, a group of investors led by Fortissimo invested $12 million in our company.
Consequently, the structure of our Board of Directors was changed. In addition, during
2005 our previous executive officers were replaced. The directors and executive officers
who left NUR during 2005 are as follows:

|Name             | Age |  | Former position with NUR                 
|---------------- | --- |  | -----------------------------------------
|
|
|
|
|Robert F. Hussey | 57  |  | Acting Chairman of the Board of Directors
|Tamar Peller     | 39  |  | Director                                 
|David Amir       | 48  |  | President and Chief Executive Officer    
|David Seligman   | 47  |  | Chief Financial Officer                  

The
current directors and the executive officers of NUR are as follows:

|Name                       | Age |  | Position with NUR                                  
|-------------------------- | --- |  | ---------------------------------------------------
|
|
|
|
|Yuval Cohen (1)            | 43  |  | Chairman of the Board of Directors                 
|Eli Blatt(1)               | 43  |  | Director                                           
|Shmoulik Barashi           | 43  |  | Director                                           
|Hemi Rafael(2)             | 54  |  | Director                                           
|Oded Akselrod(3)           | 60  |  | Director                                           
|Lauri A. Hanover (1)(3)(4) | 46  |  | Director                                           
|Koby Shtaierman(4)         | 51  |  | Director                                           
|David Reis                 | 45  |  | President and Chief Executive Officer              
|Yosef Zylberberg           | 45  |  | Chief Operating Officer and Chief Financial Officer

---

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

|(2) | Elected
pursuant to a shareholders agreement between Fortissimo (on behalf of
                    the several partnerships with respect to which it serves as general
partner) and                     Kanir, dated October 31, 2005.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

Other
key employees of NUR are as follows:

|Name            | Age |  | Position with NUR                          
|--------------- | --- |  | -------------------------------------------
|
|
|
|
|Assaf Eyal      | 45  |  | Executive Vise President                   
|Shuky Garibi    | 48  |  | Vice President of Research and Development 
|Itzik Arbesfeld | 39  |  | Vice President of Human Resources          
|Eran Cohen      | 48  |  | Vice President of Operation                
|Kobi Markovitz  | 53  |  | Chief Technology Officer                   
|Nachum Korman   | 44  |  | President, NUR America, Inc.               
|Marco Baio      | 43  |  | Managing Director, NUR Europe S.A.         
|Roni Klein      | 46  |  | Managing Director, NUR Asia Pacific Limited

48

---

---

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

Yuval
Cohen has served as a director of NUR since October 2005. Yuval is the Founding and
Managing Partner of Fortissimo Capital Fund, a technology focused growth equity
fund. Mr. Cohen is also the Chairman of Telrad. Prior to founding Fortissimo, Mr.
Cohen was a General Partner at Jerusalem Venture Partners (JVP), an international venture
capital firm with over $650 million under management. Mr. Cohen led JVPs investments
and served as a board member  in various companies including : Precise
Software Solutions (Nasdaq: PRSE, later sold to Veritas, Nasdaq: VRTS), T.sqware,
Inc. (sold to Globespan, Inc., Nasdaq: GSPN), PowerDsine Ltd. (Nasdaq: PDSN), Sheer
Networks  (sold to Cisco, Nasdaq: CSCO), Teleknowledge Group  (sold to MTS,
Nasdaq: MTSL), Celltick Technologies,  XMPie, Sphera Corporation, and
Quarry Technologies. Between 1991 and 1997 Mr. Cohen worked in the Silicon Valley and
held executive positions at DSP Group (Nasdaq: DSPG), VDOnet
Corporation, and Intel Corporation (Nasdaq: INTC). Mr. Cohen received an MBA from the
Harvard Business School and a B.Sc. in Industrial Engineering from Tel Aviv University.

Eli
Blatt has served as a director of NUR since October 2005 and as President and Interim
Chief Executive Officer between December 2005 and February 2006. Mr. Blatt is a partner at
Fortissimo. Prior to joining Fortissimo, Mr. Blatt was the CFO and VP operations of Noosh,
Inc., a supplier of print management solutions. At Noosh, Mr. Blatt was responsible for
the general management of finance and operations. In that capacity he managed the
companys M&A strategy and initiatives. Prior to joining Noosh, Mr. Blatt was the
Director of Operations at CheckPoint Software Technologies Inc. (Nasdaq: CHKP), the
worldwide leader in securing the Internet. At Checkpoint he was responsible for OEM
operations, product licensing and customer service. Mr. Blatt was previously the
Operations controller at Madge Networks (sold to Lucent, NYSE: LU). Prior to joining
Madge, Mr. Blatt held senior Finance and Operations positions in Israel at Intel and
Israel Chemicals. Mr. Blatt also serves on the Board of Directors of Telrad, a Fortissimo
portfolio company. Mr. Blatt received an MBA degree, from Indiana University and a B.Sc.
degree in Industrial Engineering from Tel-Aviv University.

Shmoulik
Barashihas served as a director of NUR since October 2005. Mr. Barashi is a partner
at Fortissimo. Prior to joining Fortissimo, Mr. Barashi was a senior partner in BDO Ziv
Haft, one of the five largest accounting firms in Israel. Ziv Haft is the Israeli
representative office of the international accounting firm of BDO. BDO clients in Israel
include two of the largest banks and many large public and private companies. At BDO, Mr.
Barashi specialized in corporate finance, IPOs, deal structuring, business
consultancy, auditing and tax. Mr. Barashi established a department in the Jerusalem
branch that focused on the preparation of business plans and that performed valuation
analysis of companies. Mr. Barashi worked closely with several leading Israeli companies
whose activities were primarily in the Israeli capital markets and in real estate. Prior
to his activity in BDO, Mr. Barashi established his own accounting firm, which he merged
into BDO Ziv Haft. Mr. Barashi received an MBA from Hebrew University (specialty 
finance) and an LLM from Bar Ilan University. Mr. Barashi is a certified public accountant
in Israel.

49

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

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

Lauri
A. Hanoverhas served as an external director of NUR since November 2003. Ms. Hanover
is the senior vice president and chief financial officer of Lumenis Ltd. since August
2004. Prior to that she served as the corporate vice president and chief financial officer
of NICE Systems Ltd. from 2000 to 2004. She previously served as executive vice president
and chief financial officer of Sapiens International Corporation N.V., from 1997 to
2000.  From 1984 to 1997, Ms. Hanover served in a variety of financial management
positions, including corporate controller at Scitex Corporation Ltd. and from 1981 to 1984
as financial analyst at Philip Morris Inc. (Altria).  Ms. Hanover holds 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 has served on the Board of
Directors of Nova Measuring Instruments Ltd. since 2000. Ms. Hanover qualifies as an
external director according to the Companies Law, 1999.

Koby
Shtaiermanhas served as an external director of NUR since November 2003. Mr.
Shtaierman currently serves as vice president marketing and sales of Advanced Vision
Technology Ltd. From 1996 to 1998, Mr. Shtaierman served as vice president of corporate
marketing for Tecnomatix Technologies Ltd. From 1985 to 1995, Mr. Shtaierman served as
marketing director of the input system division of Scitex Corporation. Prior thereto Mr.
Shtaierman held various positions at Israel Aircraft Industries. Mr. Shtaierman holds a
B.Sc. and M.Sc. degrees in Electronics and Computer Engineering from the Technion, Haifa.
Mr. Shtaierman qualifies as an external director according to the Companies Law, 1999.

50

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

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

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

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

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

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

51

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Kobi
Markovitzserved as chief  technology  officer since June 2004. Prior to this Mr. Markovitz served as NURs vice
president of technologies  since September 1998.  Prior to joining NUR, Mr.  Markowitz was founder and CEO
of  Meital,  a  private  start-up  company  specializing  in  characterizing  printing  technologies  that
developed,  designed,  and  manufactured  wide-format,  drop-on-demand  based digital  printers.  Meitals
assets  were  purchased  by NUR in 1998 and its  technology  was  integrated  into  NUR.  From  1994,  Mr.
Markowitz and Meitals  research and  development  team were  strategic  partners in designing the worlds
first wide format, drop-on-demand based digital printer at Idanit.

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

Marco
Baiohas served as managing director of NUR Europe since July 2003. Prior to this Mr.
Baio served as president of Objet Geometries Europe, a company specializing in the
development and marketing of rapid prototyping systems. Previously, Mr. Baio spent 9 years
at Scitex Corporation where he served, at different periods, as managing director of
Scitex Italy and Scitex Germany.

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

Directors
and executive officers that also served during 2005:

Robert F.
Hussey served as acting chairman of the Board of Directors until October 2005. Mr.
Hussey was the chairman of the Audit Committee until his appointment as acting chairman of
the Board. Mr. Hussey is presently the chief operating officer of HC Wainwright and
Company, Inc. From June 1991 to April 1997, Mr. Hussey served as the president and chief
executive officer of Metrovision of North America. Prior thereto, from 1984 to 1991, Mr.
Hussey served as the president, chief executive officer and director of POP Radio Corp., a
company which he helped form. From 1979 to 1984, Mr. Hussey served as the vice
president/management supervisor for Grey Advertising, Inc. Mr. Hussey is also a director
of Digital Lightwave, Inc., Distributed Power Corp., i2Telecom.Com. and Axcess
International Inc., which are all publicly held companies. Mr. Hussey holds a B.S. degree
in Finance from Georgetown University and an MBA degree in International Finance from
George Washington University.

52

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---

Tamar
Pellerserved  as a director of NUR until  October 2005.  Ms.  Peller is the  co-founder  and CFO of Rubidium
Ltd., a high-tech  company  specializing in digital voice  processing chips and  applications.  Ms. Peller
holds this  position  since 1997.  Prior to this,  Ms.  Peller was with the  high-tech  audit group of the
accounting  firm of Almagor & Co. Ms.  Peller holds a B.A. in  Accounting  and Finance from the College of
Management  in Tel-Aviv,  Israel and she is a certified  public  accountant.  Ms. Peller is a Board Member
and the chairman of the Hi-Tech  Committee of the Institute of Certified  Public  Accountants  in Israel -
Tel-Aviv  District.  Ms. Peller is an external director and chairman of the audit committee at Lehava, a
study fund managed by Bank Hapoalim.

David
Amir served as NURs president and chief executive officer until December 2005.
Prior to joining NUR, from 1999 to 2002, Mr. Amir served as president and chief executive
officer of Paspartoo Ltd., a high-tech company specializing in virtual to
print technology. Mr. Amir was also the founder of Paspartoo Ltd. Prior thereto,
from 1984 to 1999, Mr. Amir served in various research and development, marketing,
customer support and senior management positions with Scitex Corporation. Mr. Amirs
last position with Scitex Corporation was corporate vice president of business
development. Mr. Amir holds a B.Sc. in Electrical Engineering from the Technion in Haifa.

David
Seligman served  as chief  financial  officer of NUR until  October  2005.  Prior to joining NUR, Mr.  Seligman
served as chief financial officer of RADVISION Ltd.  (Nasdaq:  RVSN).  Previously,  he was chief financial
officer for LanOptics Ltd. (Nasdaq:  LNOP), a senior financial analyst for Fidelity  Investment Systems in
Boston,  Massachusetts,  and served as a controller and financial  analyst for several hi-tech  companies.
Mr.  Seligman holds a B.A. degree in political  science and geography,  and a MBA degree in accounting and
finance, both from Tel-Aviv University.

|B. | Compensation
of Officers and Directors
|-- | --------------------------------------

Salaries,  fees,  commissions  and bonuses paid with  respect to all of our  directors  and  executive
officers as a group (thirteen  persons,  including 2 directors who left the Board and 2 executive officers
who left NUR during 2005) in the fiscal year ended  December 31, 2005 was $0.62  million,  out of which an
amount of $0.01 million was related to pension, retirement and other similar benefits.

The
executive officers of NUR received part of the compensation set forth above under
NURs Management by Objectives (MBO) Compensation Plan. The MBO sets annual
individual goals to be achieved by the executive officers throughout the year. The
percentage of individual achievement determines the percent of the MBO bonus paid to each
executive officer. The MBO plan for the benefit of NURs chief executive officer is
administered by the Stock Option and Compensation Committee. The MBO plan for the benefit
of the other executive and senior officers is administered by the chief executive officer.
A portion of the bonus amounts are paid in cash in the year for which they are awarded and
the balance is paid in cash in the year following the financial year for which they are
awarded.

In  addition,  a total of 3,908,544  options were granted in 2005 to executive  officers and directors
to purchase  ordinary  shares.  The 3,908,544  options  granted had a weighted  average  exercise price of
approximately  $0.40 per share and have  expiration  dates in 2015.  As of June 30,  2006,  directors  and
executive  officers of NUR hold  options and  warrants to purchase  an  aggregate  of  5,023,334  ordinary
shares issuable  pursuant to exercise of such  securities.  In December 2005, NUR granted 300,000 warrants
to David Amir in connection  with the  termination  of his position as our  president and chief  executive
officer.  The option and warrants were provided  pursuant to the plans and  arrangements  described  under
Item 6.E: Share Ownership.

53

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---

NUR and Fortissimo  entered into a management  agreement.  In  consideration of the performance of the
management  services and the board services under the terms of the management  agreement NUR agreed to pay
to Fortissimo an aggregate annual  management  services fee in the amount of $250,000 plus value added tax
pursuant to  applicable  law. For more  information  regarding  the  management  agreement  see Item 7.B:
Related Party Transaction.

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

In April 2005,  NURs  shareholders  approved a quarterly cash fee of $10,000 to Mr. Robert F. Hussey,
the then acting  chairman of the Board.  In addition,  Mr. Hussey was also entitled during his tenure to a
quarterly  grant of options to purchase 2,500  ordinary  shares in addition to grants under the 1998 Stock
Option Plan for  Non-Employee  Directors.  Mr. Hussey received a total of 88,544 options,  which are fully
vested and exercisable at a weighted average exercise price of approximately  $3.55. These options,  other
than those exercised by Mr. Hussey, expired on June 24, 2006.

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

Under
the 1998 Non-Employee Director Share Option Plan, each non-employee director that served
on the 1998 Grant Date, as defined below, automatically received an option to
purchase 10,000 ordinary shares on such Grant Date and will receive an option to purchase
an additional 10,000 ordinary shares on each subsequent Grant Date thereafter, provided
that he or she is a non-employee director on the Grant Date and has served as such for the
entire period since the last Grant Date. The Grant Date means, with respect to
1998, October 26, 1998, and with respect to each subsequent year, August 1. Directors
first elected or appointed after the 1998 Grant Date, will automatically receive on such
directors first day as a director an option to purchase up to 10,000 ordinary shares
prorated based on the number of full months of service between the prior Grant Date and
the next Grant Date. Each such non-employee director would also automatically receive, as
of each subsequent Grant Date, an option to purchase 10,000 ordinary shares provided he or
she is a non-employee director on the Grant Date and has served for the entire period
since the last 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 date of grant of such options. The fair market value means, as of
any date, the average closing bid and sale prices of the ordinary shares for the date in
question as furnished by the National Association of Securities Dealers, Inc. through
Nasdaq or any similar organization if Nasdaq is no longer reporting such information, or
such other market on which the ordinary shares are then traded, or if not then traded, as
determined in good faith (using customary valuation methods) by resolution of the members
of the Board of Directors of NUR, based on the best information available to it. The
exercise price is required to be paid in cash.

54

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

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

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

Terms of Directors

The
Board currently consists of seven members, including two external directors. Unless
otherwise prescribed by resolution, the Board shall consist of not less than four (4) nor
more than twelve (12) directors. The members of the Board are elected annually at
NURs annual shareholders meeting and remain in office until the next annual
shareholders meeting, unless the director has previously resigned, vacated his
office, or was removed in accordance with NURs Amended and Restated Articles of
Association. The previous annual meeting was held on October 27, 2005. In addition, the
Board may elect additional members to the Board. The members of the Board do not receive
any additional remuneration upon termination of their services as directors.

External Directors

We
are subject to the provisions of the Israeli Companies Law, 1999 which requires that we
have at least two external directors. Under a recent amendment to the Companies Law, at
least one of the external directors is required to have Financial Expertise
and the other external directors are required to have Professional Expertise.
These requirements are subject to regulations to be promulgated in which the terms
Financial Expertise and Professional Expertise would be defined.
This recent amendment does not apply to external directors who were appointed before March
17, 2005 (such as our 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. 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.

55

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

Alternate Directors

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

Approval of Certain
Transactions Under the Israeli Companies Law

The
Israeli Companies Law, 1999 codifies the duty of care and fiduciary duties which an Office
Holder has to NUR. An Office Holder is defined under the Israeli 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, avoiding any competition with the company, avoiding exploiting any
business opportunity of the company in order to receive personal gain for the Office
Holder or 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 executive officer in the first table in
the section is an Office Holder.

56

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The
Israeli Companies Law requires that an Office Holder promptly disclose any personal
interest that he or she may have and all related material information known to him or her,
in connection with any existing or proposed transaction by us. In addition, if the
transaction is an extraordinary transaction, that is, a transaction other than in the
ordinary course of business, other than on market terms, or likely to have a material
impact on the companys profitability, assets or liabilities, the Office Holder must
also disclose any personal interest held by the Office Holders spouse, siblings,
parents, grandparents, descendants, spouses descendants and the spouses of any of
the foregoing, or by any corporation in which the Office Holder or a relative is a 5% or
greater shareholder, director or general manager or in which he or she has the right to
appoint at least one director or the general manager. Some transactions, actions and
arrangements involving an Office Holder (or a third party in which an Office Holder has an
interest) must be approved by the board of directors or as otherwise provided for in a
companys articles of association, as not being adverse to the companys
interest. In some cases, such a transaction must be approved by the audit committee and by
the board of directors itself (with further shareholder approval required in the case of
extraordinary transactions). An Office Holder who has a personal interest in a matter,
which is considered at a meeting of the board of directors or the audit committee, may not
be present during the board of directors or audit committee discussions and may not vote
on this matter, unless the majority of the members of the board or the audit committee
have a personal interest, as the case may be, in which case such transaction will also
require the approval of shareholders.

# Committees of the Board
of Directors

Audit Committee

Under
the Israeli Companies Law, the Audit Committee must be composed of members of the Board
who are not employees of NUR and the external directors. In addition, the majority of
members of the Audit Committee may not be holders, directly or indirectly, through family
members, of more than five percent of the ordinary shares.

NURs
Audit Committee, acting pursuant to a written charter, currently consists of Lauri A.
Hanover, Koby Shtaierman and Oded Akselrod. Approval by the Audit Committee and the Board
is required for (i) proposed transactions to which NUR intends to be a party in which an
Office Holder has a direct or indirect personal interest, (ii) actions or arrangements
which may otherwise be deemed to constitute a breach of fiduciary duty or of the duty of
care of an Office Holder to NUR, (iii) arrangements with directors as to the terms of
office or compensation, (iv) indemnification of Office Holders, and (v) compensation and
scope of work of the independent auditor. Arrangements with directors as to the terms of
their service or compensation also require shareholder approval. All arrangements as to
compensation of Office Holders who are not directors require approval of the Board. In
certain circumstances, the matters referred to in (i), (ii), and (iv) may also require
shareholder approval.

Office
Holders (including directors) who have a personal interest in a matter which is considered
at a meeting of the Board or the Audit Committee may not be present at such meeting, may
not participate in the discussion, and may not vote on any such matter.

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. The Audit Committee also oversees the audit
efforts 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 Audit Committee also is required to monitor deficiencies in the administration of
a company, including by consulting with the internal auditor, and to review and approve
related party transactions.

57

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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

In
March 1998, NUR established a Stock Option and Compensation Committee to administer
NURs stock option plans, other than the 1998 Non-Employee Director Share Option
Plan. The Stock Option and Compensation Committee is charged with administering and
overseeing the allocation and distribution of stock options under the approved stock
option plans of NUR and approval of the NURs executive officers annual
compensation. The Companies Law, 1999 provides that the Board is entitled to delegate to
Board committees its power, among other things, to allocate shares or securities
convertible into shares of NUR relating to employees incentive plans, and employment or
salary agreements between NUR and its employees, provided, that any such grant is subject
to a detailed plan approved by the Board. The Board is also entitled to delegate to the
general manager or person recommended by the general manager the Boards authority to
issue ordinary shares issuable upon exercise or conversion of NURs securities. The
Stock Option and Compensation Committee is presently composed of three members: Yuval
Cohen, Eli Blatt and Lauri A. Hanover.

Non-Employee Director
Share Option Plan Committee

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

# Indemnification and
Exculpation of Executive Officers and Directors

At
the annual shareholders meeting held on October 27, 2005, NURs shareholders
authorized it to enter into indemnification agreements with each of its current and future
officers. NUR shall, subject to the provisions of the indemnification agreement, indemnify
each officer for the following:

| | monetary
liabilities imposed on the director for the benefit of another person pursuant to a final
judgment by a competent court relating to acts performed by the director in his/her
capacity as a director or officer of NUR or its subsidiaries;
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | reasonable
legal fees, including attorneys fees, incurred by an officer in consequence of an
investigation or proceeding filed against an officer by an authority that is authorize to
conduct such investigation or proceeding, and that resulted without filing an indictment
against such officer and without imposing on such officer financial obligation in lieu of
a criminal proceeding, or that resulted without filing an indictment against such officer
but with imposing on such officer a financial obligation as an alternative to a criminal
proceeding in respect of an offense that does not require the proof of criminal intent;
and
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

58

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| | reasonable
litigation expenses, including attorneys fees, incurred by an officer or which an
officer is ordered to pay by a court, in a proceedings filed against such officer by NUR
or on its behalf or by another person, or in a criminal charge of which he or she is
acquitted, or in a criminal charge of which such officer is convicted of an offence that
does not require proof of criminal intent.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
indemnification undertaking shall be limited to certain categories of events and to the
maximum amount equal to fifty percent (50%) of the net equity of NUR or to one time annual
revenue of NUR in the year prior to the date of the claim (the higher amount of the two)
with regard to judgment liability, and $3.0 million with regard to litigation expenses. In
addition, a policy of directors and officers liability insurance is maintained
by us that insures our directors and officers and those of our subsidiaries against
liability incurred by, arising from or against them for certain of their acts, errors or
omissions.

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

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

As
of December 31, 2005, we had 304 employees and independent contractors compared to 328
employees and independent contractors as of December 31, 2004 and 322 as of December 31,
2003. The decrease in 2005 is attributed primarily to the low level of sales and
manufacturing activities in the latter part of 2005 that resulted from NURs
concentration in securing additional funding. Out of NURs 304 employees and
independent contractors, as of December 31, 2005, 50 were in sales and marketing, 41 were
in research and development, 154 were in customer support, operations and production, and
59 were in management finance and administration. As of December 31, 2005, we had 170
employees located in Israel, 57 employees located in Belgium, 45 employees located in the
U.S., 6 employees located in Central and Latin America and 26 employees located in Asia
Pacific.

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

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

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

59

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

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

# Beneficial Ownership of
Executive Officers and Directors

The  following  table sets forth  certain  information  regarding  the  beneficial  ownership of NURs
ordinary  shares as of June 30, 2006, of (i) each director of NUR and (ii) each executive  officer of NUR.
All of the  information  with respect to beneficial  ownership of the ordinary shares is given to the best
of NURs knowledge and has been furnished in part by the respective directors and executive officers.

|Name of Beneficial Owner | Number of Shares
Beneficially Held(1) | Percent of Class
|------------------------ | ------------------------------------- | ----------------
|
|
|
|
|Yuval Cohen              | -                                     | -               
|Eli Blatt                | -                                     | -               
|Shmoulik Barashi         | -                                     | -               
|Hemi Rafael              | -                                     | -               
|Lauri A. Hanover         | *                                     | *               
|Koby Shtaierman          | *                                     | *               
|Oded Akselrod            | *                                     | *               
|David Reis               | -                                     | -               
|Yosef Zylberberg         | -                                     | -               

---

* Less than one percent of the
outstanding ordinary shares.

|(1) | As used in this table,  beneficial  ownership  means the sole or shared  power to vote or direct the
         voting or to dispose or direct the  disposition of any security.  For purposes of this table, a
         person is deemed to be the beneficial  owner of securities  that can be acquired within 60 days
         from June 30, 2006 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 60,513,886  ordinary shares  outstanding as
         of June 30, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
directors and executive officers of NUR hold, in the aggregate, options and warrants
exercisable into 5,023,334 ordinary shares. The 5,023,334 options have a weighted average
exercise price of approximately $0.44 per share and have expiration dates until 2015.
Under the 1998 Share Option Plan for Non-Employee Directors (the 1998 Plan),
Oded Akselrod, director of NUR, was granted options to purchase 10,000 ordinary shares on
December 30, 2004 and August 1, 2005. Lauri A. Hanover and Kobi Shtaierman, both external
directors of NUR as of November 18, 2003 were each granted 6,667 options on November 18,
2003 and each was also granted options to purchase 10,000 ordinary shares on December 30,
2004 and August 1, 2005. The exercise price for the underlying shares of such options is
the Fair Market Value (as defined in the 1998 Plan) of the ordinary shares of
NUR at the date of grant.

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# Outstanding Options

As of June 30, 2006,  NUR had  outstanding  options under NURs stock option plans to purchase a total
of  11,074,582  of its ordinary  shares.  Of such  options,  17,300 have been issued under the 1995 Israel
Stock Plan,  196,900 have been issued under the 1997 Stock Option Plan,  76,667 have been issued under the
1998  Non-Employee  Director Share Option Plan and 10,783,715 have been issued under the 2000 Stock Option
Plan. The options  granted under the 1995 Plan, the 1997 and the 2000 Plan are subject to various  vesting
requirements  and have been issued at exercise  prices  ranging from $0.32 to $7.50 per share with various
expiration  dates.  The options  granted under the 1998 Plan are not subject to vesting  requirements  and
have an exercise price ranging from $0.31 to $0.92 per share,  with various  expiration dates. See Note 14
to NURs  consolidated  financial  statements  included as a part of this  annual  report on Form 20-F for
more details.
..

1995 Israel Stock Option
Plan

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

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

1997 Stock Option Plan

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

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

61

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1998 Non-Employee
Director Share Option Plan

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

2000 Stock Option Plan

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

NURs  shareholders  approved,  at the annual shareholders  meetings held in November 2003 and October
2004 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 in October  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  cancelled  (except in the case of surrender  for the  exercise  into shares) or which cease to be
exercisable  under  the 1995  Plan and the 1997  Plan.  As of June 30,  2006,  the  additional  number  of
ordinary shares  underlying  options  cancelled under the 1995 Plan and the 1997 Plan increased the number
of ordinary  shares  authorized for issuance under the 2000 Plan by 164,300 from 17,497,590 to 17,661,890.
The 2000 Plan will expire on August 31, 2008, unless previously terminated or extended by the Board.

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

The Board  determines the term of each option  granted under the 2000 Plan;  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 Board determines the vesting period of each option grant under the 2000 Plan.

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

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# ITEM 7: Major
Shareholders and Related Party Transactions

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

The  following  table sets forth  information  regarding the  beneficial  ownership of NURs  ordinary
shares as of June 30,  2006,  by each person  known by NUR to be the  beneficial  owner of more than 5% of
our ordinary  shares.  Each of our  shareholders  has identical  voting rights with respect to its shares.
All of the  information  with respect to beneficial  ownership of the ordinary shares is given to the best
of NURs knowledge.

|                                                       | Ordinary Shares
Beneficially Owned(1) | Percentage of Ordinary Shares
Beneficially Owned
|------------------------------------------------------ | ------------------------------------- | ------------------------------------------------
|
|
|
|
|                                                       |                                       |                                                 
|Fortissimo Entities (2)                                |                                       |                                                 
|Kanir Joint Investments (2005) Limited Partnership (3) |                                       |                                                 
|Dan Purjes(4)(5)                                       |                                       |                                                 
|Bank Hapoalim B.M                                      |                                       |                                                 
|Bank Leumi Le-Israel B.M                               |                                       |                                                 

---

|(1) | As used in this table,  beneficial  ownership  means the sole or shared  power to vote or direct the
voting or to dispose or direct the  disposition  of any security.  For purposes of this table, a person is
deemed to be the  beneficial  owner of securities  that can be acquired  within 60 days from June 30, 2006
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
60,513,886 ordinary shares outstanding as of June 30, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | According  to information  provided by the holders,  the Fortissimo  Entities  consist of Fortissimo
         Capital  Fund  GP,  LP  (FFC-GP),   Fortissimo  Capital  Fund  (Israel),  LP  (FFC-Israel);
         Fortissimo  Capital Fund (Israel-DP),  LP  (FFC-Israel-DP);  and Fortissimo  Capital Fund, LP
         (FFC  Cayman).  FFC-GP and FFC Cayman are  limited  partnerships  incorporated  in the Cayman
         Islands.  FFC-Israel  and  FFC-Israel-DP  are  limited  partnerships  incorporated  in  Israel.
         FFC-Israel,  FFC-Israel-DP  and FFC  Cayman  invest  together,  in the  framework  of  parallel
         private  equity  funds,  which are managed by FFC GP. The holdings of the  Fortissimo  Entities
         consist of 32,931,241  ordinary  shares  beneficially  held by FFC-Israel,  2,988,524  ordinary
         shares  beneficially  held by FFC-Israel-DP,  980,236 ordinary shares  beneficially held by FFC
         Cayman,  6,706,246 ordinary shares and warrants held in trust for FFC-Israel,  597,705 ordinary
         shares and warrants held in trust for  FFC-Israel-DP  and 196,046  ordinary shares and warrants
         held in trust for FFC Cayman.  In October 2005, the Fortissimo  Entities and Kanir entered into
         a  shareholders  agreement  described  in Item  10.C:  Material  Contracts.  Pursuant to Rule
         13d-5(b)(1) of the Exchange Act the Fortissimo  Entities may,  together with Kanir be deemed to
         be  members  of a Group as such term is defined  under the  Exchange  Act and the  Fortissimo
         Entities may be deemed to  beneficially  own the ordinary shares  beneficially  owned by Kanir,
         or  60,000,000  in  the  aggregate.  Each  of  the  Fortissimo  Entities  disclaims  beneficial
         ownership of the shares owned by Kanir.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | According
to information provided by the holder, Kanir is an Israeli limited
                    partnership. The holdings of Kanir consist of 6,250,000 ordinary
shares                     beneficially owned by Kanir and 8,750,001 ordinary shares and
warrants held in                     trust for Kanir. In October 2005, the Fortissimo
Entities and Kanir entered into                     a shareholders agreement described in
Item 10.C: Material Contracts.                    Pursuant to Rule
13d-5(b)(1) of the Exchange Act Kanir may, together with the
                    Fortissimo Entities be deemed to be members of a Group as
such term                     is defined under the Exchange Act and Kanir may be deemed
to beneficially own                     the ordinary shares beneficially owned by the
Fortissimo Entities, or                     60,000,000, in the aggregate. Kanir disclaims
beneficial ownership of the shares                     owned by the Fortissimo Entities.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

63

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|(4) | According
to information provided by the holder, Dan Purjes beneficially owns
                    10,563,532 ordinary shares. The holding of Mr. Purjes consists of
10,202,341                     ordinary shares beneficially owned by Dan and Edna Purjes,
228,918 ordinary                     shares beneficially owned by Y Securities Limited
and 132,273 ordinary shares                     beneficially owned by X Securities
Limited. Pursuant to Rule 13d-5(b)(1) of the                     Exchange Act Mr. Purjes
may, together with the Purjes Foundation, First Purjes                     Descendants,
LP and the Second Purjes Descendants, LP, be deemed to be members                     of
a Group as such term is defined under the Exchange Act and Mr.
                    Purjes may be deemed to beneficially own the ordinary shares
beneficially owned                     by such entities, or 10,955,236, in the aggregate.
Mr. Purjes disclaims                     beneficial ownership of the shares owned by the
Purjes Foundation, First Purjes                     Descendants, LP and the Second Purjes
Descendants, LP.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | According
to a Voting Agreement between NUR and Dan Purjes dated January 23,
                    2005 (the Voting Agreement) Dan Purjes and certain of his
affiliates                     granted to our Board or a nominee appointed by it voting
control over the                     ordinary shares beneficially owned by them, coupled
with an irrevocable proxy,                     and the Board or the nominee appointed by
it will vote the shares in any meeting                     or actions of the shareholders
and with respect to any matter submitted to                     shareholder with the
majority of votes of the other shareholders of NUR. For                     additional
information regarding the Voting Agreement see Item 10.C:
                    Material Contracts.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Significant Changes in
the Ownership of Major Shareholders

On October 31, 2005, we closed a private  placement  with a group of investors led by  Fortissimo.  As
of June 30,  2006,  the  Fortissimo  Entities  and  Kanir are the  beneficial  owners  of  44,999,999  and
15,000,001  ordinary shares,  or 56.39% and 22.41%, of our ordinary shares,  respectively.  On December 8,
2005, we consummated the debt  restructuring  agreement.  As of June 30, 2006, Bank Hapoalim B.M. and Bank
Leumi Le-Israel B.M. are the beneficial  owners of 4,989,396 and 3,416,329  ordinary shares,  or 7.62% and
5.34%, of our ordinary shares,  respectively.  As of June 30, 2006, Dan Purjes was the beneficial owner of
10,563,532,  or 16.51%, of our ordinary shares.  The Purjes ownership interest increased from 28.5% as of
December  31, 2002 to 31.15% as of December 31, 2003 and  decreased  to 30% as of December  31, 2004.  The
Purjes  ownership  interest  increased to 36.54% in April 17, 2005 and was decreased to 16.51% in October
2005.  See Item 10.B:  Memorandum of Association and Amended Restated Articles of Association  for a description  of the  shareholders  agreement  among the
Fortissimo Entities and Kanir.

# Record Holders

Based  on a review of the  information  provided to us by our  transfer  agent,  as of June 30,  2006,
there were 83* record holders of ordinary  shares,  of which 41 represented  United States* record holders
holding approximately 36.94% of the outstanding ordinary shares of NUR.

---

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

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

At the special shareholders  meeting held on April 17, 2005, NURs shareholders  approved the grant to
Dan Purjes,  a former director and former chairman of the Board,  and the then largest  shareholder,  of a
five-year  warrant to purchase  3,000,000  ordinary shares at $0.75 per share.  The warrant was granted to
Dan Purjes in  consideration  for his agreement to enter into the Voting Agreement dated as of January 23,
2005,  coupled with an irrevocable  proxy,  and the Voting Trust Agreement dated as of March 7, 2005 under
which voting  control of all shares owned by Dan Purjes and his family and  affiliates  was  controlled by
an  independent  trustee.  As a result of the  delisting  of our ordinary  shares from the Nasdaq  Capital
Market, the Voting Trust Agreement was automatically terminated and converted into the Voting Agreement.

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

On  January 24,  2006,  we entered into a lease  agreement  with Telrad to lease  approximately  3,400
square  meters  (36,597  square feet) in the Telrad  Campus in Lod,  Israel for the purpose of housing our
manufacturing  facility.  The lease agreement has a term of 60 months  beginning on June 2006. We have the
option to extend the lease  period by one  additional  term of 60  months.  In the event we  exercise  our
option to extend the lease,  Telrad has the right to increase  the monthly  lease  payment by up to 5%. We
may  terminate  the  lease  after  30  months  on  three-month  prior  notice.  We  expect  that  the  new
manufacturing  facility in the Telrad Campus will be sufficient  for our current and future  requirements.
The Fortissimo  Entities,  which are deemed a major shareholder of Telrad,  beneficially own approximately
56.39% of our  ordinary  shares and have  appointed,  together  with  Kanir,  4 members  to our Board.  In
February 2006,  the Audit  Committee and the Board approved the execution and delivery of the Telrad lease
agreement.

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

For a further  discussion of the March 2004 private  placement,  the Dan Purjes  voting  agreement and
the Fortissimo management  agreement,  as well as transactions and balances with related parties see Item
10.C: Material Contracts and Note 13 to NURs consolidated  financial  statements,  which are included as
a part of this annual report.

65

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|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, 2005,  please see
pages F-2 to F-52 of this report.

# Export Sales

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

# Legal Proceedings

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

In
August 2001, Printable B.V., a client of NUR Europe, filed a suit against NUR Europe in
the Commercial Court of Brussels. The client claims that the contract between Printable
and NUR Europe for the sale of two machines is null and void, and it further seeks damages
amounting to approximately 1.57 million (or $1.86 million). NUR Europe filed a
counter claim for the collection of outstanding amounts. In April 2004, the Commercial
Court of Brussels denied Printables claims and ordered Printable to pay NUR Europe
an amount of approximately 0.15 million (or $0.18 million). Printable appealed that
judgment. We believe that the clients appeal is without merit and NUR Europe is
defending itself vigorously against the claim.

In
October 2001, Distrade SL, a client of NUR Europe, filed a suit against NUR Europe in the
Commercial Court of Brussels, alleging technical defaults in a machine purchased by it.
Distrade is seeking reimbursement of the purchase price it paid amounting to approximately
$0.18 million, as well as damages of approximately 0.23 million (or $0.27 million).
The Commercial Court of Brussels appointed an expert in order to hear the parties
claims, to examine the machine and provide an opinion regarding the damages suffered by
Distrade from the machines use. NUR Europe is defending itself vigorously against
the claim.

66

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In March 2002, a former  employee filed a lawsuit  against a subsidiary in the amount of 0.25 million
(or $0.3  million)  plus certain  indemnities  and  interest.  In  September  2003,  the Work  Tribunal of
Nivelles  rendered a judgment  instructing  the subsidiary to pay the former  employee  0.25 million plus
interest  accruing  thereon.  In January 2004, the subsidiary filed an appeal.  In October 2005, the court
of appeal  rendered a judgment  instructing  the subsidiary to indemnify the former employee in the amount
of  0.12 million (or $0.14 million) plus the interest  accrued  thereon.  The court of appeal has not yet
rendered its judgment regarding, among other things, certain indemnities sought by the former employee.

In
August 2002, Jiaxing Dapeng Advertising Limited Company, an end-user of NURs
equipment, filed a suit against NUR Shanghai in the Jiaxing Intermediate Court in the
People Republic of China, alleging that the equipment purchased by it was of bad quality.
The Jiaxing Intermediate Court ruled that NUR Shanghai should reimburse Dapeng with the
purchase price of approximately $0.184 million and pay a compensation of approximately
$0.02 million. Following an appeal filed by NUR Shanghai, the Zhejiang Higher Court ruled
in September 2003, that NUR Shanghai is to pay Dapeng approximately $0.184 million.

In
November 2002, Guangzhou Junhao Printing Limited Company, a client of NUR Asia Pacific,
filed a suit against NUR Asia Pacific in the Guangzhou Intermediated Court situated in the
Peoples Republic of China, alleging that the equipment purchased by it from NUR Asia
Pacific was of bad quality. Junhao was seeking reimbursement of the purchase price it paid
in approximately the amount of $0.24 million, as well as compensation of approximately
$0.16 million. In July 2005, the Guangzhou Intermediate Court ruled that NUR Asia Pacific
should reimburse Junhao with the purchase price of $0.24 million and pay a compensation of
approximately $0.04 million.

In November 2002,  Julius  Heywinkel  GmbH, a former supplier and  manufacturer of NUR Media Solutions
filed suit  against  NUR Media  Solutions  in the Court of  Osnabrück,  Germany,  claiming  that NUR Media
Solutions  owed  penalties  as a result of NUR Media  Solutionss  alleged  failure  to  purchase  certain
minimum  quantities  prescribed  under an agreement  between NUR Media Solutions and Heywinkel.  Heywinkel
was  seeking  damages  in  approximately  the amount of 0.94  million  (or $1.19  million).  The Court of
Osnabrück has ordered NUR Media  Solutions to pay Heywinkel an aggregate  amount of 1.2 million (or $1.42
million)  representing  penalties  and  accrued  interest.  In July  2006,  the  High  Regional  Court  in
Oldenburg, Germany denied an appeal that was previously filed by NUR Media Solutions.

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

In December 2003,  Imagens  Digitais Ltda., a client of NUR DO Brazil Ltda.,  filed a suit against NUR
DO Brazil  Ltda.  and NUR America in Brazil,  alleging  that a machine  purchased by it failed to perform.
Imagens is seeking  reimbursement  of the purchase price paid by it in the amount of  approximately  $0.40
million.  We believe that the claim is without  merit and both NUR DO Brazil and NUR America are defending
themselves vigorously against the claim.

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

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

In
July 2005, the tribunal of the first instance of Nivelles confirmed a motion filed against a
subsidiary by a former employee for the seizure of that subsidiarys tangible assets in the amount
of  0.5 million (or $0.59 million). In January 2006, the tribunal of the first instance of Nivelles
reduced the seizure for an amount of  0.12 million (or $0.14 million). The subsidiary filed an appeal
of that decision. In October 2005, the former employee filed a lawsuit against the subsidiary in the
amount of  0.48 million (or $0.57 million) plus certain indemnities and interest thereon. The
subsidiarys local legal counsel could not estimate the final amount of loss with respect to this
litigation. NURs management decided to record a provision with respect to this claim.

In
October 2005, Dan Purjes,  NURs former chairman and beneficial  owner of  approximately
 16.51% of NURs ordinary  shares,  filed a complaint  against NUR in the Supreme  Court,
 New York County seeking to recover the right to vote his ordinary  shares.  The right to
vote Mr.  Purjes  ordinary  shares had been transferred  to NUR pursuant to a voting
 agreement  dated  January 23, 2005 by and between Mr. Purjes and NUR. The complaint
 filed by Mr. Purjes seeks to have the voting  agreement  declared  unenforceable.  NUR
disputes the assertions  made in Mr.  Purjes  complaint,  believes that Mr. Purjes  compliant
is without merit and intends to contest Mr. Purjes complaint vigorously.

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

# Dividends

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

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

Except
as otherwise disclosed in this annual report, no significant change has occurred since
December 31, 2005.

# ITEM 9: The Offer and
Listing

Not
Applicable, except for Items 9.A.4 and Item 9.C, which are detailed below.

# Stock Price History

The  prices set forth below are high and low closing  market prices for the ordinary  shares of NUR as
reported by Nasdaq National Market,  the Nasdaq Capital Market or the Pink Sheets, as applicable,  for the
fiscal  year  ended  December  31 of each  year  indicated  below,  as of the end of each  fiscal  quarter
indicated  below,  and for each month for the  six-month  period  ending June 30,  2006.  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 NURM.PK.

68

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|Year                   | High (US) | Low (US)
|---------------------- | --------- | --------
|
|
|
|
|2001                   |           |         
|2002                   |           |         
|2003                   |           |         
|2004                   |           |         
|2005                   |           |         
|                       |           |         
|2004                   |           |         
|First Quarter          |           |         
|Second Quarter         |           |         
|Third Quarter          |           |         
|Fourth Quarter         |           |         
|                       |           |         
|2005                   |           |         
|First Quarter          |           |         
|Second Quarter         |           |         
|Third Quarter          |           |         
|Fourth Quarter         |           |         
|                       |           |         
|2006                   |           |         
|First Quarter          |           |         
|Second Quarter         |           |         
|                       |           |         
|Most Recent Six Months |           |         
|June 2006              |           |         
|May 2006               |           |         
|April 2006             |           |         
|March 2006             |           |         
|February 2006          |           |         
|January 2006           |           |         

# Markets

Our
ordinary shares are currently quoted in the over-the-counter market in the Pink
Sheets under the symbol NURM.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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# ITEM 10: Additional
Information

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

Not
applicable.

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

Set
forth below is a brief description of certain provisions contained in the Memorandum of
Association, the Amended and Restated Articles of Association (Articles) as
well as certain statutory provisions of Israeli law. The Memorandum of Association and the
Articles have been filed as exhibits to this annual report or incorporated by reference
herein. The description of certain provisions does not purport to be a complete summary of
these provisions and is qualified in its entirety by reference to such exhibits.

Authorized Share Capital

The
authorized share capital of NUR is one hundred seventy million (170,000,000) New Israeli
Shekel, divided into one hundred and seventy million ordinary shares.

Purpose and Objective

We
are a public company registered under the Israeli Companies Law, 1999 as NUR Macroprinters
Ltd., registration number 52-003986-8. Pursuant to Section 3.1 of NURs Articles, our
objective is to undertake any lawful activity, including any objective set forth in our
Memorandum of Association. Pursuant to Section 3.2 of our Articles, our purpose is to
operate in accordance with commercial considerations with the intentions of generating
profits.

Board of Directors

Under
the Israeli Companies Law, 1999, the Board is authorized to set NURs strategy and
supervise the performance of the duties and actions of NURs chief executive officer.
The Board may not delegate to a committee of the Board or the chief executive officer the
right to decide on certain of the authorities vested with it, including determination of
NURs strategy, distributions, certain issuances of securities and approval of
financial reports. The powers conferred upon the Board are vested in the Board as a
collective body and not in each one or more of the directors individually. Unless
otherwise set forth in a resolution of the shareholders, the Board shall consist of not
less than four (4) nor more than twelve (12) directors (including any external directors
whose appointment is mandated under the Companies Law).

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The  directors are elected  annually at a general meeting of  shareholders  and remain in office until
the next annual  meeting at which time they shall  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 Israeli  Companies Law,  publicly traded companies must appoint two external  directors to serve on
their Board of Directors  and Audit  Committee.  The external  directors  are  appointed  for a three-year
term.  At least one of the external  directors  is required to have  Financial  Expertise  and the other
external  directors  are required to have  Professional  Expertise.  These  requirements  are subject to
regulations to be  promulgated  in which the terms  Financial  Expertise  and  Professional  Expertise
would be defined.  This recent  amendment does not apply to external  directors who were appointed  before
March 17, 2005 (such as our external  directors).  The election of external directors requires the vote of
the majority of the voting power  represented  at the  meeting,  provided  that either (i) such a majority
includes at least one third of the  shareholders  present who do not qualify as  controlling  shareholders
(as such term is defined in the  Israeli  Companies  Law) or (ii) the  aggregate  number of shares held by
non-controlling  shareholders  voting at the meeting  against such election does not exceed one percent of
the outstanding voting rights of the company.

Subject
to the provisions of Israeli Companies Law, the Board may approve each of the following
transactions that are not detrimental to the best interest of NUR: (i) a transaction to
which NUR is a party to, and in which an officer of NUR has an interest; (ii) a
transaction between NUR and an officer of NUR; (iii) a private offer of NURs
securities to a holder of five percent (5%) or more of NURs shares; or (iv) such
other transactions that require special approval pursuant to the Companies Law. In the
event of an extraordinary transaction or the approval of the terms of service or
employment (including any waiver, insurance or indemnification) of an officer of NUR, such
transaction shall require additional approvals of the audit committee, or of the audit
committee and of a meeting of shareholders, by regular or special majority, all as
stipulated by the Companies Law. Any officer who has an interest in a transaction shall
not participate in the meeting of the Board or audit committee in which such transaction
is considered and shall not vote in such meeting, provided that if the majority of the
members of the Board or the audit committee have an interest in the transaction, they may
attend and vote at the meeting and then the transaction must also be approved by a general
meeting of the shareholders. For a further discussion of the Board practices see
Item 6.C: Board Practices.

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

Rights of Shareholders

No
preemptive rights are granted to holders of ordinary shares under the Articles or the
Israeli 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
general meetings of shareholders, and shall be obligated to do so upon receipt of a
requisition in writing in accordance with Israeli law. Prior to any general meeting a
written notice thereof shall be delivered to all registered holders and to all other
persons entitled to attend, and shall be otherwise made public as required by Israeli law.

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

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

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.

Dividends and Profits

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

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Certain Transactions with
Controlling Persons

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

Anti-takeover Provisions;
Mergers and Acquisitions under Israeli Law

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

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

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

If,
as a result of an acquisition of shares, the acquirer will hold more than 90% of a
companys outstanding shares, the acquisition must be made by means of a tender offer
for all of the outstanding shares. If less than 5% of the outstanding shares are not
tendered in the tender offer, all the shares that the acquirer offered to purchase will be
transferred to the acquirer. The Israeli 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 Israeli Companies Law provide that the Israeli Companies Laws tender offer
rules do not apply to a company whose shares are publicly traded outside of Israel, if
pursuant to the applicable foreign securities laws and stock exchange rules there is a
restriction on the acquisition of any level of control of the company, or if the
acquisition of any level of control of the company requires the purchaser to make a tender
offer to the public shareholders.

Duties of Shareholders

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

| | any
amendment to the articles of association;
|- | ---------------------------------------------

| | an
increase in the company's authorized share capital;
|- | ------------------------------------------------------

| | a
merger; or
|- | ------------

| | approval
of related party transactions that require shareholder approval.
|- | -------------------------------------------------------------------------

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

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

Fortissimo Private
Placement

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

Under
the terms of the investment agreement, the purchase price of $12 million is to be paid in
three installments. $5 million were paid at the closing, $5 million were paid in January
2006, and the remaining $2 million will be paid on October 2006. The respective portion of
the Fortissimo Shares and Fortissimo Warrants reflecting the remaining third installment
was issued and is being held in trust by an escrow agent. The escrow agent will release
the escrow securities to the Fortissimo Investors upon payment of the third installment.
Until the date of payment of the third installment, the escrow agent will vote, execute
written instruments and/or exercise any other rights of holders in connection with the
escrow securities pursuant to the written instructions of the Fortissimo Investors.

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

NUR and Fortissimo  entered into a management  agreement.  In  consideration of the performance of the
management  services and the board services under the terms of the management  agreement NUR agreed to pay
to Fortissimo an aggregate annual  management  services fee in the amount of $250,000 plus value added tax
pursuant to  applicable  law. For more  information  regarding  the  management  agreement  see Item 7.B:
Related Party Transaction.

Debt Restructuring
Agreement

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

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

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

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

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

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

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

| | a
bankruptcy, insolvency or reorganization proceeding under any bankruptcy or insolvency or
similar law, whether voluntary or involuntary, which is properly commenced by or against
NUR, which proceedings are not lifted or stayed within ninety days thereafter;
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a
receiver or liquidator is appointed to all, or substantially all, of NURs assets
which appointment is not lifted or stayed within ninety days thereafter; or
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NUR
enters into a stay of proceedings pursuant to Section 350 of the Israeli Companies Law,
which proceedings are not lifted within 90 days (such period of time shall not apply if
it prejudices the rights of the Lender Banks)
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

NUR
has agreed to direct the $2 million third installment of the Fortissimo investment to
repay $2 million of NURs bank debt on the first anniversary of the closing of the
debt restructuring agreement. This $2 million repayment of bank debt will consist of $1.9
million of principal and $0.1 million of fixed interest.

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The  repayment of NURs remaining $22 million of outstanding  bank debt, after the repayment of the $2
million  described  above  (the  Remaining  Debt)  was  rescheduled  for  repayment  under a new  credit
facility.  The credit  facility  is  divided  into a  revolving  short-term  credit  line in the amount of
approximately  $11 million,  and a ten-year  long-term  loan in the amount of $11 million.  The  revolving
credit  line is  renewable  on a yearly  basis at the  request  of NUR for up to six years  unless NUR has
defaulted  on the terms of the credit  facility  or the Lender  Banks  otherwise  have the right to demand
repayment of the amounts  outstanding  under the revolving credit line. NUR is required to pay interest on
the  revolving  credit line  quarterly.  NUR will not be required to make any annual  principal  payments,
payable  in four  quarterly  installments,  under  the new  long-term  loan for a period  of two years and
thereafter is required to make the following principal payments:

|Year | Principal Payment Amount
|---- | ------------------------
|
|
|
|
|2008 |                         
|2009 |                         
|2010 |                         
|2011 |                         
|2012 |                         
|2013 |                         
|2014 |                         
|2015 |                         

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

NUR
also has agreed to maintain the following ratios of (1) the total amounts owed to the
Lender Banks plus available credit under the new revolving credit facility plus debts of
subsidiaries to outside lenders incurred above an aggregate of 2.035 million (or
$2.58 million) to (2) EBITDA (as defined in the debt restructuring agreement)

|Time Period                                        | Ratio of Debt to EBITDA
|-------------------------------------------------- | -----------------------
|
|
|
|
|Fiscal year ended December 31, 2007                |                        
|Fiscal year ended December 31, 2008                |                        
|Fiscal year ended December 31, 2009                |                        
|Fiscal year ended December 31, 2010                |                        
|Fiscal year ended December 31, 2011 and thereafter |                        

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

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

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

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

Inspire Private Placement
and Debt Restructuring Agreement

On  December 29, 2004, we reached an agreement  with Inspire  Investments  Ltd. for the  investment by
Inspire of $10 million in NUR. The  consummation of the Inspire  investment was  conditioned,  among other
things,  upon Inspires  completion of its due diligence  review.  As a pre-condition to entering into the
agreement Inspire required,  among others,  that NUR will enter into a debt  restructuring  agreement with
the Lender Banks and that a substantial  part of the holdings of Dan Purjes,  a former director and former
chairman of the Board and the then  largest  shareholder,  will be voted under an  irrevocable  proxy.  On
March 21, 2005,  NUR reached a debt  restructuring  agreement  with the Lender  Banks,  providing  for the
conversion  of $15  million  of NURs  outstanding  debt into  equity  and for the  rescheduling  of NURs
remaining $28 million of outstanding  debt and the  replacement of the financial  ratios  governing  NURs
loan  agreements  with the Lender Banks.  In June 2005,  Inspire  notified us that it had  terminated  the
investment  agreement.  As a result,  the related  restructuring  agreement  of March 2005 with our Lender
Banks was terminated as well.

Dan Purjes Voting
Agreement and Voting Trust Agreement

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

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

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| | The
Proxy became effective on January 23, 2005, the date of the Voting Agreement, and will
terminate when Mr. Purjes is no longer the record holder or beneficial owner of ordinary
shares or securities exercisable for or convertible into ordinary shares (the Term).
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During the Term, Mr. Purjes may not dispose of any of the ordinary  shares and securities  exercisable
for or convertible into ordinary shares which are subject to the Proxy, other than:
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | any
number of shares in the open market through a stock broker or dealer for the sole purpose
of effecting an immediate sale of such shares;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------

| | n | to
a person or entity that is not affiliated, directly or indirectly, with Mr. Purjes
through a private transaction. During the period ending on the earlier of January 23,
2006 or immediately following NURs general meeting of shareholders which would be
convened for electing directors appointed or recommended by a new investor to NURs
board of directors (the Restricted Period), the transferee will grant to NURs
Board or a nominee appointed by it a proxy with respect to the transferred shares, which
proxy will be effective until the end of the Restricted Period;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | to
a certain unaffiliated third party through a private transaction;
| | - | --------------------------------------------------------------------

| | n | pledging,
hypothecating, creating a security interest in or lien on, or commit to do any of the
foregoing with respect to the subject securities, provided, that such securities will
continue to be subject to the Proxy; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | n | transfers
of securities covered by the Proxy to Mr. Purjes family and affiliates. The
transferee will be bound by the terms of the Voting Agreement and the securities so transferred
will continue to be subject to the Proxy.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NUR
agreed to indemnify Mr. Purjes for claims, demands and actions, and liabilities, damages,
or expenses resulting therefrom, resulting from the Proxy given to NUR or its
representative or them voting such shares.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

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

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

Israeli
law places limitations on foreign currency transactions and transactions between Israeli
and non-Israeli residents, including payment of dividends. The Controller of Foreign
Exchange at the Bank of Israel, through permits, may regulate or waive these limitations.
As of May 1998, foreign currency transactions are generally permitted, although certain
restrictions still apply. Restricted transactions include foreign currency transactions by
institutional investors, including futures contracts by foreign residents for periods of
more than one month, and investments outside of Israel by pension funds and insurers.
Under the permit, all foreign currency transactions must be reported to the Bank of
Israel.

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

Israeli Taxation and Investment Programs

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

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Tax
Reform

On  January 1, 2003,  a  comprehensive  tax reform  took  effect in Israel.  Pursuant  to the  reform,
resident  companies  are  subject to  Israeli  tax on income  accrued  or derived in Israel or abroad.  In
addition,  the concept of controlled  foreign  corporation  was  introduced  according to which an Israeli
company  may  become  subject  to  Israeli  taxes on certain  income of a  nonIsraeli  subsidiary  if the
subsidiaries primary source of income is passive income (such as interest,  dividends,  royalties,  rental
income or capital  gains).  The tax reform  also  substantially  changed the system of taxation of capital
gains.

General
Corporate Tax Structure

Israeli
companies are generally subject to company tax on their taxable income. The applicable
rate is 35% in 2004, 34% in 2005, and 31% in 2006, and is scheduled to decline to 29% in
2007, 27% in 2008, 26% in 2009, and 25% in 2010 and thereafter. However, the effective tax
rate payable by a company which derives income from an approved enterprise may be
considerably less, as further discussed below.

Special
Provisions Relating to Taxation under Inflationary Conditions

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


there is a special tax adjustment for the preservation of equity which classifies
corporate assets into fixed assets and non-fixed assets. Where a 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.

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

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

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

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

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

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

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

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

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Law
for the Encouragement of Capital Investments, 5719-1959

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

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

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

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

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

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Future approved  enterprises will be reviewed  separately,  and decisions whether to approve or reject
a  designation  as an approved  enterprise  will be based,  among  other  things,  on the then  prevailing
criteria set forth in the  Investment  Law, on the  specific  objectives  of NUR and on certain  financial
criteria  of NUR.  Accordingly,  there  can be no  assurance  that  any new  investment  programs  will be
approved as approved  enterprises.  In addition,  the benefits  available  to an approved  enterprise  are
conditional  upon the  fulfillment  of certain  conditions  stipulated in the  Investment  Law and related
regulations  and the criteria set forth in the specific  certificate of approval,  as described  above. In
the event that these  conditions  are violated,  in whole or in part, NUR will be subject to corporate tax
at the rate then in effect under Israeli law for such tax year.

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

However,  the Investment Law provides that terms and benefits  included in any certificate of approval
already  granted will remain  subject to the  provisions of the Investment Law as they were on the date of
such approval.  Therefore,  NURs existing Approved  Enterprises  programs will generally not be subject
to the provisions of the Amendment.

Tax-exempt
 income  generated  under the  provisions of the  Amendment  will subject NUR to taxes
upon distribution  or  liquidation,  and NUR may be required to record  deferred tax
liability  with respect to such tax-exempt income.

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

Generally,
up until the 2006 tax year, capital gains tax was imposed on Israeli resident individuals
at a rate of 15% on real gains derived on or after January 1, 2003, from the sale of
shares in, among others, (i) Israeli companies publicly traded on Nasdaq or on a
recognized stock market in a country that has a treaty for the preventions of double
taxation with Israel. This tax rate was contingent upon the shareholders not claiming a
deduction for financing expenses in connection with such shares (in which case the gain
was generally taxed at a rate of 25%), and did not apply to: (i) the sale of shares by
dealers in securities; (ii) the sale of shares by shareholders that report in accordance
with the Income Tax Law (Inflationary Adjustments), 1985, referred to as the Inflationary
Adjustments Law (that were generally taxed at Corporate Tax rates for corporations and at
marginal tax rates for individuals); or (iii) the sale of shares by shareholders who
acquired their shares prior to an initial public offering (that may be subject to a
different tax arrangement).

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

The
tax basis of shares acquired prior to January 1, 2003, will be determined in accordance
with the average closing share price in the three trading days preceding January 1, 2003.
However, a request may be made to the tax authorities to consider the actual adjusted cost
of the shares as the tax basis if it is higher than such average price.

Taxation
of Non-Israeli Residents

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

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

Tax
Benefits for Research and Development

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

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Law
for the Encouragement of Industrial Research and Development, 5744-1984

Under
the Law for the Encouragement of Industrial Research and Development, 5744-1984 and the
related regulations, or the Research Law, research, development and pre-manufacturing
programs that meet specified criteria and are approved by a governmental committee (the
Research Committee) of the OCS are eligible for grants of up to 50% of the
expenditures on the program. Each application to the OCS is reviewed separately, and
grants are based on the program approved by the Research Committee. Expenditures supported
under other incentive programs of the State of Israel are not eligible for OCS grants. As
a result, we cannot be sure that applications to the OCS will be approved or, if approved,
that we will receive the amounts for which we apply.

Recipients
of these grants are required to pay royalties on the revenues derived from the sale of
product developed in accordance with the program. The royalties are payable at the rate of
3% of revenues during the first three years, 4% of revenues during the following three
years, and 5% of revenues in the seventh year and thereafter, with the total royalties not
to exceed 100% of the dollar value of the OCS grant.

The
terms of the Israeli government participation require that products developed with OCS
grants must generally be manufactured in Israel. If we receive OCS approval for any
portion of this manufacturing to be performed outside of Israel, the royalty rate would be
increased and the repayment schedule would be accelerated, based on the extent of the
manufacturing conducted outside of Israel. Depending upon the extent of the manufacturing
volume that is performed outside of Israel, the ceiling on royalties would increase to
120%, 150% or 300% of the grant. Under an amendment to the Research Law effective June 7,
2005, the authority of the Research Committee to approve the transfer of manufacture
outside of Israel was expanded.

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The
technology developed pursuant to the terms of these grants may not be transferred to third
parties without the prior approval of the Research Committee. This approval is required
only for the export of the technology, and not for the export of any products that
incorporate the sponsored technology. Approval of the transfer of technology may be
granted only if the recipient agrees to abide by all the provisions of the Research Law,
including the restrictions on the transfer of know-how and the obligation to pay royalties
in an amount that may be increased. The amendment to the Research Law which became
effective on June 7, 2005 granted authority to the Research Committee to approve the
transfer of sponsored technology outside of Israel, subject to various conditions. For
additional information also see disclosure under Item 3: Key Information.

We
have received grants from the OCS, and therefore we are subject to various restrictions
under the Research Law on the transfer of technology or manufacturing. These restrictions
do not terminate upon the full payment of royalties.

# U.S. Tax Considerations
Regarding Ordinary Shares

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

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

| | (1) | an individual citizen or resident of the United States,
| | --- | -------------------------------------------------------

| | (2) | a corporation or other entity taxable as a corporation for U.S. federal income
               tax purposes organized in or under the laws of the United States or any
               political subdivision thereof,
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| | (3) | an estate the income of which is subject to U.S. federal income tax without
               regard to its source, or
| | --- | -------------------------------------------------------------------------------------------------------------------

| | (4) | a trust, if such trust validly elects to be treated as a U.S. person for U.S.
               federal income tax purposes, or if (a) a court within the U.S. can exercise
               primary supervision over its administration and (b) one or more U.S. persons
               have the authority to control all of the substantial decisions of such trust.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

# Taxation of U.S. Holders

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

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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.

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

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

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

| | (1) | the excess distribution or gain will be allocated ratably over your holding
               period for the ordinary shares,
| | --- | --------------------------------------------------------------------------------------------------------------------------

| | (2) | the amount allocated to the current taxable year, and any taxable year prior to
               the first taxable year in which we were a PFIC, will be treated as ordinary
               income, and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | the amount allocated to each other year will be subject to tax at the highest
               tax rate in effect for that year and the interest charge generally applicable to
               underpayments of tax will be imposed on the resulting tax attributable to each
               such year.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

Alternatively,
a U.S. Holder of marketable stock in a PFIC may make a mark-to-market election
for stock of a PFIC to elect out of the tax treatment discussed three paragraphs above. If
you make a mark-to-market election for the ordinary shares, you will include in income
each year an amount equal to the excess, if any, of the fair market value of the ordinary
shares as of the close of your taxable year over your adjusted basis in such ordinary
shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the
ordinary shares over their fair market value as of the close of the taxable year. However,
deductions are 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 would apply to
distributions by us.

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

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

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

# Taxation of Non-U.S.
Holders

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

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

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

# Backup Withholding and
Information Reporting

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

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

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|F. | Dividends
and paying agents
|-- | ---------------------------

Not
Applicable.

|G. | Statement
by experts
|-- | --------------------

Not
Applicable.

|H. | Documents
on display
|-- | --------------------

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

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 Section 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 a web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.

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

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

Not
applicable.

# ITEM 11: Quantitative
and Qualitative Disclosures About Market Risk

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

Inflation, Deflation and
Fluctuation of Currencies

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

Interest Rate

NURs
exposure  to market  risk due to changes  in  interest  rates  relates  primarily  to NURs
long-term  loans interest rate  variation.  As of December 31, 2005, we had a balance of $11.8 million
of long term loans  carrying  annual  interest  rates of LIBOR + 2.5%.  Changes in the LIBOR  interest
rate may affect our interest  payments.  As of June 30, 2006,  $11.8 million were  outstanding  in the
aggregate under the long-term loans.

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

# ITEM 12: Description of
Securities Other Than Equity Securities

Not
Applicable.

# PART II

# ITEM 13: Defaults,
Dividend Arrearages and Delinquencies

During  the  beginning of 2005,  NUR failed to meet certain of the financial  covenants  governing its
then  long-term and  short-term  loans.  However,  under the terms of our agreement  with the Lender Banks
dated June 29,  2005 and under the debt  restructuring  agreement  dated  September  12,  2005,  the banks
agreed to waive these defaults for all periods prior to the closing of the debt  restructuring  agreement.
We believe  that the new  financial  covenants  set forth in our recent  agreements  with the Lender Banks
will  allow a better  alignment  between  the  financial  covenants  and  NURs  business  plan.  For more
information see Item 10.C: Material Contracts.

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

There
are no material modifications to, or qualifications of, the rights of security holders
that are required to be disclosed.

# ITEM 15: Controls and
Procedures

Disclosure Controls and
Procedures

We
performed an evaluation under the supervision and with the participation of our
management, including our chief executive officer and chief financial officer, of the
effectiveness of the design and operation of our disclosure controls and procedures (as
defined in Rules 13a-15(c) and 15d-15(c) of the Exchange Act) as of the end of the period
covered by this report and each has concluded that (1) such disclosure controls and
procedures were effective as of such date to ensure that information required to be
disclosed in NURs reports filed under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms and (2)
our disclosure controls and procedures are effective to ensure that information required
to be disclosed in the reports that NUR files or submits under the Exchange Act is
accumulated and communicated to our management, including our chief executive officer and
chief financial officer, to allow timely decisions regarding required disclosure.

94

---

---

Internal control over
Financial Reporting

Except
as stated below, there were no changes in NURs internal control over financial
reporting that occurred during the year ended December 31, 2005 that have materially
affected, or are reasonably likely to materially affect, NURs internal control over
financial reporting. In addition, except as stated below, we have not identified any
significant deficiencies or material weaknesses in our internal controls for 2005.

Following  the  restatement  of  NURs  financial  results  for  2002  through  2004  and  during  the
preparations of the financial  reports for the year ended December 31, 2005, NURs  management  identified
material  weaknesses in internal  control over financial  reporting that relate to (1)  implementation  of
the new policy of  revenue  recognition  adopted  by NUR in 2005,  (2)  monitoring  appropriate  levels of
allowance for doubtful  accounts and provisions for  slow-moving  inventory and (3) the closing process of
the financial statements prior to the initiation of the audit work.

NURs  management  evaluated the foregoing  weaknesses and took the following  corrective actions: (1)
in 2005,  NUR enhanced  the level of required  documentation  and review  relating to reporting of revenue
recognition from products,  (2) in 2006, NUR held mandatory  training  sessions for senior  executives and
staff  regarding  the  criteria  for  revenue  recognition  under the  United  States  generally  accepted
accounting  principles,  (3) NUR intends to carry-out in 2006  similar  sessions for its sales force,  and
(4) in 2005, NUR adopted and  implemented  new policies for allowance for doubtful  accounts and valuation
of inventories.

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

# ITEM 16: Reserved

# ITEM 16A: Audit
Committee Financial Expert

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

# ITEM 16B: Code of Ethics

NURs
Audit Committee and Board have adopted a code of ethics, as defined in Item 16B of Form
20-F, that applies to NURs chief executive officer, chief financial officer, vice
president of finance, controllerand any other person bearing the title of vice
president or higher in the Finance Department. 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.

95

---

---

# ITEM 16C: Principal
Accountant Fees and Services

# Fees paid to the Auditors

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

|                   | 2005 | 2004
|------------------ | ---- | ----
|
|
|
|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,  including  approved  enterprise
         issues and transfer pricing.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Audit Committees
pre-approval policies and procedures

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

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

Not
Applicable.

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

Not
Applicable.

96

---

---

# 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, in Hebrew with a translation to English(1)
|--- |  | ---------------------------------------------------------------------------------------

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

|1.3 |  | Certificate
of Name Change(2)
|--- |  | -----------------------------

|2.1 |  | Specimen
Certificate for ordinary shares(1)
|--- |  | -------------------------------------------

|2.2 |  | Form
of Share and Warrant  Purchase  Agreement  dated January 17, 2002 between the  Registrant
and The                Investment Corp. of United Mizrahi Bank Ltd.(4)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.3 |  | Form
of Warrant Agreement, dated February 12, 2002 between the Registrant and Bank Hapoalim
B.M.(4)
|--- |  | ---------------------------------------------------------------------------------------------------

|2.4 |  | Form
of Registration  Rights Agreement,  dated February 12, 2002 between  Registrant and Bank
Hapoalim                B.M.(4)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.5 |  | Form
of Warrant  Agreement,  dated February 12, 2002 between the  Registrant and Bank Leumi
 le-Israel                Ltd.(4)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.6 |  | Form
of  Registration  Rights  Agreement,  dated  February 12, 2002 between  Registrant and
Bank Leumi                le-Israel Ltd.(4)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|2.7 |  | Form
of Warrant  Agreement,  dated November 21, 2002 between the Registrant and Poalim Capital
Markets                & Investments Ltd.(5)
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|2.8 |  | Form
of  Registration  Rights  Agreement,  dated  November 7, 2002 between the  Registrant
 and Poalim                Capital Markets & Investments Ltd.(5)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|2.9 |  | Form
of Warrant Agreement dated, March 11, 2003 between the Registrant and Bank Hapoalim
B.M.(5)
|--- |  | ------------------------------------------------------------------------------------------------

|2.10 |  | Form
of  Registration  Rights  Agreement,  dated March 11, 2003 between  Registrant  and Bank
Hapoalim                B.M.(5)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.11 |  | Form
of Warrant  Agreement,  dated March 11,  2003  between the  Registrant  and Bank Leumi
 le-Israel                Ltd.(5)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.12 |  | Form
of  Registration  Rights  Agreement,  dated  March 11,  2003  between  Registrant  and
Bank Leumi                le-Israel Ltd.(5)
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|2.13 |  | Form
of  Convertible  Loan and  Warrant  Agreement,  dated July 2003  between  Registrant  and
certain                investors(6)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------

97

---

---

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

|2.14 |  | Form
of Warrant Agreement, dated October 15, 2003 between the Registrant and certain
investors(6)
|---- |  | -------------------------------------------------------------------------------------------------

|2.15 |  | Form
 of  Registration  Rights  Agreement,  dated  July,  2003  between  the  Registrant  and
 certain                investors(6)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------

|2.16 |  | Form
of Warrant Agreement, dated October 15, 2003 between the Registrant and the Placement
Agent (6)
|---- |  | ----------------------------------------------------------------------------------------------------

|2.17 |  | Form
of Warrant Agreement, dated August 1, 2003 between the Registrant and Bank Hapoalim
B.M.(6)
|---- |  | ------------------------------------------------------------------------------------------------

|2.18 |  | Form
of Registration  Rights Agreement,  dated August 1, 2003 between the Registrant and Bank
Hapoalim                B.M.(6)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.19 |  | Form
of Warrant  Agreement,  dated  August 1, 2003  between the  Registrant  and Bank Leumi
 le-Israel                Ltd.(6)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.20 |  | Form
of  Registration  Rights  Agreement,  dated August 1, 2003 between the  Registrant and
Bank Leumi                le-Israel Ltd.(6)
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------

|2.21 |  | Form
of Warrant Agreement, dated June 27, 2003 between the Registrant and Israel Discount Bank
Ltd.(6)
|---- |  | ------------------------------------------------------------------------------------------------------

|2.22 |  | Form
of Registration Rights Agreement,  dated June 27, 2003 between the Registrant and Israel
Discount                Bank Ltd.(6)
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------

|2.23 |  | Form
of Warrant  Agreement,  dated  August 1, 2003 between the  Registrant  and Israel
 Discount  Bank                Ltd.(6)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.24 |  | Form
of  Registration  Rights  Agreement,  dated  August 1, 2003  between  the  Registrant
 and Israel                Discount Bank Ltd.(6)
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------

|2.25 |  | Form
of Warrant Agreement, dated April 17, 2005 between the Registrant and Dan Purjes (7)
|---- |  | -----------------------------------------------------------------------------------------

|2.26 |  | Form
of Registration Rights Agreement, dated March 7, 2005 between the Registrant and Dan
Purjes (7)
|---- |  | ----------------------------------------------------------------------------------------------------

|2.27 |  | Form
of Warrant Agreement, dated October 31, 2005 between the Registrant and certain
investors(8)
|---- |  | -------------------------------------------------------------------------------------------------

|2.28 |  | Form
of  Registration  Rights  Agreement,  dated September 12,  2005 between  the  Registrant,
 certain                investors, Bank Hapoalim, Bank Leumi and Israel Discount Bank(8)
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.29 |  | Form
of Warrant Agreement, dated December 8, 2005 between the Registrant and Bank Hapoalim
B.M.(8)
|---- |  | --------------------------------------------------------------------------------------------------

|2.30 |  | Form
of Warrant  Agreement,  dated December 8, 2005 between the  Registrant  and Bank Leumi
 Le-Israel                B.M.(8)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------

|2.31 |  | Form
of Warrant  Agreement,  dated December 8, 2005 between the  Registrant  and Israel
 Discount Bank                Ltd.(8)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------

|3.1 |  | Voting
Agreement, dated January 23, 2005 between the Registrant and Dan Purjes (9)
|--- |  | ----------------------------------------------------------------------------------

|3.2 |  | Voting
Trust  Agreement,  dated March 7, 2005 between the Registrant,  Dan Purjes and New York
Private                Bank & Trust Company (10)
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------

98

---

---

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

|4.1 |  | 1995
Israel Stock Option Plan  (previously  referred to in Company  filings as the 1995
Flexible Stock                Incentive Plan or the 1995 Stock Option / Stock Purchase
Plan)(1)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.2 |  | Amendment
to the 1995 Israel Stock Option Plan(3)
|--- |  | -------------------------------------------------

|4.3 |  | 1997
Stock Option Plan(11)
|--- |  | --------------------------

|4.4 |  | 1998
Non-Employee Director Share Option Plan(12)
|--- |  | ------------------------------------------------

|4.5 |  | Amendment
to the 1998 Non-Employee Director Share Option Plan(10)
|--- |  | -----------------------------------------------------------------

|4.6 |  | 2000
Stock Option Plan(13)
|--- |  | --------------------------

|4.7 |  | Lease
 Agreement for office space in Brussels,  Belgium  between  Nivellease,  S.A. and the
Registrant                dated November 26, 1996(3)
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------

|4.8 |  | Lease
 Agreement for office space in Newton  Center,  Massachusetts  between WHTR Real Estate
 Limited                Partnership and the Registrant dated July 10, 1998(3)
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.9 |  | Lod
Lease Agreement  dated January 11, 2000 between A. Barzilai  Investments and Assets Ltd.
and Kamim                Investments and Assets Ltd. and the Registrant(14)
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.10 |  | Amendment
to Lod Lease Agreement,  dated September 20, 2004 between A. Barzilai Investments and
Assets                Ltd. and Kamim Investments and Assets Ltd. and the Registrant(7)
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.11 |  | Amendment
to Lod Lease Agreement,  dated November 27, 2005 between A. Barzilai  Investments and
Assets                Ltd. and Kamim Investments and Assets Ltd. and the Registrant
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.12 |  | Management
 Agreement dated September 26, 2005 between the Registrant and Fortissimo  Capital Fund
GP,                LP(8)
|---- |  | ---------------------------------------------------------------------------------------------------------------------------

|4.13 |  | Agreement
for  Restructuring of Debt of Registrant dated September 12, 2005 between the Registrant
and                Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel Discount Bank
Ltd.(15)
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.14 |  | Telrad
Lease Agreement dated January 24, 2006 between the Registrant and Telrad Networks Ltd.
(16)
|---- |  | --------------------------------------------------------------------------------------------------

|8 |  | List
of Subsidiaries of the Registrant
|- |  | --------------------------------------

|11 |  | Code
of Ethics(6)
|-- |  | -----------------

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

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

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

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

|14.2 |  | Consent
of BDO McCabe Lo & Company
|---- |  | ----------------------------------

|14.3 |  | Consent
of Grant Thornton Tokyo
|---- |  | -------------------------------

---

|(1) | Previously
filed with NURs F-1 (File No. 33-93160) and incorporated by
                    reference herein.
|--- | -------------------------------------------------------------------------------------------------------------

|(2) | Previously
filed with NURs Form 6-K dated January 7, 1998 and incorporated
                    by reference herein.
|--- | --------------------------------------------------------------------------------------------------------------------

|(3) | Previously
filed with NURs Form F-1 (File No. 333-66103) and incorporated
                    by reference herein.
|--- | -------------------------------------------------------------------------------------------------------------------

99

---

---

|(4) | Previously
filed with NURs Form 20-F for the year ended December 31, 2001
                    and incorporated by reference herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(5) | Previously
filed with NURs Form 20-F for the year ended December 31, 2002
                    and incorporated by reference herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(6) | Previously
filed with NURs Form 20-F for the year ended December 31, 2003
                    and incorporated by reference herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(7) | Previously
filed with NURs Form 20-F for the year ended December 31, 2004
                    and incorporated by reference herein.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

|(8) | Previously
filed with NURs Form 6-K dated October 14, 2005 and
                    incorporated by reference herein.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(9) | Previously
filed with NURs Form 6-K dated February 6, 2005 and
                    incorporated by reference herein.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(10) | Previously
filed with NURs Form 6-K dated April 18, 2005 and incorporated
                    by reference herein.
|---- | -------------------------------------------------------------------------------------------------------------------

|(11) | Previously
filed with NURs Form 20-F for the year ended December 31, 1997
                    and incorporated by reference herein.
|---- | ------------------------------------------------------------------------------------------------------------------------------------

|(12) | Previously
filed with NURs Form 6-K dated November 13, 1998 and
                    incorporated by reference herein.
|---- | ----------------------------------------------------------------------------------------------------------------------

|(13) | Previously
filed with NURs Schedule TO-I (File No. 5-56015) on May 16,
                    2002 and incorporated by reference herein.
|---- | --------------------------------------------------------------------------------------------------------------------------------------

|(14) | Previously
filed with NURs Form 20-F for the year ended December 31, 2000
                    and incorporated by reference herein.
|---- | ------------------------------------------------------------------------------------------------------------------------------------

|(15) | Previously
filed with NURs Form 6-K dated September 13, 2005 and
                    incorporated by reference herein.
|---- | -----------------------------------------------------------------------------------------------------------------------

|(16) | Previously
filed with NURs Form 6-K dated February 13, 2006 and
                    incorporated by reference herein.
|---- | ----------------------------------------------------------------------------------------------------------------------

100

---

---

# SIGNATURES

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

| |  | NUR Macroprinters Ltd.By: /s/ David ReisDavid ReisPresident and Chief Executive Officer
| |  | -----------------------------------------------------------------------------------------------------

Dated: July 17, 2006

101

---

---

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2005

IN U. S. DOLLARS

INDEX

|                                                             |  |            
|------------------------------------------------------------ |  | -----------
|                                                             |  | Page       
|                                                             |  |            
|                                                             |  |            
|Report of Independent Registered Public
  Accounting Firm    |  | F-2        
|                                                             |  |            
|Consolidated Balance Sheets                                  |  | F-3 - F-4  
|                                                             |  |            
|Consolidated Statements of Operations                        |  | F-5        
|                                                             |  |            
|Statements of Changes in Shareholders
  Equity (Deficiency) |  | F-6 - F-7  
|                                                             |  |            
|Consolidated Statements of Cash Flows                        |  | F-8 - F-9  
|                                                             |  |            
|Notes to Consolidated Financial Statements                   |  | F-10 - F-52

---

---



|                     |  |   |                                |  |   |                       
|-------------------- |  | - | ------------------------------ |  | - | ----------------------
|(ERNST & YOUNG LOGO) |  |   |                                |  |   |                       
|                     |  | n | Kost Forer
  Gabbay & Kasierer |  |   |                       
|                     |  |   | 3 Aminadav St.                 |  | n | Phone: 972-3-6232525  
|                     |  |   | Tel-Aviv 67067, Israel         |  |   | Fax:     972-3-5622555

REPORT OF
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of NUR MACROPRINTERS LTD.

We
have audited the accompanying consolidated balance sheets of NUR Macroprinters
Ltd. (the Company) and its subsidiaries as of December 31, 2004 and 2005 and
the related consolidated statements of operations, changes in shareholders
equity (deficiency) and cash flows for each of the three years in the period
ended December 31, 2005. 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 certain consolidated subsidiaries,
whose assets constitute 4% and 2% of total consolidated assets as of December
31, 2005 and 2004, respectively and whose revenues constitute 14%, 8% and 6% of
total consolidated revenues for each of the three years in the period ended
December 31, 2005, respectively. Those financial statements were audited by
other auditors, whose reports have been furnished to us, and our opinion,
insofar as it relates to amounts included for those subsidiaries, is based
solely on the reports of the other auditors.

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

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

|                 |  |                                   
|---------------- |  | ----------------------------------
|Tel-Aviv, Israel |  | KOST
  FORER GABBAY & KASIERER    
|May 26, 2006     |  | A
  Member of Ernst & Young Global

F - 2

---

---



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

|                                                                                                                                      |  |                |        |      |   |        | 
|------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ---- | - | ------ | 
|                                                                                                                                      |  | December
  31, |       
|                                                                                                                                      |  |                |       
|                                                                                                                                      |  | 2004           |        | 2005 |  
|                                                                                                                                      |  |                |        |      |  
|ASSETS                                                                                                                                |  |                |        |      |   |        | 
|                                                                                                                                      |  |                |        |      |   |        | 
|CURRENT ASSETS:                                                                                                                       |  |                |        |      |   |        | 
|Cash and cash equivalents                                                                                                             |  | $              | 8,745  |      | $ | 9,296  | 
|Restricted cash                                                                                                                       |  |                | 682    |      |   | 158    | 
|Trade receivables (net of allowance for
  doubtful accounts of $ 11,010 and $ 5,510 as of December 31, 2004 and 2005,
  respectively) |  |                | 10,974 |      |   | 7,316  | 
|Other accounts receivable and prepaid
  expenses (Note 3)                                                                             |  |                | 3,396  |      |   | 4,121  | 
|Inventories (Note 4)                                                                                                                  |  |                | 21,358 |      |   | 13,137 | 
|                                                                                                                                      |  |                |        |      |   |        | 
|                                                                                                                                      |  |                |        |      |   |        | 
|Total current
  assets                                                                                                                |  |                | 45,155 |      |   | 34,028 | 
|                                                                                                                                      |  |                |        |      |   |        | 
|                                                                                                                                      |  |                |        |      |   |        | 
|LONG-TERM RECEIVABLES AND DEPOSITS:                                                                                                   |  |                |        |      |   |        | 
|Long-term trade receivables (Note 5)                                                                                                  |  |                | 233    |      |   | -      | 
|Restricted long-term bank deposits                                                                                                    |  |                | 65     |      |   | -      | 
|Severance pay fund                                                                                                                    |  |                | 938    |      |   | 876    | 
|Other assets                                                                                                                          |  |                | 68     |      |   | 327    | 
|                                                                                                                                      |  |                |        |      |   |        | 
|                                                                                                                                      |  |                |        |      |   |        | 
|Total long-term
  receivables and deposits                                                                                            |  |                | 1,304  |      |   | 1,203  | 
|                                                                                                                                      |  |                |        |      |   |        | 
|                                                                                                                                      |  |                |        |      |   |        | 
|PROPERTY, PLANT AND EQUIPMENT, NET (Note 6)                                                                                           |  |                | 4,749  |      |   | 4,636  | 
|                                                                                                                                      |  |                |        |      |   |        | 
|                                                                                                                                      |  |                |        |      |   |        | 
|OTHER INTANGIBLE ASSETS, NET (Note 7)                                                                                                 |  |                | 378    |      |   | 209    | 
|                                                                                                                                      |  |                |        |      |   |        | 
|                                                                                                                                      |  |                |        |      |   |        | 
|Total assets                                                                                                                          |  | $              | 51,586 |      | $ | 40,076 | 
|                                                                                                                                      |  |                |        |      |   |        | 

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

F - 3

---

---



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

|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | ---- | - | ------- | -
|                                                                                                                                                                                                                                                    |  | December
  31, |        
|                                                                                                                                                                                                                                                    |  |                |        
|                                                                                                                                                                                                                                                    |  | 2004           |         | 2005 |  
|                                                                                                                                                                                                                                                    |  |                |         |      |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|LIABILITIES AND SHAREHOLDERS DEFICIENCY                                                                                                                                                                                                            |  |                |         |      |   |         |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                                |  |                |         |      |   |         |  
|Short-term bank credit and loans (Note 8)                                                                                                                                                                                                           |  | $              | 42,435  |      | $ | 10,838  |  
|Current maturities of long-term loans (Note
  9)                                                                                                                                                                                                    |  |                | 117     |      |   | 110     |  
|Trade payables                                                                                                                                                                                                                                      |  |                | 16,122  |      |   | 10,237  |  
|Deferred revenues                                                                                                                                                                                                                                   |  |                | 4,330   |      |   | 4,739   |  
|Other accounts payable and accrued expenses
  (Note 10)                                                                                                                                                                                             |  |                | 9,895   |      |   | 11,548  |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|Total current
  liabilities                                                                                                                                                                                                                         |  |                | 72,899  |      |   | 37,472  |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|LONG-TERM LIABILITIES:                                                                                                                                                                                                                              |  |                |         |      |   |         |  
|Long-term loans, net of current maturities
  (including accrued interest on restructured debt of $ 0 and $ 10,364, and
  subordinated notes issued to related parties of $ 0 and $ 5,000 as of December
  31, 2004 and 2005, respectively) (Note 9) |  |                | 1,064   |      |   | 28,023  |  
|Government authorities (Note 11)                                                                                                                                                                                                                    |  |                | -       |      |   | 927     |  
|Accrued severance pay                                                                                                                                                                                                                               |  |                | 1,265   |      |   | 1,208   |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|Total long-term
  liabilities                                                                                                                                                                                                                       |  |                | 2,329   |      |   | 30,158  |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|COMMITMENTS AND CONTINGENT LIABILITIES
  (Note 12)                                                                                                                                                                                                  |  |                |         |      |   |         |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|SHAREHOLDERS DEFICIENCY (Note 14):                                                                                                                                                                                                                 |  |                |         |      |   |         |  
|Share capital -                                                                                                                                                                                                                                     |  |                |         |      |   |         |  
|Ordinary shares of NIS 1 par value:                                                                                                                                                                                                                 |  |                |         |      |   |         |  
|Authorized: 50,000,000 and 170,000,000
  shares as of December 31, 2004 and 2005, respectively; Issued and
  outstanding: 26,165,215 and 60,498,062 shares as of December 31, 2004 and
  2005, respectively                                         |  |                | 6,198   |      |   | 13,629  |  
|Additional paid-in capital                                                                                                                                                                                                                          |  |                | 50,433  |      |   | 60,582  |  
|Receivables on account of shares                                                                                                                                                                                                                    |  |                | -       |      |   | (7,000  | )
|Deferred stock compensation                                                                                                                                                                                                                         |  |                | -       |      |   | (77     | )
|Accumulated other comprehensive loss                                                                                                                                                                                                                |  |                | (781    | )    |   | (490    | )
|Accumulated deficit                                                                                                                                                                                                                                 |  |                | (79,492 | )    |   | (94,198 | )
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|Total
  shareholders deficiency                                                                                                                                                                                                                    |  |                | (23,642 | )    |   | (27,554 | )
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  
|Total liabilities
  and shareholders deficiency                                                                                                                                                                                                    |  | $              | 51,586  |      | $ | 40,076  |  
|                                                                                                                                                                                                                                                    |  |                |         |      |   |         |  

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

F - 4

---

---



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

|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                                            |  | Year ended
  December 31, |           
|                                                                                            |  |                           |           
|                                                                                            |  | 2003                      |            | 2004 |   | 2005       |  
|                                                                                            |  |                           |            |      |   |            |  
|Revenues (Note 16):                                                                         |  |                           |            |      |   |            |   |   |            |  
|Products                                                                                    |  | $                         | 64,283     |      | $ | 71,326     |   | $ | 67,072     |  
|Services                                                                                    |  |                           | 4,431      |      |   | 5,397      |   |   | 4,306      |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Total revenues                                                                              |  |                           | 68,714     |      |   | 76,723     |   |   | 71,378     |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Cost of revenues:                                                                           |  |                           |            |      |   |            |   |   |            |  
|Products (a)                                                                                |  |                           | 34,505     |      |   | 44,612     |   |   | 43,505     |  
|Inventory write-off                                                                         |  |                           | 13,154     |      |   | 9,658      |   |   | 2,721      |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           | 47,659     |      |   | 54,270     |   |   | 46,226     |  
|Services                                                                                    |  |                           | 6,832      |      |   | 6,278      |   |   | 5,772      |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Total cost of
  revenues                                                                    |  |                           | 54,491     |      |   | 60,548     |   |   | 51,998     |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Gross profit                                                                                |  |                           | 14,223     |      |   | 16,175     |   |   | 19,380     |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Operating expenses:                                                                         |  |                           |            |      |   |            |   |   |            |  
|Research and development, net (Note 17a)                                                    |  |                           | 6,546      |      |   | 8,008      |   |   | 7,086      |  
|Selling and marketing                                                                       |  |                           | 11,321     |      |   | 9,529      |   |   | 10,865     |  
|General and administrative                                                                  |  |                           | 11,134     |      |   | 10,819     |   |   | 12,171     |  
|Doubtful accounts expenses (income)                                                         |  |                           | 6,694      |      |   | 6,266      |   |   | (1,132     | )
|Amortization and impairment of technology
  and other intangible assets (Note 2j)           |  |                           | 118        |      |   | 862        |   |   | 169        |  
|Restructuring charges (Note 1d)                                                             |  |                           | 2,001      |      |   | -          |   |   | -          |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Total operating
  expenses                                                                  |  |                           | 37,814     |      |   | 35,484     |   |   | 29,159     |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Operating loss                                                                              |  |                           | (23,591    | )    |   | (19,309    | ) |   | (9,779     | )
|Financial expenses, net (Note 17b)                                                          |  |                           | (1,406     | )    |   | (2,639     | ) |   | (3,448     | )
|Fair value of warrants issued to former
  director (Note 13a)                               |  |                           | -          |      |   | -          |   |   | (1,441     | )
|Other expenses, net                                                                         |  |                           | (182       | )    |   | -          |   |   | -          |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Loss before taxes on income                                                                 |  |                           | (25,179    | )    |   | (21,948    | ) |   | (14,668    | )
|Taxes on income (Note 15e)                                                                  |  |                           | 1,191      |      |   | 19         |   |   | 38         |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Net loss                                                                                    |  | $                         | (26,370    | )    | $ | (21,967    | ) | $ | (14,706    | )
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Basic and diluted net loss per share                                                        |  | $                         | (1.52      | )    | $ | (0.91      | ) | $ | (0.46      | )
|                                                                                            |  |                           |            |      |   |            |   |   |            |  
|Weighted average number of shares used for
  computing basic and diluted net loss per share |  |                           | 17,272,089 |      |   | 24,235,406 |   |   | 31,932,345 |  
|                                                                                            |  |                           |            |      |   |            |   |   |            |  

|    |                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Cost of
  revenues includes purchases from related parties in the years ended December
  31, 2003, 2004 and 2005 in the amounts of $ 8,273, $ 801 and $ 0, respectively.

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

F - 5

---

---



|                                                          
|----------------------------------------------------------
|NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES               
|                                                          
|STATEMENTS OF CHANGES IN SHAREHOLDERS 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
  equity
  (deficiency) |  
|                                                                                            |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |  
|                                                                                            |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |   |   |         |   |   |         |   |   |         |  
|Balance as of January 1, 2003                                                               |  |                                             | 17,155,859 |                 | $ | 4,202                          |  | $                                     | 45,697 |                                   | $ | -                                          |  | $                     | -      |                              | $ | (1,286                                        | ) | $ | (31,155 | ) |   |         |   | $ | 17,458  |  
|Issuance of shares to the chairman of the board of directors for
  services rendered, net   |  |                                             | 184,754    |                 |   | 42                             |  |                                       | 52     |                                   |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | -       |   |   |         |   |   | 94      |  
|Exercise of employee stock options                                                          |  |                                             | 73,668     |                 |   | 17                             |  |                                       | 37     |                                   |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | -       |   |   |         |   |   | 54      |  
|Fair value of warrants and call option granted in connection with a
  credit line agreement |  |                                             | -          |                 |   | -                              |  |                                       | 1,643  |                                   |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | -       |   |   |         |   |   | 1,643   |  
|Receipts on account of shares in connection with a credit line
  agreement, net             |  |                                             | -          |                 |   | -                              |  |                                       | -      |                                   |   | -                                          |  |                       | 1,867  |                              |   | -                                             |   |   | -       |   |   |         |   |   | 1,867   |  
|Amortization of fair value of warrants granted to banks                                     |  |                                             | -          |                 |   | -                              |  |                                       | 92     |                                   |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | -       |   |   |         |   |   | 92      |  
|Comprehensive loss:                                                                         |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |   |   |         |   |   |         |   |   |         |  
|Net loss                                                                                    |  |                                             | -          |                 |   | -                              |  |                                       | -      |                                   |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | (26,370 | ) | $ | (26,370 | ) |   | (26,370 | )
|Foreign currency translation adjustments                                                    |  |                                             | -          |                 |   | -                              |  |                                       | -      |                                   |   | -                                          |  |                       | -      |                              |   | 149                                           |   |   | -       |   |   | 149     |   |   | 149     |  
|                                                                                            |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |   |   |         |   |   |         |   |   |         |  
|Total comprehensive loss                                                                    |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |   |   |         |   | $ | (26,221 | ) |   |         |  
|                                                                                            |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |   |   |         |   |   |         |   |   |         |  
|                                                                                           
|Balance as of December 31, 2003                                                             |  |                                             | 17,414,281 |                 |   | 4,261                          |  |                                       | 47,521 |                                   |   | -                                          |  |                       | 1,867  |                              |   | (1,137                                        | ) |   | (57,525 | ) |   |         |   |   | (5,013  | )
|Issuance of shares (private placement)                                                      |  |                                             | 2,586,140  |                 |   | 573                            |  |                                       | 2,215  |                                   |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | -       |   |   |         |   |   | 2,788   |  
|Issuance of shares related to a credit line agreement                                       |  |                                             | 5,645,160  |                 |   | 1,250                          |  |                                       | 2,074  |                                   |   | -                                          |  |                       | (1,867 | )                            |   | -                                             |   |   | -       |   |   |         |   |   | 1,457   |  
|Issuance of shares settling the credit line agreement                                       |  |                                             | -          |                 |   | -                              |  |                                       | (1,713 | )                                 |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | -       |   |   |         |   |   | (1,713  | )
|Exercise of warrants                                                                        |  |                                             | 43,460     |                 |   | 10                             |  |                                       | 5      |                                   |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | -       |   |   |         |   |   | 15      |  
|Issuance of shares to the chairman of the board of directors for
  services rendered, net   |  |                                             | 131,290    |                 |   | 29                             |  |                                       | 158    |                                   |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | -       |   |   |         |   |   | 187     |  
|Exercise of employee stock options                                                          |  |                                             | 344,884    |                 |   | 75                             |  |                                       | 173    |                                   |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | -       |   |   |         |   |   | 248     |  
|Comprehensive loss:                                                                         |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |   |   |         |   |   |         |   |   |         |  
|Net loss                                                                                    |  |                                             | -          |                 |   | -                              |  |                                       | -      |                                   |   | -                                          |  |                       | -      |                              |   | -                                             |   |   | (21,967 | ) | $ | (21,967 | ) |   | (21,967 | )
|Foreign currency translation adjustments                                                    |  |                                             | -          |                 |   | -                              |  |                                       | -      |                                   |   | -                                          |  |                       | -      |                              |   | 356                                           |   |   | -       |   |   | 356     |   |   | 356     |  
|                                                                                            |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |   |   |         |   |   |         |   |   |         |  
|Total comprehensive loss                                                                    |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |   |   |         |   | $ | (21,611 | ) |   |         |  
|                                                                                            |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |   |   |         |   |   |         |   |   |         |  
|                                                                                           
|Balance as of December 31, 2004                                                             |  |                                             | 26,165,215 |                 |   | 6,198                          |  |                                       | 50,433 |                                   |   | -                                          |  |                       | -      |                              |   | (781                                          | ) |   | (79,492 | ) |   |         |   |   | (23,642 | )
|                                                                                            |  |                                             |            |                 |   |                                |  |                                       |        |                                   |   |                                            |  |                       |        |                              |   |                                               |   |   |         |   |   |         |   |   |         |  

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

F - 6

---

---



|                                                          
|----------------------------------------------------------
|NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES               
|                                                          
|STATEMENTS OF CHANGES IN SHAREHOLDERS 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 share |        | Deferred 
  stock 
  compensation |   | Accumulated
  other
  comprehensive
  loss |   | Accumulated
  deficit |     | Total
  comprehensive
  loss |   | Total
  shareholders
  deficiency |  
|                                                                                          |  |                                             |            |                 |   |                                |  |                                      |        |                                   |   |                                            |   |                       |     |                              |   |                                    |  
|                                                                                          |  |                                             |            |                 |   |                                |  |                                      |        |                                   |   |                                            |   |                       |     |                              |   |                                    |  
|Balance as of December 31, 2004                                                           |  |                                             | 26,165,215 |                 |   | 6,198                          |  |                                      | 50,433 |                                   |   | -                                          |   |                       | -   |                              |   | (781                               | ) |   | (79,492 | ) |   |         |   |   | (23,642 | )
|Issuance of shares and warrants, net (private placement)                                  |  |                                             | 14,285,714 |                 |   | 3,104                          |  |                                      | 1,828  |                                   |   | -                                          |   |                       | -   |                              |   | -                                  |   |   | -       |   |   |         |   |   | 4,932   |  
|Issuance of shares held by trustee                                                        |  |                                             | 20,000,000 |                 |   | 4,318                          |  |                                      | 2,682  |                                   |   | (7,000                                     | ) |                       | -   |                              |   | -                                  |   |   | -       |   |   |         |   |   | -       |  
|Issuance of shares to the chairman of the board of directors for
  services rendered, net |  |                                             | 36,299     |                 |   | 7                              |  |                                      | 24     |                                   |   | -                                          |   |                       | -   |                              |   | -                                  |   |   | -       |   |   |         |   |   | 31      |  
|Deferred stock compensation                                                               |  |                                             | -          |                 |   | -                              |  |                                      | 77     |                                   |   | -                                          |   |                       | (77 | )                            |   | -                                  |   |   | -       |   |   |         |   |   | -       |  
|Issuance of warrants in connection with a debt restructuring
agreement                    |  |                                             | -          |                 |   | -                              |  |                                      | 3,945  |                                   |   | -                                          |   |                       | -   |                              |   | -                                  |   |   | -       |   |   |         |   |   | 3,945   |  
|Extending term of warrants in connection a with debt restructuring
  agreement            |  |                                             | -          |                 |   | -                              |  |                                      | 102    |                                   |   | -                                          |   |                       | -   |                              |   | -                                  |   |   | -       |   |   |         |   |   | 102     |  
|Fair value of warrants issued to a former director                                        |  |                                             | -          |                 |   | -                              |  |                                      | 1,441  |                                   |   | -                                          |   |                       | -   |                              |   | -                                  |   |   | -       |   |   |         |   |   | 1,441   |  
|Compensation in connection with modifications of option                                   |  |                                             | -          |                 |   | -                              |  |                                      | 48     |                                   |   | -                                          |   |                       | -   |                              |   | -                                  |   |   | -       |   |   |         |   |   | 48      |  
|Exercise of employee stock options                                                        |  |                                             | 10,834     |                 |   | 2                              |  |                                      | 2      |                                   |   | -                                          |   |                       | -   |                              |   | -                                  |   |   | -       |   |   |         |   |   | 4       |  
|Comprehensive loss:                                                                       |  |                                             |            |                 |   |                                |  |                                      |        |                                   |   |                                            |   |                       |     |                              |   |                                    |   |   |         |   |   |         |   |   |         |  
|Net loss                                                                                  |  |                                             | -          |                 |   | -                              |  |                                      | -      |                                   |   | -                                          |   |                       | -   |                              |   | -                                  |   |   | (14,706 | ) | $ | (14,706 | ) |   | (14,706 | )
|Foreign currency translation adjustments                                                  |  |                                             | -          |                 |   | -                              |  |                                      | -      |                                   |   | -                                          |   |                       | -   |                              |   | 291                                |   |   | -       |   |   | 291     |   |   | 291     |  
|                                                                                          |  |                                             |            |                 |   |                                |  |                                      |        |                                   |   |                                            |   |                       |     |                              |   |                                    |   |   |         |   |   |         |   |   |         |  
|Total comprehensive loss                                                                  |  |                                             |            |                 |   |                                |  |                                      |        |                                   |   |                                            |   |                       |     |                              |   |                                    |   |   |         |   | $ | (14,415 | ) |   |         |  
|                                                                                          |  |                                             |            |                 |   |                                |  |                                      |        |                                   |   |                                            |   |                       |     |                              |   |                                    |   |   |         |   |   |         |   |   |         |  
|                                                                                         
|Balance as of December 31, 2005                                                           |  |                                             | 60,498,062 |                 | $ | 13,629                         |  | $                                    | 60,582 |                                   | $ | (7,000                                     | ) | $                     | (77 | )                            | $ | (490                               | ) | $ | (94,198 | ) |   |         |   | $ | (27,554 | )
|                                                                                          |  |                                             |            |                 |   |                                |  |                                      |        |                                   |   |                                            |   |                       |     |                              |   |                                    |   |   |         |   |   |         |   |   |         |  

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

F - 7

---

---



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

|                                                                                               |  |                         |         |      |   |         |   |   |         |  
|---------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                               |  | Year ended December 31, |        
|                                                                                               |  |                         |        
|                                                                                               |  | 2003                    |         | 2004 |   | 2005    |  
|                                                                                               |  |                         |         |      |   |         |  
|Cash flows from operating activities:                                                          |  |                         |         |      |   |         |   |   |         |  
|                                                                                               |  |                         |         |      |   |         |   |   |         |  
|Net loss                                                                                       |  | $                       | (26,370 | )    | $ | (21,967 | ) | $ | (14,706 | )
|Adjustments to reconcile net loss to net
  cash used in operating activities:                  |  |                         |         |      |   |         |   |   |         |  
|Depreciation and amortization                                                                  |  |                         | 3,801   |      |   | 1,830   |   |   | 2,027   |  
|Amortization and impairment of technology
  and other intangible assets                        |  |                         | 118     |      |   | 862     |   |   | 169     |  
|Write-off of property and equipment                                                            |  |                         | 1,021   |      |   | -       |   |   | -       |  
|Issuance of shares to the chairman of the
  board of directors for services rendered, net      |  |                         | 94      |      |   | 187     |   |   | 31      |  
|Compensation in connection with
  modifications of options                                     |  |                         | -       |      |   | -       |   |   | 48      |  
|Amortization of fair value of warrants
  granted to banks                                      |  |                         | 92      |      |   | -       |   |   | -       |  
|Loss (gain) on sale of property and
  equipment                                                |  |                         | 83      |      |   | 301     |   |   | (64     | )
|Fair value of warrants issued to a former
  director                                           |  |                         | -       |      |   | -       |   |   | 1,441   |  
|Deferred income taxes, net                                                                     |  |                         | 1,589   |      |   | -       |   |   | (106    | )
|Foreign currency translation loss (gain) on
  inter company balances with foreign subsidiaries |  |                         | (3,827  | )    |   | (913    | ) |   | 1,406   |  
|Accrued severance pay, net                                                                     |  |                         | (71     | )    |   | 155     |   |   | 5       |  
|Decrease in trade receivables, net                                                             |  |                         | 10,327  |      |   | 4,628   |   |   | 2,217   |  
|Decrease (increase) in other accounts
  receivable and prepaid expenses                        |  |                         | 46      |      |   | 2,591   |   |   | (841    | )
|Decrease (increase) in inventories                                                             |  |                         | 38      |      |   | (8,376  | ) |   | 3,585   |  
|Write-off of inventories                                                                       |  |                         | 13,154  |      |   | 9,658   |   |   | 2,721   |  
|Decrease in long-term trade receivables                                                        |  |                         | 1,002   |      |   | 525     |   |   | 233     |  
|Decrease in long-term related parties
  accounts                                              |  |                         | 2       |      |   | 242     |   |   | -       |  
|Increase in deferred expenses                                                                  |  |                         | (70     | )    |   | -       |   |   | -       |  
|Decrease (increase) in other assets                                                            |  |                         | 68      |      |   | 16      |   |   | (73     | )
|Increase (decrease) in trade payables                                                          |  |                         | (7,242  | )    |   | 8,387   |   |   | (5,732  | )
|Decrease in trade payables from related
  parties                                              |  |                         | (805    | )    |   | (2,386  | ) |   | -       |  
|Increase (decrease) in deferred revenues                                                       |  |                         | (1,168  | )    |   | 1,821   |   |   | 409     |  
|Increase (decrease) in other accounts
  payable and accrued expenses                           |  |                         | (1,866  | )    |   | 984     |   |   | 3,150   |  
|                                                                                               |  |                         |         |      |   |         |   |   |         |  
|                                                                                               |  |                         |         |      |   |         |   |   |         |  
|Net cash
  used in operating activities                                                        |  |                         | (9,984  | )    |   | (1,455  | ) |   | (4,080  | )
|                                                                                               |  |                         |         |      |   |         |   |   |         |  
|                                                                                               |  |                         |         |      |   |         |   |   |         |  
|Cash flows from investing activities:                                                          |  |                         |         |      |   |         |   |   |         |  
|                                                                                               |  |                         |         |      |   |         |   |   |         |  
|Proceeds from restricted cash                                                                  |  |                         | 391     |      |   | 90      |   |   | 524     |  
|Proceeds from (investment in) restricted
  long-term bank deposit                              |  |                         | 141     |      |   | (21     | ) |   | 65      |  
|Purchase of property and equipment                                                             |  |                         | (1,198  | )    |   | (2,123  | ) |   | (753    | )
|Proceeds from sale of property and
  equipment                                                 |  |                         | 3       |      |   | 293     |   |   | 100     |  
|Payment for the purchase of NUR
  Pro-Engineering Ltd. (a)                                     |  |                         | (460    | )    |   | (230    | ) |   | -       |  
|                                                                                               |  |                         |         |      |   |         |   |   |         |  
|                                                                                               |  |                         |         |      |   |         |   |   |         |  
|Net cash used
  in investing activities                                                        |  |                         | (1,123  | )    |   | (1,991  | ) |   | (64     | )
|                                                                                               |  |                         |         |      |   |         |   |   |         |  

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

F - 8

---

---



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

|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       |  | 
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ------ | ----- | - | ------ | ------ | - | ------ | ----- |  | 
|                                                               |                                                                                     | Year ended December 31,                                                            |       
|                                                               |                                                                                     |                                                                                    |       
|                                                               |                                                                                     | 2003                                                                               |        | 2004  |   | 2005   |       
|                                                               |                                                                                     |                                                                                    |        |       |   |        |       
|Cash flows from financing
  activities:                        |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|Proceeds from issuance of shares and
  warrants, net           |                                                                                     |                                                                                    | -      |       |   | 4,260  |        |   | 4,932  |      
|Proceeds from exercise of options, net                         |                                                                                     |                                                                                    | 54     |       |   | 248    |        |   | 4      |      
|Proceeds from a loan commitment, net                           |                                                                                     |                                                                                    | 1,867  |       |   | -      |        |   | -      |      
|Short-term bank credit and short-term
  loans, net             |                                                                                     |                                                                                    | 9,260  |       |   | (2,242 | )      |   | 1,545  |      
|Principal payment of long-term loans                           |                                                                                     |                                                                                    | (1,410 | )     |   | (828   | )      |   | (2,124 | )    
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|Net cash provided by financing activities                      |                                                                                     |                                                                                    | 9,771  |       |   | 1,438  |        |   | 4,357  |      
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|Effect of exchange rate changes on cash and
  cash equivalents |                                                                                     |                                                                                    | 1,132  |       |   | 452    |        |   | 338    |      
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|Increase (decrease) in cash and cash
  equivalents             |                                                                                     |                                                                                    | (204   | )     |   | (1,556 | )      |   | 551    |      
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|Cash and cash equivalents at the beginning
  of the year       |                                                                                     |                                                                                    | 10,505 |       |   | 10,301 |        |   | 8,745  |      
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|Cash and cash equivalents at the end of the
  year             |                                                                                     | $                                                                                  | 10,301 |       | $ | 8,745  |        | $ | 9,296  |      
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |      
|(1)                                                            | Supplemental disclosure of
  cash flows activities:                                 |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               | Cash paid during the year
  for:                                                    |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               | Interest                                                                            |                                                                                    | $      | 1,483 |   | $      | 1,888  |   | $      | 2,574 | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|(2)                                                            | Supplemental disclosure of
  non-cash operating financing activities:               |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               | Fair value of warrants
  granted in connection to a credit line                     |                                                                                    | $      | 1,643 |   | $      | (1,713 | ) | $      | -     | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               | Receivables on account of
  shares                                                  |                                                                                    | $      | -     |   | $      | -      |   | $      | 7,000 | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               | Conversion of outstanding
  bank debt into warrants                                 |                                                                                    | $      | -     |   | $      | -      |   | $      | 4,047 | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               | Transfer of equipment to
  property, plant and equipment from inventory             |                                                                                    | $      | 2,131 |   | $      | 975    |   | $      | 1,382 | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|(a)                                                            | Payment for purchase of NUR
  Pro-Engineering Ltd. (refer to Note 1c)               |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               | Fair value of assets acquired
  and liabilities assumed at the date of acquisition: |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               | Working capital, net
  (excluding cash and cash equivalents in the amount of $ 160) |                                                                                    |        |       |   | $      | 186    |   |        |       | 
|                                                               | Production agreement                                                                |                                                                                    |        |       |   |        | 504    |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   | $      | *) 690 |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               |                                                                                     |                                                                                    |        |       |   |        |        |   |        |       | 
|                                                               | *)                                                                                  | During 2003, the Company paid an advance of $ 460 from the total
  purchase price. |        |       |   |       

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

F - 9

---

---



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

|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- | ------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 1:    | GENERAL
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | a.      | NUR
  Macroprinters Ltd. (the Company), an Israeli company, and its subsidiaries
  (collectively, the Group) develop, manufacture, sell and provide services
  of digital printing systems for on-demand, short-run, wide format and
  super-wide format printing as well as related consumable products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |         | The Company
  operates through wholly-owned subsidiaries for sales, support services and
  marketing of the Companys products in their country or region of domicile.
  Such entities include NUR Europe S.A. (NUR Europe) in Belgium, NUR America,
  Inc. (NUR America) in the U.S., NUR Asia Pacific Limited (NUR Asia
  Pacific) in Hong Kong and NUR Japan Ltd. (NUR Japan) in Japan.                                                                                                                                                                                                                                                                                                                                                                                                              
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |         | The Company
  manufactures all its printers in a single plant located in Rosh HaAyin,
  Israel. The Companys Board of Directors approved in December 2005 the
  transfer in the near future of its manufacturing site to a single plant
  located in Lod, Israel. The Company manufactures ink in a manufacturing plant
  located in Ashkelon, Israel.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |         | As to
  principal markets and customers, refer to Note 16.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | b.      | Capital
  investment and restructuring of bank debt:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |         | During the
  fourth quarter of 2005, the Company secured funding in the amount of $12,000
  from a group of investors led by Fortissimo Capital Fund GP, LP
  (Fortissimo) through private placement of ordinary shares, of which $ 5,000
  was paid during 2005 and an additional $ 5,000 was paid during the first
  quarter of 2006. The remaining $ 2,000 is expected to be paid by the investors
  in the fourth quarter of 2006. The net effect of Fortissimos investment on
  the shareholders equity as of December 31, 2005 reflects only the first
  payment of $ 5,000, net of issuance expenses in the amount of $ 68. Refer to
  Note 8 and Note 9.                                                                                                                                            
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |         | During the
  fourth quarter of 2005, the Company entered into a debt restructuring
  agreement (the Debt Restructuring Agreement) with its lender banks, whereby
  the Companys outstanding bank debt of $ 41,018 was restructured as follows:
  $ 14,513 of the Companys then outstanding debt was converted into warrants to
  purchase up to 8,000,000 ordinary shares; $ 5,000 was converted into
  non-interest-bearing three-year subordinated notes, which are payable only on
  occurrence of certain events of liquidation; and the remaining $ 21,505 was
  refinanced under new loan agreements.                                                                                                                                                                                                 
|            |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |         | In
  conjunction with Fortissimos investment, the Company also agreed to extend
  the expiration period of warrants that were previously issued to its lender
  banks. The value of 8,000,000 warrants issued to the Companys lender banks
  under the Debt Restructuring Agreement together with the value of the
  extension of expiration of the previously issued warrants aggregate to
  $ 4,047, which is recorded as an increase in the Companys additional paid-in
  capital. The fair value for these warrants was estimated using a
  Black-Scholes option pricing model with the following assumptions: risk-free
  interest rate of 4.36%; dividend yields of 0%; volatility factors of the
  expected market price of the ordinary shares of 1.04; and an expected average
  life of five years.

F - 10

---

---



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

|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |     | 
|----------- | --------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | --- | 
|NOTE 1:    | GENERAL (Cont.)
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                 | The debt
  restructuring was accounted for in accordance with the troubled debt
  restructuring provisions of Statement of Financial Accounting Standard
  (SFAS) No. 15, Accounting by Debtors and Creditors for Troubled Debt
  Restructurings. Due to the fact that a portion of the restructured debt
  bears variable interest, the amount of future interest payable can not be
  determined and as such, no gain was recognized. Consequently,
  the restructured long-term debt remained unchanged and future interest
  payments shall reduce the carrying amount of the debt (refer to Note 9).                                                                                                                          
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            | c.              | Acquisition
  of NUR Pro Engineering Ltd.:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                 | NUR Pro
  Engineering Ltd. (NUR Pro Engineering), a 50%-owned joint venture, was
  engaged in the assembly of the Companys printers. On May 11, 2003, the
  Company and the other shareholder of NUR Pro Engineering entered into a share purchase agreement (the
  Agreement) due to the Companys decision to terminate the cooperation
  through the joint venture and transfer the assembly of the printers to its
  full control. According to the Agreement, the Company purchased the
  remaining shares held by the other shareholder (i.e., 50%), in consideration
  for $ 850, which were paid in monthly installments until March 31, 2004.
  The Company completed the acquisition of NUR Pro Engineering during 2004.
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                 | The
  operations of NUR Pro Engineering are included in the consolidated statements
  of operations from April 1, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                 | The
  acquisition was accounted for using the purchase method, in accordance with
  SFAS No. 141, and accordingly, the purchase price has been allocated to the
  assets acquired and the liabilities assumed based on their estimated fair
  value at the date of acquisition.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                 | The
  following table summarizes the estimated fair value of assets acquired and
  liabilities assumed at the date of acquisition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                 | Current
  assets, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $ | 346 | 
|            |                 | Production
  agreement *)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |   | 504 | 
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |     | 
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |     | 
|            |                 | Net assets
  acquired                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | $ | 850 | 
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  |   |     | 
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                 | *)       Amortized
  on a straight line basis over the useful life of the production agreement (3
  years).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                 | Pro-forma
  results of operations for the year ended December 31, 2003 assuming that the
  acquisition had been consummated as of January 1, 2003 were not presented due
  to immateriality.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F - 11

---

---



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

|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                      
|----------- | --------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------
|NOTE 1:    | GENERAL (Cont.)
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | d.              | Restructuring
  charges:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                 | During the
  second quarter of 2003, the Company decided to perform a series of strategic
  initiatives intending to further reduce costs and increase efficiency. As a
  result, approximately 58 positions were eliminated by the Group in 2003.                                                                                                                                                                                                                                                                
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                 | The
  restructuring charges consisted of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                      
|            |                 | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Consolidating
  the operations of NUR Media Solutions S.A. and NUR Europe.           
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                      
|            |                 | 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Relocating
  Salsa Digital Printers Ltd. operations to Israel.                       
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                      
|            |                 | 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | Relocating
  the operations of NUR Macroprinters (Shanghai) Ltd. to NUR Asia Pacific.
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                      
|            |                 | In
  accordance with SFAS No. 146, Accounting for Costs Associated With An Exit
  Or Disposal Activity, the Group recorded during 2003 restructuring charges
  of $ 2,001 for employee termination, severance costs and other exit
  costs.                                                                                                                                                                                                                                                                     
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | e.              | The Company
  purchases some of the ink and most of the ink-jet printer-heads used in its
  printers from a single supplier for each series of printers. The Companys
  customers rely on the ink and ink-jet printerheads to operate their printers.
  Because the Companys business depends on these items for sale and
  maintenance of its printers, a failure in supply or a change in credit terms
  could have a material adverse effect on the Companys results of operations
  and financial position.
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | f.              | The Company
  employs a limited number of unaffiliated subcontractors to manufacture
  components for its printers.                                                                                                                                                                                                                                                                                                                                                                                               
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                 | Because the
  Company relies on a limited number of subcontractors, the Company failure to
  maintain its relationships with its subcontractors or failure to develop
  alternative sources for its printer components, could have a material adverse
  effect on the Companys results of operations and financial position.                                                                                                                                                                                     
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            | g.              | Statements
  of cash flows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                 | Certain
  prior years balances in the consolidated statements of cash flows were
  reclassified to appropriately present net cash used in operating activities,
  net cash provided by financing activities and effect of exchange rate changes
  on cash and cash equivalents.                                                                                                                                                                                                                                  
|            |                 |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                 | These
  amounts were reclassified to properly present the effect of foreign currency
  translation adjustments on change in operating assets and liabilities and
  short-term bank credit and the adjustment to net loss of foreign currency
  exchange differences on inter-company balances with foreign subsidiaries.                                                                                                                                                                                          

F - 12

---

---



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

|            |                 |                                                                                                                         
|----------- | --------------- | ------------------------------------------------------------------------------------------------------------------------
|NOTE 1:    | GENERAL (Cont.)
|            |                 |                                                                                                                         
|            |                 | The
  following table shows the effect of this reclassification on prior years,
  consistent with the 2005 presentation.

| |                                                                                       |  |                           |        |      |   |        |  
| | ------------------------------------------------------------------------------------- |  | ------------------------- | ------ | ---- | - | ------ | -
| |                                                                                       |  | Year ended
  December 31, |       
| |                                                                                       |  |                           |       
| |                                                                                       |  | 2004                      |        | 2003 |  
| |                                                                                       |  |                           |        |      |  
| |                                                                                       |  |                           |        |      |   |        |  
| | Net cash used in operating
  activities, as previously reported                       |  | $                         | (757   | )    | $ | (7,891 | )
| | Reclassification                                                                      |  |                           | (698   | )    |   | (2,093 | )
| |                                                                                       |  |                           |        |      |   |        |  
| |                                                                                       |  |                           |        |      |   |        |  
| | Revised net cash used in
  operating activities                                       |  | $                         | (1,455 | )    | $ | (9,984 | )
| |                                                                                       |  |                           |        |      |   |        |  
| |                                                                                       |  |                           |        |      |   |        |  
| | Net cash provided by
  financing activities, as previously reported                   |  | $                         | 1,516  |      | $ | 9,953  |  
| | Reclassification                                                                      |  |                           | (78    | )    |   | (182   | )
| |                                                                                       |  |                           |        |      |   |        |  
| |                                                                                       |  |                           |        |      |   |        |  
| | Revised net cash provided by
  financing activities                                   |  | $                         | 1,438  |      | $ | 9,771  |  
| |                                                                                       |  |                           |        |      |   |        |  
| |                                                                                       |  |                           |        |      |   |        |  
| | Effect of exchange rate
  change on cash and cash equivalents, as previously reported |  | $                         | (324   | )    | $ | (1,143 | )
| | Reclassification                                                                      |  |                           | 776    |      |   | 2,275  |  
| |                                                                                       |  |                           |        |      |   |        |  
| |                                                                                       |  |                           |        |      |   |        |  
| | Revised effect of exchange
  rate change on cash and cash equivalents                 |  | $                         | 452    |      | $ | 1,132  |  
| |                                                                                       |  |                           |        |      |   |        |  

|            |                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                         
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                              
|            |                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                         
|            | The
  consolidated financial statements have been prepared according to United
  States generally accepted accounting principles applied on a consistent
  basis, as follows:
|            |                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                         
|            | a.                                                                                                                                                                            | Use of
  estimates:                                                                                                                                                                                                                                                                                     
|            |                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                         
|            |                                                                                                                                                                               | The
  preparation of financial statements in conformity with generally accepted
  accounting principles requires management to make estimates and assumptions
  that affect the amounts reported in the financial statements and accompanying
  notes. Actual results could differ from those estimates.
|            |                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                         
|            | b.                                                                                                                                                                            | Financial
  statements in U.S. dollars:                                                                                                                                                                                                                                                                 
|            |                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                         
|            |                                                                                                                                                                               | The
  Companys management believes that the currency of the primary economic
  environment in which the Company and certain of its subsidiaries operate is
  the U.S. dollar (dollar). Thus, the dollar is the reporting and functional
  currency of the Company and certain of its subsidiaries.   

F - 13

---

---



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

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

F - 14

---

---



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

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

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

|                                |  |                                          |        |  
|------------------------------- |  | ---------------------------------------- | ------ | -
|                                |  | Provision for
  slow-moving 
  inventory |       
|                                |  |                                          |       
|                                |  |                                          |       
|Balance as of January 1, 2003   |  | $                                        | 2,167  |  
|Charge to cost                  |  |                                          | 13,154 |  
|Deduction                       |  |                                          | (7,901 | )
|                                |  |                                          |        |  
|                                |  |                                          |        |  
|Balance as of December 31, 2003 |  |                                          | 7,420  |  
|Charge to cost                  |  |                                          | 9,658  |  
|Deduction                       |  |                                          | (8,944 | )
|                                |  |                                          |        |  
|                                |  |                                          |        |  
|Balance as of December 31, 2004 |  |                                          | 8,134  |  
|Charge to cost                  |  |                                          | 2,721  |  
|Deduction                       |  |                                          | (7,117 | )
|                                |  |                                          |        |  
|                                |  |                                          |        |  
|Balance as of December 31, 2005 |  | $                                        | 3,738  |  
|                                |  |                                          |        |  

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | g. | Long-term
  trade receivables:                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Long-term
  receivables from extended payment agreements are recorded at estimated
  present values determined based on prevailing rates of interest at the date
  of transaction and reported at the net amounts in the accompanying
  consolidated financial statements. Imputed interest is recognized, using the
  effective interest method, as a component of interest income in the
  accompanying statements.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | h. | Property,
  plant and equipment, net:                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    | Property,
  plant and equipment are stated at cost, net of accumulated depreciation.
  Depreciation is calculated using the straight-line method over the estimated
  useful lives of the assets at the following annual rates:                                                                                                                                                                                      

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

F - 15

---

---



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

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------- | --------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|           
|            | i.                                      | Impairment
  of long-lived assets and intangible assets subject to amortization:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | The Groups
  long-lived assets and intangibles assets subject to amortization are reviewed
  for impairment in accordance with SFAS No. 144, Accounting for the Impairment
  or Disposal of Long-Lived Assets, whenever events or changes in
  circumstances indicate that the carrying amount of an asset may not be
  recoverable. Recoverability of assets held for use is measured by a
  comparison of the carrying amount of an asset to the future undiscounted cash
  flows expected to be generated by the assets. If such assets are considered
  to be impaired, the impairment to be recognized is measured by the amount by
  which the carrying amount of the assets exceeds the fair value of the assets.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | During 2005,
  no impairment losses were identified. In 2004, the Company recognized an
  impairment loss as described in 2j below and in 2003, the Company recorded
  $ 1,021 for write off of property and equipment, which is included in general
  and administrative expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | j.                                      | Technology
  and other intangible assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | Intangible
  assets are stated at cost and are amortized over their useful lives using a
  method of amortization that reflects the pattern in which the economic
  benefits of the intangible assets are consumed or otherwise used up, in
  accordance with SFAS No. 142, Goodwill and Other Intangible Assets.                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | Acquired
  technology was amortized over five years, customer list was amortized over
  seven years and the production agreement is amortized over three years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | The acquired
  technology, resulting from the acquisition of Stillachem technology in 2001,
  was used until the second quarter of 2004 for ink production. From the second
  quarter of 2004, the Company uses a new technology for the production of ink
  and therefore the Companys management has recorded impairment on all of the
  outstanding balance.                                                                                                                                                                                                                                                                                                                                                           
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | During 2004,
  the Company lowered its sales of the Salsa product significantly. Therefore,
  management has recorded in 2004 impairment on all of the outstanding balance
  of customer list.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | In respect
  of acquired technology and customer list, the Company recognized an
  impairment loss of $ 736 in 2004. The Company recorded amortization expenses
  during 2003, 2004 and 2005, in the amount of $ 118, $ 126 and $ 169,
  respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            | k.                                      | Revenue
  recognition:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         | The Company
  generates revenues from the sale of its printers, inks and consumable
  products and from services to its products. The Company generates revenues
  from sale of its products directly to end-users and indirectly through
  independent distributors.                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F - 16

---

---



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

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

F - 17

---

---



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

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

|                                                    |  |              |       |      |   |        |  
|--------------------------------------------------- |  | ------------ | ----- | ---- | - | ------ | -
|                                                    |  | December 31, |      
|                                                    |  |              |      
|                                                    |  | 2004         |       | 2005 |  
|                                                    |  |              |       |      |  
|                                                   
|Balance at
  the beginning of the year              |  | $            | 1,272 |      | $ | 1,103  |  
|Utilization
  of warranties                         |  |              | (863  | )    |   | (1,957 | )
|Changes in
  liability for warranty during the year |  |              | 694   |      |   | 1,832  |  
|                                                    |  |              |       |      |   |        |  
|                                                    |  |              |       |      |   |        |  
|Balance at
  the end of the year                    |  | $            | 1,103 |      | $ | 978    |  
|                                                    |  |              |       |      |   |        |  

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | m. | Research and
  development costs:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Research and
  development costs net of grants received are charged to the statement of
  operations as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | n. | Government
  grants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Royalty-bearing
  grants from the local authorities in Belgium for funding approved research
  and development projects are recognized at the time the Companys European
  subsidiary is entitled to such grants, on the basis of the costs incurred and
  included as a reduction of research and development costs. Research and
  development grants amounted to $ 572, $ 0 and $ 0 in 2003,
  2004 and 2005, respectively. Total royalty expenses accrued or paid amounted
  to $ 89, $ 235 and $ 236 in 2003, 2004 and 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | o. | Income
  taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The Company
  provides for income taxes using the asset and liability method. Under this
  method, deferred income taxes are recognized for the tax consequences of
  temporary differences and net operating losses carryforwards (NOLs) by
  applying enacted statutory tax rates applicable to future years to NOLs and
  differences between the financial statement carrying amounts and the tax
  bases of existing assets and liabilities. If necessary, deferred income tax
  assets are reduced by a valuation allowance to an amount that is determined
  to be more likely than not recoverable. The Company must make significant
  estimates and assumptions about future taxable income and future tax
  consequences when determining the amount of the valuation allowance. In
  addition, tax reserves are based on significant estimates and assumptions as
  to the relative filing positions and potential audit and litigation exposures
  thereto. The effect on deferred taxes of a change in tax laws or tax rates is
  recognized in the results of operations in the period that includes the
  enactment date.

F - 18

---

---



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

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

|                                |  |                                     |        |  
|------------------------------- |  | ----------------------------------- | ------ | -
|                                |  | Allowance for
  doubtful
  accounts |       
|                                |  |                                     |       
|                                |  |                                     |       
|Balance as of January 1, 2003   |  | $                                   | 5,768  |  
|Provision, net of recoveries    |  |                                     | 6,694  |  
|Write-off                       |  |                                     | (7,499 | )
|                                |  |                                     |        |  
|                                |  |                                     |        |  
|Balance as of December 31, 2003 |  |                                     | 4,963  |  
|Provision, net of recoveries    |  |                                     | 6,266  |  
|Write-off                       |  |                                     | (219   | )
|                                |  |                                     |        |  
|                                |  |                                     |        |  
|Balance as of December 31, 2004 |  |                                     | 11,010 |  
|Provision, net of recoveries    |  |                                     | (1,132 | )
|Write-off                       |  |                                     | (4,368 | )
|                                |  |                                     |        |  
|                                |  |                                     |        |  
|Balance as of December 31, 2005 |  | $                                   | 5,510  |  
|                                |  |                                     |        |  

F - 19

---

---



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

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------- | --------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            | q.                                      | Severance
  pay:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                         | The Companys
  liability for severance pay is calculated pursuant to Israels Severance Pay
  Law based on the most recent salary of the employees multiplied by the number
  of years of employment, as of the balance sheet date. Employees are entitled
  to one months salary for each year of employment, or a portion thereof. The
  Companys liability for all of employees, is fully provided by monthly
  deposits with severance pay funds and insurance policies and by an accrual.
  The value of these policies is recorded as an asset in the Companys
  consolidated balance sheet.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                         | The
  deposited funds include profits accumulated up to the balance sheet date. The
  deposited funds may be withdrawn only upon the fulfillment of the obligation
  pursuant to Israels Severance Pay Law or labor agreements. The value of the
  deposited funds is based on the cash surrendered value of these policies, and
  includes immaterial profits.                                                                                                                                                                                                                                      
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                         | Severance
  expenses for the years ended December 31, 2003, 2004 and 2005 amounted to
  $ 1,388, $ 652 and $ 891, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            | r.                                      | Employee
  benefit plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                         | The Company
  has a 401(K) defined contribution plan covering all employees in the U.S.
  Employees contribution are generally not greater than $ 14 per year, of
  their annual compensation to the plan through salary deferrals, subject to
  IRS limits. The Companys 401(K) contribution plan includes a fixed matching
  contribution program of 50% of employee contributions to the plan up to a
  limit of 3% of their eligible compensation.                                                                                                                                              
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            | s.                                      | Fair value
  of financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                         | The carrying
  amounts of cash and cash equivalents, restricted cash, trade receivables,
  other accounts receivable, short-term bank credit and loans, current
  maturities of long-term loans, trade payables and other accounts payable and
  accrued expenses approximate their fair value, due to the short-term maturity
  of such instruments.                                                                                                                                                                                                                                                 
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                         | The carrying
  amount of the Groups long-term loans (less accrued interest as described in
  Note 10) 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 value of long-term loans bearing fixed
  interest approximate fair values since it is not materially different than
  the market rate for similar loans.                                                                                                                                                           
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            | t.                                      | Advertising
  expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                         | Advertising
  expenses are charged to the statement of operations, as incurred. Advertising
  expenses for the years ended December 31, 2003, 2004 and 2005 amounted to
  $ 291, $ 368 and $ 189, respectively.                                                                                                                                                                                                                                                                                                                                                                                       

F - 20

---

---



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

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- | --------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | u.                                      | Basic and
  diluted net loss per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | Basic net
  loss per share is computed based on the weighted average number of ordinary
  shares outstanding during each year. Diluted net loss per share is computed
  based on the weighted average number of ordinary shares outstanding during
  the period plus dilutive potential ordinary shares considered outstanding
  during the year, in accordance with SFAS No. 128, Earnings Per Share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | Outstanding
  stock options and warrants have been excluded from the calculation of the
  diluted net loss per ordinary share as such securities are anti-dilutive for
  all periods presented. The total weighted average number of options and
  warrants excluded from the calculations of diluted net loss per share was
  1,446,455, 2,177,587 and 14,343,543 for the years ended December 31, 2003,
  2004 and 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | v.                                      | Accounting
  for stock-based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | The Company
  has elected to follow Accounting Principles Board Opinion No. 25, Accounting
  for Stock Issued to Employees (APB No. 25) and FASB Interpretation No. 44, Accounting for Certain
Transactions Involving
  Stock Compensation in accounting for its employee stock option plans.
  Under APB No. 25, compensation expense is measured under the intrinsic value
  method, whereby compensation expense is equal to the excess, if any, of the quoted
  market price at the date of grant of the award over the exercise price.                                                                                                                                                                                                                                                                                                                                         
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | The Company
  adopted the disclosure provisions of SFAS No. 148, Accounting for
  Stock-Based Compensation - Transition and Disclosure, which amended certain
  provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS
  No. 123).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | Pro forma
  information regarding net loss and net loss per share is required under SFAS
  No. 123 and has been determined as if the Company had accounted for its
  employee stock options under the fair value method of SFAS No. 123. For pro
  forma purposes the fair value for these options is amortized over their
  vesting period based on the accelerated attribution method and estimated at
  the date of grant using a Black-Scholes option pricing model with the
  following weighted-average assumptions for 2003, 2004 and 2005: risk-free
  interest rates of 3.2%, 3.25% and 3.99%, respectively; dividend yields of 0%
  for 2003, 2004 and 2005; volatility factors of the expected market price of
  the ordinary shares of 0.76, 0.86 and 1.19, respectively; and an expected
  average life of the option of two years for 2003, 2004 and three years for
  2005.

F - 21

---

---



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

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

| |  |                                                                                                                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The
  following table illustrates the effect of stock-based compensation expense on
  net loss and loss per share, assuming that the Company had applied the fair
  value recognition provision of SFAS No. 123 on its stock-based employee
  compensation:

|                                                                                             |  |                         |         |      |   |         |   |   |         |  
|-------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                             |  | Year ended December 31, |        
|                                                                                             |  |                         |        
|                                                                                             |  | 2003                    |         | 2004 |   | 2005    |  
|                                                                                             |  |                         |         |      |   |         |  
|                                                                                             |  |                         |         |      |   |         |   |   |         |  
|Net loss as reported                                                                         |  | $                       | (26,370 | )    | $ | (21,967 | ) | $ | (14,706 | )
|                                                                                             |  |                         |         |      |   |         |   |   |         |  
|Add: Stock-based compensation expense
  included in reported net loss                        |  |                         | -       |      |   | -       |   |   | 48      |  
|Deduct: Stock-based compensation expense
  determined under fair value method for all awards |  |                         | (327    | )    |   | (673    | ) |   | (528    | )
|                                                                                             |  |                         |         |      |   |         |   |   |         |  
|                                                                                             |  |                         |         |      |   |         |   |   |         |  
|Pro forma net loss                                                                           |  | $                       | (26,697 | )    | $ | (22,640 | ) | $ | (15,186 | )
|                                                                                             |  |                         |         |      |   |         |   |   |         |  
|                                                                                             |  |                         |         |      |   |         |   |   |         |  
|Net loss per share:                                                                          |  |                         |         |      |   |         |   |   |         |  
|Basic and diluted net loss
  per share, as reported                                          |  | $                       | (1.52   | )    | $ | (0.91   | ) | $ | (0.46   | )
|                                                                                             |  |                         |         |      |   |         |   |   |         |  
|                                                                                             |  |                         |         |      |   |         |   |   |         |  
|Basic and diluted pro forma net
  loss per share                                             |  | $                       | (1.54   | )    | $ | (0.93   | ) | $ | (0.48   | )
|                                                                                             |  |                         |         |      |   |         |   |   |         |  

| |    |                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | The Company applies SFAS No. 123 and EITF
  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 issued to non-employees. SFAS No. 123 requires use of
  an option valuation model to measure the fair value of the options at the
  grant date.
| |    |                                                                                                                                                                                                                                                                                                                                                                            
| |    | During the year ended December 31, 2005,
  the vesting schedule of 183,333 options was accelerated and the life of
  certain options was extended upon termination. The Company accounted for
  these modifications in accordance with FIN No. 44, and recorded an additional
  stock compensation expense in the amount of $ 48.                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                            
| | w. | Reclassification:                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                            
| |    | 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.                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                            

F - 22

---

---



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

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | x. | Impact of
  recently issued accounting standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In November
  2004, the Financial Accounting Standards Board (FASB)
  issued SFAS No. 151, Inventory Costs, an Amendment of Accounting Research
  Bulletin (ARB) No. 43, Chapter 4 (SFAS No. 151). SFAS No. 151 amends ARB
  No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense,
  freight handling costs and wasted materials (spoilage) should be recognized
  as current-period charges. In addition, SFAS No. 151 requires that the
  allocation of fixed production overheads to the costs of conversion be based
  on the normal capacity of the production facilities. SAFS No. 151 is
  effective for inventory costs incurred during fiscal years beginning after
  June 15, 2005. The Company early adopted SFAS No. 151 in 2005 and recognized
  $ 1,102 as current period charges related to indirect costs which were not
  allocated to printers that were manufactured during that period. Allocation
  of production indirect costs was based on the normal capacity of the Companys
  production facilities.                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In
  December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS No. 123(R)). SFAS
  No. 123(R) requires that the compensation cost relating to share-based
  payment transactions be recognized in financial statements based on the fair
  value of the equity or liability instruments issued. SFAS No. 123(R) covers a
  wide range of share-based compensation arrangements
  including share options, restricted share plans, performance-based awards,
  share appreciation rights and employee share purchase plans. SFAS No. 123(R)
  replaces SFAS No. 123 and supersedes APB No. 25. The Company will be required
  to apply SFAS No. 123(R) as of the first annual reporting period that begins
  after June 15, 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The adoption
  of SFAS No. 123(R)s fair value method will have a significant impact on the
  Companys result of operations, although it will have no impact on its
  overall financial position. The Company plans to adopt SFAS No. 123(R) using
  the modified prospective method. The modified prospective method requires
  compensation cost to be recognized beginning with the effective date (a)
  based on the requirements of SFAS 123(R) for all share-based payments granted
  after the effective date and (b) based on the requirements of SFAS 123 for
  all awards granted to employees prior to the effective date of SFAS No.
  123(R) that remain unvested on the effective date. The impact of adoption of
  SFAS No. 123(R) on future periods cannot be predicted at this time because it
  will depend on levels of share-based payments granted in the future. However,
  had the Company adopted SFAS No. 123(R) in prior periods, the impact of that
  standard would have approximated the impact of SFAS No. 123 as described in
  the disclosure of pro forma net loss and loss per share in v above. In March
  2005, the SEC staff issued Staff Accounting Bulletin No. 107 to give guidance
  on implementation of SFAS No. 123(R), which the Company will consider in
  implementing SFAS No. 123(R).

F - 23

---

---



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

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | In May 2005,
  the FASB issued SFAS No. 154, Accounting Changes and Errors Corrections
  (SFAS No. 154). SFAS No. 154 replaces APB Opinion No. 20, Accounting
  Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial
  Statements, although it carries forward some of their provisions. SFAS No.
  154 requires retrospective application to prior periods financial statements
  of changes in accounting principle, unless it is impracticable to determine
  either the period-specific effects or the cumulative effect of the change. A
  change in depreciation, amortization, or depletion method for long-lived,
  non-financial assets will be accounted for as a change in accounting
  estimate. SFAS No. 154 is effective for changes in accounting principle made
  in fiscal years beginning after December 15, 2005. As of December 31, 2005,
  adoption of SFAS No. 154 will not have material impact on the Companys
  financial position and result of operation.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | y. | Comprehensive
  income:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The Company
  accounts for comprehensive income in accordance with SFAS No. 130, Reporting
  Comprehensive Income. This Statement establishes standards for the reporting
  and display of comprehensive income and its components in a full set of
  general purpose financial statements. Comprehensive income 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 income relates to
  foreign currency translation adjustments.                                                                                                                                                                                                                                                                                                                                                                                                   

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

|                                       |  |              |       |      |   |           | 
|-------------------------------------- |  | ------------ | ----- | ---- | - | --------- | 
|                                       |  | December 31, |      
|                                       |  |              |      
|                                       |  | 2004         |       | 2005 |  
|                                       |  |              |       |      |  
|                                       |  |              |       |      |   |           | 
|Government
  authorities               |  | $            | 1,977 |      | $ | 2,669     | 
|Participations
  and grants receivable |  |              | 331   |      |   | *)      - | 
|Employees                              |  |              | 69    |      |   | 140       | 
|Advances to
  suppliers                |  |              | 253   |      |   | 479       | 
|Prepaid
  expenses                     |  |              | 411   |      |   | 533       | 
|Other                                  |  |              | 355   |      |   | 300       | 
|                                       |  |              |       |      |   |           | 
|                                       |  |              |       |      |   |           | 
|                                       |  | $            | 3,396 |      | $ | 4,121     | 
|                                       |  |              |       |      |   |           | 

| |    |                                                             
| | -- | ------------------------------------------------------------
| | *) | Was settled
  as part of the agreement described in Note 11.

F - 24

---

---



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

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

|                    |  |              |          |      |   |          | 
|------------------- |  | ------------ | -------- | ---- | - | -------- | 
|                    |  | December 31, |         
|                    |  |              |         
|                    |  | 2004         |          | 2005 |  
|                    |  |              |          |      |  
|                    |  |              |          |      |   |          | 
|Raw
  materials     |  | $            | 5,974    |      | $ | 2,800    | 
|Work
  in-progress  |  |              | 1,834    |      |   | 1,077    | 
|Finished
  products |  |              | *)13,550 |      |   | *) 9,260 | 
|                    |  |              |          |      |   |          | 
|                    |  |              |          |      |   |          | 
|                    |  | $            | 21,358   |      | $ | 13,137   | 
|                    |  |              |          |      |   |          | 

| |    |                                                                                                                                                                       
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *) | Includes
  amounts of $ 3,507 and $ 6,584 for 2005 and 2004, respectively, with respect
  to inventory delivered to customers but for which no revenue was recognized.

|            |                                                                                                             
|----------- | ------------------------------------------------------------------------------------------------------------
|NOTE 5:    | LONG-TERM TRADE RECEIVABLES                                                                                 
|            |                                                                                                             
|            | The
  aggregate annual maturities of long-term trade receivables from the sale of
  products are as follows:

|                                  |  |              |     |      |   |   | 
|--------------------------------- |  | ------------ | --- | ---- | - | - | 
|                                  |  | December 31, |    
|                                  |  |              |    
|                                  |  | 2004         |     | 2005 |  
|                                  |  |              |     |      |  
|                                  |  |              |     |      |   |   | 
|First year
  (current maturities) |  | $            | 124 |      | $ | - | 
|Second year                       |  |              | 233 |      |   | - | 
|                                  |  |              |     |      |   |   | 
|                                  |  |              |     |      |   |   | 
|                                  |  |              | 357 |      |   | - | 
|Less -
  current maturities       |  |              | 124 |      |   | - | 
|                                  |  |              |     |      |   |   | 
|                                  |  |              |     |      |   |   | 
|                                  |  | $            | 233 |      | $ | - | 
|                                  |  |              |     |      |   |   | 

|            |                              
|----------- | -----------------------------
|NOTE 6:    | PROPERTY, PLANT AND EQUIPMENT

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

|                                     |  |              |        |      |   |        | 
|------------------------------------ |  | ------------ | ------ | ---- | - | ------ | 
|                                     |  | December 31, |       
|                                     |  |              |       
|                                     |  | 2004         |        | 2005 |  
|                                     |  |              |        |      |  
|Cost:                                |  |              |        |      |   |        | 
|Machinery and equipment              |  | $            | 1,767  |      | $ | 3,177  | 
|Motor vehicles                       |  |              | 26     |      |   | 26     | 
|Office furniture and equipment       |  |              | 7,543  |      |   | 7,819  | 
|Buildings (c)                        |  |              | 1,493  |      |   | 1,293  | 
|Leasehold improvements               |  |              | 4,609  |      |   | 4,596  | 
|                                     |  |              |        |      |   |        | 
|                                     |  |              |        |      |   |        | 
|                                     |  |              | 15,438 |      |   | 16,911 | 
|                                     |  |              |        |      |   |        | 
|                                     |  |              |        |      |   |        | 
|Accumulated
  depreciation           |  |              | 10,689 |      |   | 12,275 | 
|                                     |  |              |        |      |   |        | 
|                                     |  |              |        |      |   |        | 
|Property,
  plant and equipment, net |  | $            | 4,749  |      | $ | 4,636  | 
|                                     |  |              |        |      |   |        | 

F - 25

---

---



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

|            |                                         |                                                                                                                                                                                                      
|----------- | --------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 6:    | PROPERTY, PLANT AND
  EQUIPMENT (Cont.)
|            |                                         |                                                                                                                                                                                                      
|            |                                         |                                                                                                                                                                                                      
|            | b.                                      | Depreciation
  expenses for the years ended December 31, 2003, 2004 and 2005, amounted to
  $ 3,801, $ 1,830 and $ 2,027, respectively (as for impairment, refer to Note
  2i).                      
|            |                                         |                                                                                                                                                                                                      
|            |                                         | As for a
  floating lien, refer to Note 12c.                                                                                                                                                         
|            |                                         |                                                                                                                                                                                                      
|            | c.                                      | Capital
  lease:                                                                                                                                                                                     
|            |                                         |                                                                                                                                                                                                      
|            |                                         | NUR Europe
  leases certain spaces under lease agreements which are recorded as capital
  leases. The related facilities are included in property, plant and equipment
  and depreciated accordingly.
|            |                                         |                                                                                                                                                                                                      
|            |                                         | The cost and accumulated
  depreciation of facilities for the years ended December 31, 2004 and 2005
  were $ 1,493, $ 1,293 and $ 317, $ 319, respectively.                                         
|            |                                         |                                                                                                                                                                                                      
|NOTE 7:    | OTHER INTANGIBLE ASSETS,
  NET         
|            |                                         |                                                                                                                                                                                                      
|            | a.                                      | Composition
  of other intangible assets:                                                                                                                                                            

|                               |  |              |     |      |   |     | 
|------------------------------ |  | ------------ | --- | ---- | - | --- | 
|                               |  | December 31, |    
|                               |  |              |    
|                               |  | 2004         |     | 2005 |  
|                               |  |              |     |      |  
|Production
  agreement *):     |  |              |     |      |   |     | 
|Original amounts               |  | $            | 504 |      | $ | 504 | 
|                               |  |              |     |      |   |     | 
|                               |  |              |     |      |   |     | 
|Accumulated amortization       |  |              | 126 |      |   | 295 | 
|                               |  |              |     |      |   |     | 
|                               |  |              |     |      |   |     | 
|Other
  intangible assets, net |  | $            | 378 |      | $ | 209 | 
|                               |  |              |     |      |   |     | 

| |    |                                                                                                                     |                                                                                                                                                                                                                 
| | -- | ------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | *)                                                                                                                  | Resulting
  from the acquisition of the remaining 50% of NUR Pro Engineering in 2004.
  This reflects the value of the production agreement related to production of
  the Companys printers. Refer to Note 1c.
| |    |                                                                                                                     |                                                                                                                                                                                                                 
| | b. | The
  estimated amortization expense associated with the production agreement is
  $ 168 for 2006 and $ 41 in 2007.

F - 26

---

---



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

|            |                                 
|----------- | --------------------------------
|NOTE 8:    | SHORT TERM BANK CREDIT AND LOANS

|                                                         |  |  |             |  |                 |                    |                |  |                     |  |      |        |   |   |        |  
|-------------------------------------------------------- |  |  | ----------- |  | --------------- | ------------------ | -------------- |  | ------------------- |  | ---- | ------ | - | - | ------ | -
|                                                         |  |  |             |  | Interest
  rate |                    | December
  31, | 
|                                                         |  |  | Linkage     |  |                 |                    |                | 
|                                                         |  |  | terms       |  | 2004            |                    | 2005           |  | 2004                |  | 2005 |       
|                                                         |  |  |             |  |                 |                    |                |  |                     |  |      |       
|                                                         |  |  |             |  | %               |                    |                |  |                     |  |      |       
|                                                         |  |  |             |  |                 |                    |                |  |                     |  |      |       
|                                                         |  |  |             |  |                 |                    |                |  |                     |  |      |        |   |   |        |  
|Short-term bank credit (b)                               |  |  | U.S. dollar |  |                 | LIBOR + 2.5 - 2.75 |                |  | LIBOR + 0.25 - 0.75 |  | $    | 3,553  |   | $ | 4,999  |  
|Short-term bank loans (a)                                |  |  | U.S. dollar |  |                 | LIBOR +2.25 - 2.5  |                |  | 5.263               |  |      | 30,695 |   |   | 1,900  |  
|Short-term bank credit (b)                               |  |  | Euro        |  |                 | LIBOR + 2.5 - 2.75 |                |  | LIBOR + 0.25 - 0.75 |  |      | 4,735  |   |   | 3,939  |  
|Short-term bank loans (a)                                |  |  | Euro        |  |                 | LIBOR + 2.5 - 2. 5 |                |  | -                   |  |      | 3,452  |   |   | -      |  
|                                                         |  |  |             |  |                 |                    |                |  |                     |  |      |        |   |   |        |  
|                                                         |  |  |             |  |                 |                    |                |  |                     |  |      |        |   |   |        |  
|                                                         |  |  |             |  |                 |                    |                |  |                     |  | $    | 42,435 |   | $ | 10,838 |  
|                                                         |  |  |             |  |                 |                    |                |  |                     |  |      |        |   |   |        |  
|Weighted average interest rates at the end
  of the year |  |  |             |  |                 |                    |                |  |                     |  |      | 4.38   | % |   | 5.84   | %
|                                                         |  |  |             |  |                 |                    |                |  |                     |  |      |        |   |   |        |  

| |                                                                           |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | ------------------------------------------------------------------------- | ------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.                                                                        | Short-term
  bank loans: 
| |                                                                           |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                           | 1.                        | Under new
  loan agreements entered into on December 8, 2005 between the Company and its
  three Israeli lender banks (Lender Banks) in connection with the Debt
  Restructuring Agreement (see Note 1b), a short-term loan in the amount of
  $ 1,900 bears fixed interest of $ 100 which will be repaid within one year
  following the date of the consummation of the debt restructuring (the date
  of closing). To secure the repayment of that short-term loan, the Company
  will deposit an amount of $ 2,000 in its bank accounts, which shall be
  released directly to the Lender Banks. The Company deposited the amount
  during 2006 as required by the Debt Restructuring Agreement.                                                                                                           
| |                                                                           |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                           | 2.                        | As of
  December 31, 2004, long-term bank loans in the amount of $28,912 are included
  in short-term bank loans (see Note 9f).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                           |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | b.                                                                        | Short-term
  bank credit:
| |                                                                           |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                           | 1.                        | The Lender
  Banks provided a credit facility in the amount of $ 11,000 of which $ 1,150 is
  for guarantees only. The credit facility can be utilized in U.S. dollars, NIS
  or Euro. The credit facility will be in effect until the first anniversary of
  the date of closing. The credit facility is renewable, at the request of the
  Company, on a yearly basis until the sixth anniversary of the date of
  closing. This credit facility shall bear interest at a rate of LIBOR + 0.75%
  payable on a quarterly basis. As of December 31, 2005, an amount of $ 8,938
  was utilized by way of short-term loan and $ 1,258 was utilized in guarantees.
  The credit facility is subject to immediate repayment upon the occurrence of
  certain events as defined in the agreement with the Lender Banks.
| |                                                                           |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                           | 2.                        | As of
  December 31, 2005, the total available line of credit of NUR Europe is
   2,035 thousand ($ 2,408), of which none was utilized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                           |                           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | As for
  guarantees and liens of certain subsidiaries, refer to Note 12c.

F - 27

---

---



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

|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                       
|----------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------
|NOTE 9:    | LONG-TERM LOANS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                       
|            | On September
  12, 2005, the Company entered into a debt restructuring agreement (Debt
  Restructuring Agreement) with the Lender Banks. The Debt Restructuring
  Agreement, which was consummated on December 8, 2005, calls for the
  conversion and refinancing of the then outstanding bank debt in the amount of
  $ 41,018 to the Lender Banks. Out of the amount of $ 41,018, an amount equal to
  $ 14,513 was converted into warrants to purchase up to 8,000,000 ordinary
  shares, $ 5,000 was converted into subordinated notes, which were assigned by
  the Lender Banks to Fortissimo (Note from related parties). The remaining
  $ 21,505 was refinanced under new short and long term loan agreements.
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                       
|            | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Composed as
  follows:

|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|-------------------------------------------------------- |  |  | ----------- |  | --------------- | --------- | -------------- |  | ------------ |  | ---- | ----- | - | - | ------ | -
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|                                                         |  |  |             |  | Interest
  rate |           | December
  31, | 
|                                                         |  |  | Linkage     |  |                 |           |                | 
|                                                         |  |  | terms       |  | 2004            |           | 2005           |  | 2004         |  | 2005 |      
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |      
|                                                         |  |  |             |  | %               |           |                |  |              |  |      |      
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |      
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|From banks (b)                                           |  |  | U.S. dollar |  |                 | -         |                |  | LIBOR + 2.50 |  | $    | -     |   | $ | 11,000 |  
|From banks                                               |  |  | Euro        |  |                 | -         |                |  | LIBOR + 0.75 |  |      | -     |   |   | 837    |  
|Capital leases                                           |  |  | Euro        |  |                 | 4.95-6.30 |                |  | 4.95-6.30    |  |      | 1,181 |   |   | 932    |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      | 1,181 |   |   | 12,769 |  
|Less - current maturities                                |  |  |             |  |                 |           |                |  |              |  |      | 117   |   |   | 110    |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      | 1,064 |   |   | 12,659 |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|Note from related parties (c)                            |  |  |             |  |                 |           |                |  | -            |  |      | -     |   |   | 5,000  |  
|Accrued interest on restructured debt (d)                |  |  |             |  |                 |           |                |  | -            |  |      | -     |   |   | 10,364 |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|                                                         |  |  |             |  |                 |           |                |  |              |  | $    | 1,064 |   | $ | 28,023 |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  
|Weighted average interest rates at the end
  of the year |  |  |             |  |                 |           |                |  |              |  |      | 7.12  | % |   | 8.12   | %
|                                                         |  |  |             |  |                 |           |                |  |              |  |      |       |   |   |        |  

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

F - 28

---

---



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

|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- | ----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 9:    | LONG-TERM LOANS (Cont.)
|            |                        
|            | c.                      | Note from
  related parties of $ 5,000 bears no interest and will expire after three years
  from the date of its issuance and will be payable only on occurrence of
  certain events of liquidation. In the event of either bankruptcy, insolvency
  or reorganization proceeding under any bankruptcy, whether voluntary or
  involuntary, which proceedings are not lifted or stayed within 90 days then
  the Company shall repay the amount of the note to its holder. In the event of
  the occurrence of a liquidation following the third anniversary of the date
  of closing of the Debt Restructuring Agreement, the holder of the note shall
  not be eligible for any repayment from the Company on account of the Note
  from related parties.                                                                                                                                              
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | d.                      | The
  restructuring of the outstanding bank debt has been accounted for in
  accordance with the provisions of SFAS No. 15, Accounting by Debtors and
  Creditors for Troubled Debt Restructuring (SFAS No. 15). According to the
  guidance of SFAS No. 15, as a result of variable interest rate on the
  restructured debt, no gain will be recognized on the restructuring date and
  the carrying amount of the debt will remain unchanged. Future interest on the
  restructured debt will be recorded as a reduction of the carrying amount of
  the debt instead of interest expenses. The remaining balance will be recorded
  as a gain upon full payment of the debt. As of December 31, 2005, a balance
  of $ 10,364 is included within long-term liabilities in the Companys
  consolidated balance sheet as accrued interest and is amortized as interest
  is charged on these loans.
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            | e.                      | The
  aggregate annual maturities of long-term loans are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                   |  |              |       |      |   |        | 
| | --------------------------------- |  | ------------ | ----- | ---- | - | ------ | 
| |                                   |  | December 31, |      
| |                                   |  |              |      
| |                                   |  | 2004 *)      |       | 2005 |  
| |                                   |  |              |       |      |  
| |                                   |  |              |       |      |  
| | First year
  (current maturities) |  | $            | 117   |      | $ | 110    | 
| |                                   |  |              |       |      |   |        | 
| |                                   |  |              |       |      |   |        | 
| | Second year                       |  |              | 130   |      |   | 132    | 
| | Third year                        |  |              | 130   |      |   | 629    | 
| | Fourth year                       |  |              | 130   |      |   | 629    | 
| | Fifth year                        |  |              | 130   |      |   | 1,435  | 
| | Sixth year
  and thereafter       |  |              | 544   |      |   | 9,834  | 
| |                                   |  |              |       |      |   |        | 
| |                                   |  |              |       |      |   |        | 
| |                                   |  |              | 1,064 |      |   | 12,659 | 
| |                                   |  |              |       |      |   |        | 
| |                                   |  |              |       |      |   |        | 
| |                                   |  | $            | 1,181 |      | $ | 12,769 | 
| |                                   |  |              |       |      |   |        | 

| |    |                                                                                        
| | -- | ---------------------------------------------------------------------------------------
| | *) | As to the
  classification of long-term loans to short-term loans, refer to Note 8a(2).

F - 29

---

---



|                                                           
|-----------------------------------------------------------
|NUR MACROPRINTERS 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.)
|            |                        
|            | f.                      | Covenants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                         | In February
  2004, the Company signed an agreement with the Lender banks, according to
  which covenants were determined.                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                         | During 2004,
  the Company did not comply with certain of the covenants. On June 30, 2005,
  the Company reached an agreement (the Waiver Agreement) with its Lender
  Banks to give waivers of default and the outstanding bank debt was not
  subject to acceleration. Under the Waiver Agreement, new covenants were
  determined, according to which the Company had to achieve certain financial ratios
  during the second half of 2005.                                                                                      
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                         | In any case
  of a breach by the Company, including non achievement by the Company of any
  of the new aforementioned financial covenants, the Company would have had to
  repay all amounts then owing under any or all documentation between the
  Company and the Lender Banks, to the Lender Banks.                                                                                                                                                                                                                               
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                         | In addition,
  according to the Waiver Agreement, unless in a case of a breach by the
  Company of any of its obligations under the agreement, the Company would not
  have been obligated to repay the Lender Banks any amounts on account of
  principal that were due and payable under prior facility agreements until
  January 1, 2006.                                                                                                                                                                                         
|           
|            |                         | As of
  December 31, 2004 long-term bank loans in the amount of $28,912 were
  presented as short-term bank loans due to the uncertainty in the Companys
  ability to achieve the required financial ratios during 2005 quarters.                                                                                                                                                                                                                                                                                                    
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                         | Under the
  Debt Restructuring Agreement, the Lender Banks agreed to waive the Companys
  defaults of prior facility agreements for all periods prior to the closing of
  the Debt Restructuring Agreement. The Company also has agreed to maintain the
  following ratios of (1) the total amounts owed to the Lender Banks plus
  available credit under the new short-term loans plus debts of subsidiaries to
  outside lenders incurred above an aggregate of $ 2,048 to (2) EBITDA as
  defined in the Restructuring Agreement.

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

| |                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The first
  measurement of the financial covenants will take place following the end of
  the third quarter of 2008 based on the Companys financial results during the
  first three quarters of 2008 and will be measured on a quarterly basis
  thereafter, which measurement will take into account the previous four
  calendar quarters.

F - 30

---

---



|                                                           
|-----------------------------------------------------------
|NUR MACROPRINTERS 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.)                    
|            |                                            
|            |                                             | In any case
  of certain breaches by the Company (i) the Company may be required by the
  Lender Banks to repay all amounts then owed under any or all documentation
  between the Company and the Lender Banks, to the Lender Banks and (ii) the
  Lender Banks shall be entitled to exercise any and all rights set forth in
  any or all documentation between the Lender Banks and the Company.
|            |                                             |                                                                                                                                                                                                                                                                                                                                                                                                    
|NOTE 10:   | OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

| |                                  |  |                |       |      |   |        | 
| | -------------------------------- |  | -------------- | ----- | ---- | - | ------ | 
| |                                  |  | December
  31, |      
| |                                  |  |                |      
| |                                  |  | 2004           |       | 2005 |  
| |                                  |  |                |       |      |  
| |                                  |  |                |       |      |   |        | 
| | Employees
  and payroll accruals |  | $              | 3,074 |      | $ | 2,464  | 
| | Government
  authorities         |  |                | 371   |      |   | 1,272  | 
| | Royalties
  payable              |  |                | 1,922 |      |   | 801    | 
| | Warranty
  provision             |  |                | 1,103 |      |   | 978    | 
| | Professional
  services          |  |                | 479   |      |   | 744    | 
| | Advance from
  customers         |  |                | 345   |      |   | 1,008  | 
| | Provision
  for legal claims     |  |                | 720   |      |   | 2,851  | 
| | Accrued
  expenses               |  |                | 1,881 |      |   | 1,430  | 
| |                                  |  |                |       |      |   |        | 
| |                                  |  |                |       |      |   |        | 
| |                                  |  | $              | 9,895 |      | $ | 11,548 | 
| |                                  |  |                |       |      |   |        | 

|            |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------- | ---------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 11:   | GOVERNMENT AUTHORITIES
|            |                       
|            | a.                     | In the first
  calendar quarter of 2006, the District Court in Jerusalem approved the
  settlement agreement between the Company and the Office of Chief Scientist of
  the Ministry of Industry, Trade and Labor (OCS) and the Fund for the
  Encouragement of Marketing Activities of the Ministry of Industry, Trade and
  Labor (the Marketing Fund). The agreement settled the dispute between the
  Company, the OCS and the Marketing Fund regarding the Companys outstanding
  obligation to pay royalties and the repayment of the outstanding debt in 36
  equal monthly installments. As of December 31, 2004, the liability to the OCS
  and the Marketing Fund was recorded in other accounts payable and accrued
  expenses, based on the royalty commitment as described in Note 12b.

F - 31

---

---



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

|            |                               
|----------- | ------------------------------
|NOTE 11:   | GOVERNMENT AUTHORITIES (Cont.)

| |    |             
| | -- | ------------
| | b. | Composition:

| |  |                                 |  |                |   |      |   |       | 
| |  | ------------------------------- |  | -------------- | - | ---- | - | ----- | 
| |  |                                 |  | December
  31, |  
| |  |                                 |  |                |  
| |  |                                 |  | 2004           |   | 2005 |  
| |  |                                 |  |                |   |      |  
| |  |                                 |  |                |   |      |   |       | 
| |  | Debt to the OCS (i)             |  | $              | - |      | $ | 597   | 
| |  | Debt to the Marketing Fund (ii) |  |                | - |      |   | 786   | 
| |  |                                 |  |                |   |      |   |       | 
| |  |                                 |  |                |   |      |   |       | 
| |  |                                 |  | $              | - |      | $ | 1,383 | 
| |  |                                 |  |                |   |      |   |       | 
| |  |                                 |  |                |   |      |   |       | 
| |  | First year (current maturity)   |  | $              | - |      | $ | 456   | 
| |  |                                 |  |                |   |      |   |       | 
| |  |                                 |  |                |   |      |   |       | 
| |  | Second year                     |  |                | - |      |   | 456   | 
| |  | Third year                      |  |                | - |      |   | 471   | 
| |  |                                 |  |                |   |      |   |       | 
| |  |                                 |  |                |   |      |   |       | 
| |  |                                 |  |                | - |      |   | 927   | 
| |  |                                 |  |                |   |      |   |       | 
| |  |                                 |  |                |   |      |   |       | 
| |  |                                 |  | $              | - |      | $ | 1,383 | 
| |  |                                 |  |                |   |      |   |       | 

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

F - 32

---

---



|                                                             
|-------------------------------------------------------------
|NUR MACROPRINTERS 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
|            |                                       
|            | a.                                     | Operating
  lease commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|            |                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                        | The Company
  and most of its subsidiaries rent their facilities under various operating
  lease agreements, which expire on various dates, ranging from 2006 to 2011.
  The Company leases various motor vehicles under operating lease agreements,
  which expires in 2008. The Company can terminate the motor vehicle leases by
  paying a penalty in an amount equivalent to 3-month lease payments.  The following table summarizes the minimum
  annual rental commitments as of the periods indicated under capital leases,
  non-cancelable operating leases and sub-lease arrangements with initial or
  remaining terms of more than one year, reflecting the terms that were in
  effect as of December 31, 2005:

| |  |                                                          |  |                 |       |                    |   |           |  |       |        |   |   |       |  
| |  | -------------------------------------------------------- |  | --------------- | ----- | ------------------ | - | --------- |  | ----- | ------ | - | - | ----- | -
| |  | Year  ended December
  31,                               |  | Capital
  lease |       | Operating 
  lease |   | Sub-lease |  | Total |       
| |  |                                                          |  |                 |       |                    |   |           |  |       |       
| |  |                                                          |  |                 |       |                    |   |           |  |       |        |   |   |       |  
| |  | 2006                                                     |  | $               | 162   |                    | $ | 2,042     |  | $     | (361   | ) | $ | 1,843 |  
| |  | 2007                                                     |  |                 | 162   |                    |   | 1,509     |  |       | (379   | ) |   | 1,292 |  
| |  | 2008                                                     |  |                 | 159   |                    |   | 724       |  |       | (353   | ) |   | 530   |  
| |  | 2009                                                     |  |                 | 158   |                    |   | 275       |  |       | (340   | ) |   | 93    |  
| |  | 2010                                                     |  |                 | 158   |                    |   | 206       |  |       | (340   | ) |   | 24    |  
| |  | 2011 and thereafter                                      |  |                 | 347   |                    |   | 21        |  |       | (28    | ) |   | 340   |  
| |  |                                                          |  |                 |       |                    |   |           |  |       |        |   |   |       |  
| |  |                                                          |  |                 |       |                    |   |           |  |       |        |   |   |       |  
| |  | Total minimum lease payments                             |  |                 | 1,146 |                    |   | 4,777     |  |       | (1,801 | ) |   | 4,122 |  
| |  | Less - amounts representing interest                     |  |                 | (214  | )                  |   | -         |  |       | -      |   |   | (214  | )
| |  |                                                          |  |                 |       |                    |   |           |  |       |        |   |   |       |  
| |  |                                                          |  |                 |       |                    |   |           |  |       |        |   |   |       |  
| |  | Present value of future minimum capital
  lease payments |  | $               | 932   |                    | $ | 4,777     |  | $     | (1,801 | ) | $ | 3,908 |  
| |  |                                                          |  |                 |       |                    |   |           |  |       |        |   |   |       |  

| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | Total rental
  lease expenses for the years ended December 31, 2003, 2004 and 2005, were
  $ 1,654, $ 1,835 and $ 1,739, respectively.
| |                                                                                                                                       
| | Total income
  from sub-lease for the years ended December 31, 2003, 2004 and 2005 were
  $ 312, $ 304 and $ 343, respectively.       
| |                                                                                                                                       
| | Lease
  expenses of vehicles for the years ended December 31, 2003, 2004 and 2005
  were $ 877, $ 980 and $ 1,151, respectively.      

| |    |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ---------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Royalty
  commitments:
| |    |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | 1.                     | The Company
  entered into several project plans with the OCS. Under the terms of grants
  awarded in prior years by the OCS to the Company, the Company was obligated
  to pay royalties at the rate of 2% - 3% of the sales derived from the
  applicable products developed within the framework of such research and
  development projects, up to an amount equal to 100% - 150% of the grant
  received, linked to the U.S. dollar and for grants received after January 1,
  1999, accrued for interest at the rate of LIBOR. The Company had no
  obligation to repay this amount if sales are not sufficient to satisfy the
  royalty obligations. The Company reached a settlement agreement with the OCS
  in connection to a previous dispute regarding payment of certain royalties,
  refer to Note 11. Following the settlements agreement as described in
  Note 11, as of December 31, 2005, all the contingent commitment for
  amounts received in the past from the OCS was converted into and recorded as
  an outstanding debt in the net amount of $ 597.

F - 33

---

---



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

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

| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                             
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | According to
  the Encouragement of Industrial Research and Development Law, 1984, the
  Companys technologies are subject to transfer of technology and
  manufacturing rights restrictions. The discretionary approval of the OCS
  committee is required for any transfer of technology developed with OCS
  funding. OCS approval is not required for the export of any products
  resulting from the research or development, or for licensing of the
  technology in the ordinary course of business. There is no assurance that the
  Company will receive the required approvals for any proposed transfer. Such
  approvals, if granted, could be subject to the following conditions:                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                             
| |  |  | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | The Company
  will be required to pay the OCS a portion of the consideration received upon
  any sale of such technology or upon an acquisition of the Israeli subsidiary
  by an entity that is not Israeli; or                                                                                                                                                            
| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                             
| |  |  | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | The transfer
  of manufacturing rights could be conditioned upon an increase in the royalty
  rate and payment of increased aggregate royalties (up to 300% of the amount
  of the grant plus interest, depending on the percentage of foreign
  manufacture) or a transfer of manufacturing rights into Israel of another
  product of similar or more advanced technology.
| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                             
| |  |  | In addition,
  the Companys European subsidiary has an obligation to pay royalties at the
  higher of a certain minimum annual amount or at rates of 3% - 6% on the sales
  of products developed with funds provided by the local authorities in
  Belgium, up to an amount equal to the research and development grants
  received in connection with such products, linked to the Euro. The
  commencement of the royalty payments to the local authorities in Belgium are
  contingent upon the Companys European subsidiary generating sales from
  products developed under these grants. The grants are not repayable in case
  the Companys European subsidiary decides to cease the research and
  development activities or the exploitation of the products developed under
  these grants and all know how and results of the research and development are
  transferred to the local authorities. In the event that the Companys
  European subsidiary decides to cease exploitation of the products developed
  under these grants a notification thereof should be given to the local
  authorities in Belgium.
| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                             
| |  |  | Total
  royalties paid by the European subsidiary amounted to $ 89, $ 235
  and $ 236 for the years ended December 31, 2003, 2004 and 2005,
  respectively. The Companys European subsidiary ceased the research and
  development activities and the exploitation of certain products for which
  grants were received. As of December 31, 2005, the aggregate amount of grants
  received from the Belgium authorities, which were not yet repaid amounted to
  $ 2,100.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  |  | The grant agreements with the local Belgian
  authorities require the European subsidiary to meet certain conditions. The
  European subsidiary intends to hold discussions with the Belgian local
  authorities regarding certain grants already received and its meeting the
  conditions of such grant. At this stage, the Company is unable to determine
  the outcome of such discussions and the negative implications, if any.
  Accordingly, no provision was recorded in the financial statements regarding
  these grants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F - 34

---

---



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

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

| |    |                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | 2.                                                                                                                                                                                                                                                                         | Under the
  terms of grants awarded in prior years by the Marketing Fund to the Company,
  the Company was obligated to pay royalties to the Marketing Fund at the rate
  of 3% - 4% of the increases in export sales of products for which the Company
  received participations for its marketing activities, up to an amount equal
  to 100% - 150% of the grant received, linked to the U.S. dollar.                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                            | The grant is
  repayable only in respect of sales of the related products, as a percentage
  of the growth in export sales. If there is no increase in export sales, or if
  the Company ceases producing the relevant products, the grant would not be
  repaid.                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                            | As of
  December 31, 2004, the Company had an obligation to pay royalties in the
  amount of $ 937. Following the settlement agreement as described in Note
  11, as of December 31, 2005, all the contingent commitment for amounts
  received in the past from the Marketing Fund was converted into and recorded
  as an outstanding debt in the net amount of $ 786.                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | c. | Charges and
  guarantees:                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                           
| |    | As
  collateral for its liabilities to the banks, the Company created fixed
  charges on its share capital, as well as a floating lien on all of its
  assets. The Company also created a second ranking floating lien in connection
  with the Note from related parties.
| |    |                                                                                                                                                                                                                                                                           
| |    | In respect of a motion filed by a former
  employee, the first instance of Nivelles confirmed a seizure of
  a subsidiarys tangible assets for an amount of  120 thousand (or $
  142). See note 12.d.10.                                                               
| |    |                                                                                                                                                                                                                                                                           
| |    | As of December 31, 2005, the Company
  obtained bank guarantees in the total amount of $ 1,258, in favor of
  vendors, lessors and Government authorities.                                                                                                                
| |    |                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | d. | Litigations:                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | 1.                                                                                                                                                                                                                                                                         | 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 $ 211
  in respect of unpaid invoices. The court appointed an expert in order to hear
  the parties claims, to examine the machine and provide an opinion regarding
  the damages suffered by the client from the machines use. The Companys
  legal counsel could not estimate the amount of loss or range of loss, if any,
  in respect of this litigation and therefore the Company did not record a
  provision with respect of this claim. The court has not rendered a judgment
  regarding this issue.

F - 35

---

---



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

|            |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|----------- | ---------------------------------------------- | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 12:   | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|            |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                                | 2. | In March
  2002, a former employee filed a lawsuit against a subsidiary in the amount of
    250 thousand ($ 296) plus certain indemnities and
  interest. In September 2003, a judgment was given instructing the subsidiary
  to pay the former employee  250 thousand ($ 296)
  plus interest accruing thereon. In January 2004, the subsidiary filed an
  appeal. In October 2005, the court of appeal rendered a judgment instructing
  the subsidiary to indemnify the former employee in the amount of
   120 thousand ($ 142) plus the interest accrued
  thereon. The court of appeal has not yet rendered its judgment regarding,
  among other things, certain indemnities sought by the former employee. Based
  on managements estimation and the opinion of its legal counsel, a provision
  was recorded in respect of this claim.
|            |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                                | 3. | During 2002,
  an end-user filed a lawsuit 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. Based on
  managements estimation and the opinion of its legal counsel, a provision was
  recorded with respect of this claim.                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                                | 4. | During 2002,
  a client filed a lawsuit 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. Based on managements estimation and the opinion of its legal counsel, a
  provision was recorded with respect of this claim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                                | 5. | During 2003,
  a former supplier filed a lawsuit against a subsidiary, in the amount of
   943 thousand ($ 1,160) 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
   1,198 thousand ($ 1,418) representing penalties and
  accrued interest. The subsidiary filed an appeal. Based on managements
  estimation and the opinion of its legal counsel, a provision was recorded
  with respect of this claim.                                                                                                                                                                                                                                                                                                                          
|            |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                                | 6. | In September
  2003, NUR filed a suit against a former distributor of the Company, for the
  collection of unpaid invoices in the amount of $ 420. In February 2004, the
  former distributor filed a statement of defense denying the Companys claims
  and it also filed a counter-claim for alleged damages caused to it by the
  Company in the amount of $ 180.  Based
  on the opinion of its legal counsel, management believes that the
  counter-claim that was filed by the former distributor is without merit and
  that a loss is not probable.
  Therefore, a provision was not recorded with respect of this claim.                                                                                                                                                                                                                  
|            |                                                |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                                | 7. | In December
  2003, a client of a subsidiary filed a suit 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 $ 404. Based on managements
  estimation and the opinion of its legal counsel, a provision was recorded
  with respect of this claim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F - 36

---

---



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

|            |                                                |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----------- | ---------------------------------------------- | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 12:   | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
|            |                                                |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                                | 8.  | In November
  2004, a financing corporation filed a complaint against a subsidiary alleging
  that the subsidiary is in default under a remarketing agreement related to
  the sale of equipment to its customer in 2001. In August 2005, the parties
  reached an out of court settlement, under which the subsidiary agreed to pay
  the financing corporation an amount of $ 250 in several installments. As
  of December 31, 2005, the Company has a provision for the yet unpaid amount.                                                                                                                                                                                                                                                                     
|            |                                                |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                                | 9.  | In August
  2001, a client of a subsidiary filed a suit claiming that the contract with
  the subsidiary for the sale of two machines is null and void, and it further
  seeks damages amounting to  1,569 thousand ($ 1,856). The
  subsidiary filed a counter claim for the collection of outstanding amounts.
  In April 2004, the court dismissed the clients claims and ordered it to pay
  the subsidiary an amount of  150 thousand ($ 177).
  The client appealed that judgment. Based on managements estimation and the
  opinion of its legal counsel, management believes that the clients appeal is
  without merit and the claim is unlikely to result in a loss. Therefore, the
  Company did not record a provision with respect to this claim.
|            |                                                |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                                | 10. | In July
  2005, the tribunal of the first instance of Nivelles confirmed a motion filed
  against a subsidiary by a former employee for the seizure of that
  subsidiarys tangible assets in the amount of  500
  thousand ($ 591). In January 2006, the tribunal of the first instance of
  Nivelles reduced the seizure for an amount of  120 thousand ($ 142).
  The subsidiary filed an appeal of that decision. In October 2005, the former
  employee filed a lawsuit against the subsidiary in the amount of  484
  thousand ($ 572) plus certain indemnities and interest thereon. The Companys
  management decided to record a provision with respect to this claim.                                                                                
|            |                                                |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                                | 11. | 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.                                                                                                                                                                                                                                                                                                                                                                                                              

F - 37

---

---



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

|            |                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------- | ---------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 13:   | TRANSACTIONS AND BALANCES WITH RELATED PARTIES
|            |                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | a.                                             | On April 17,
  2005, the Companys shareholders approved the grant to a former director and
  chairman of the Board (former director), and the then largest shareholder,
  of a five-year warrant to purchase up to 3,000,000 ordinary shares at $ 0.75
  per share. The warrant was granted to the former director in consideration
  for his agreement to enter into the voting agreement dated January 23, 2005
  (the Voting Agreement), coupled with an irrevocable proxy, and the Voting
  Trust Agreement dated March 7, 2005 (the Voting Trust Agreement) under
  which voting control of all shares owned by the former director and his
  family and affiliates was controlled by an independent trustee. As a result
  of the delisting of the ordinary shares from the Nasdaq Capital Market, the
  Voting Trust Agreement was automatically terminated and converted into the
  Voting Agreement. Under the Voting Agreement, the former director is to vote
  with the remaining majority in the Company. The Company recorded a non
  operating expense of $ 1,441 in connection with the warrants granted to the
  former director based on the fair value of these warrants. The fair value of
  these warrants was estimated using a Black-Scholes option pricing model with
  the following assumptions: risk-free interest rate of 3.90%; dividend yields
  of 0%; volatility factors of the expected market price of the ordinary shares
  of 0.9; and an expected life of five years.
|            |                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                                | In October
  2005, a former chairman and controlling shareholder filed a complaint against
  the Company in the Supreme Court, New York County seeking to recover the
  right to vote his ordinary shares. The right to vote such ordinary shares had
  been transferred to the Company pursuant to the Voting Agreement between the
  former director and the Company. The complaint filed by the former director
  seeks to have the Voting Agreement declared unenforceable. The Company
  disputes the assertions made in the complaint, believes that it is without
  merit and intends to contest the complaint vigorously.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | b.                                             | On October
  27, 2005, the Companys shareholders approved the terms of a management
  agreement entered into between the Company and Fortissimo on behalf of
  several private equity funds, which are managed by Fortissimo (the
  Management Agreement). According to the Management Agreement, Fortissimo,
  through its employees, officers and directors, will provide management
  services, advice and provide assistance to the Companys management
  concerning the Companys affairs and business. The Management Agreement also
  provides that Fortissimo will be entitled to elect a majority of the
  Companys board of directors, including the chairman of the board of
  directors. In consideration of the performance of the management services and
  the board services pursuant to the Management Agreement, the Company has
  agreed to pay Fortissimo an aggregate annual management services fee in the
  amount $ 250. The Management Agreement will remain in effect for so long as a
  Fortissimo director occupies the position of the chairman of the board of
  directors and one additional position in the board of directors.                                                                                                                                                                                                                                                                                                                                             
|            |                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            | c.                                             | A company
  wholly-owned by the Companys former CEO rendered services to certain
  subsidiaries. The Groups expenses during 2003, 2004 and 2005 in respect of
  such services amounted to $ 70, $ 12 and $ 0, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F - 38

---

---



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

|            |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- | ------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 13:   | TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.)
|            |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | d.                                                     | In October
  2003, the Company entered into an engagement agreement with a certain law
  firm that is owned, among others, by the brother of the former Companys CEO.
  Under the engagement agreement, the law firm represented a subsidiary and the
  Company in litigations against third parties and provided legal services as
  needed in Israel and in Belgium. The aggregate consideration for the services
  provided to the Company and its subsidiaries by the law firm amounted to
  $ 220, $ 120 and $ 75 in 2003, 2004 and 2005, respectively. During 2004, the
  Companys audit committee and board of directors reviewed, ratified and
  approved the terms of the engagement with that law firm                                                                                                                                                                                                                                                                                                           
|            |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                                        | During 2005,
  in connection with a termination agreement of one of the Companys former
  executives, the Company granted warrant to purchase up to 300,000 ordinary
  shares with an exercise price of $ 0.51 expiring in December 2007 in
  consideration for a non-competition agreement during a two-year period. The
  The fair value of these warrants was estimated at $ 88 using a Black-Scholes
  option pricing model with the following assumptions: average risk-free
  interest rate of 4.35%; dividend yields of 0%; average volatility factors of
  the expected market price of the ordinary shares of 1.3; and an expected life
  of two years. The Company will record the expense over the term of the
  agreement.                                                                                                                                                                                                                                                                                      
|            |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|NOTE 14:   | SHAREHOLDERS DEFICIENCY                              
|            |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | a.                                                     | The ordinary
  shares of the Company were traded until May 2005 on the Nasdaq Capital
  Market. As of May 19, 2005, the Companys ordinary shares are quoted
  over-the-counter in the pink sheets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                                        | On April 17,
  2005, the Companys  shareholders
  approved an increase of the Companys authorized ordinary shares to
  120,000,000 and an additional increase to 170,000,000 on October 27, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|            |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | b.                                                     | Shareholders
  rights:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                                        | Ordinary
  shares confer upon their holders voting rights, the right to receive
  dividends and the right to share in excess assets upon liquidation of the
  Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | c.                                                     | On August
  21, 2005, the Company effected a private offering (Investment Agreement) of
  its securities with several investors led by Fortissimo in which the Company
  issued 34,285,714 ordinary shares of NIS 1 par value each in consideration of
  $ 12,000 (excluding issuance expenses in the amount of $ 68) and 25,714,286
  warrants exercisable into 25,714,286 ordinary shares of NIS 1 par value each
  for an exercise price of $ 0.40 per ordinary share. The warrants will expire
  at the end of five years from the closing date of the Investment Agreement.
  The total consideration in respect to the Investment Agreement is payable in
  three installments as follows: (i) $ 5,000 were paid at the closing date of
  the Investment Agreement, (ii) $ 5,000 on the date which is not later than 90
  days following the closing date of the Investment Agreement (2nd
  Installment), and (iii) $ 2,000 one year following the closing date of the
  Investment Agreement (3rd Installment).

F - 39

---

---



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

|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- | -------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14:   | SHAREHOLDERS DEFICIENCY (Cont.)
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                  | To ensure
  full performance of the obligations under the Investment Agreement, the
  Company issued and allocated 20,000,000 ordinary shares and 15,000,000
  warrants to an escrow agent with respect to the 2nd and 3rd
  installments. The ordinary shares and warrants held by the escrow agent are
  to be transferred to the investors upon receipt of the 2nd
  Installment or the 3rd Installment. As of December 31, 2005,
  20,000,000 ordinary shares and 15,000,000 warrants are held by the escrow
  agent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                  | The
  Investment Agreement was consummated on October 31, 2005. As a condition to
  the closing of the Investment Agreement, it was required, among other things,
  that the Company enter into a debt restructuring agreement with the Lender
  Banks. The conditions of the debt restructuring are presented in Note 1b.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                  | During the
  first calendar quarter of 2006, following the receipt of the 2nd
  installment of $ 5,000, the escrow agent transferred 14,285,714 ordinary
  shares and 10,714,286 warrants to the investors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | d.                               | Under the
  terms of the Debt Restructuring Agreement, the Company extended the
  expiration period by additional 18 months to previously issued 1,340,000
  warrants. In addition, the Company issued to the Lender Banks 8,000,000
  warrants. These warrants were valued using a Black-Scholes option pricing
  model at $ 4,047, and recorded as an increase in the Companys additional
  paid-in capital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | e.                               | The
  Companys shareholders approved at the Annual Shareholders Meeting held on
  February 12, 2002 a Terms of Service Agreement with the former chairman of
  the Board effective as of January 1, 2002. In his capacity, the former
  chairman of the Board received an annual fee of $ 125 which was paid in
  ordinary shares. The fee was paid quarterly, at the end of each quarter, by
  way of issuing ordinary shares valued at $ 31. Such annual fee was in lieu of
  any and all payments, which were due to the former Chairman of the board in
  his capacity as a director, Chairman of the Board, and a member of any
  committees of the Board, including the right to receive options to purchase
  ordinary shares in accordance with the Companys 1998 Share Option Plan for
  Non-Employee Directors. On December 21, 2004, the Chairman of the Board
  resigned from the board of directors and the Terms of Services Agreement was
  automatically terminated. The issuance of shares in 2005 is related to
  services rendered in 2004.
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | f.                               | On March 31,
  2004, the Company effected a private offering of its securities in which the
  Company issued 2,586,140 ordinary shares of NIS 1 par value each in
  consideration for $ 3,000 (excluding issuance expenses in the amount of $ 222).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                  | In addition,
  as part of the share purchase agreement, the Company issued to the investors
  warrants exercisable into an aggregate of 646,542 ordinary shares. The
  warrants are exercisable at a price per ordinary share of $ 1.54, at any time
  until March 2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                  | The Company
  granted to the placement agent of the private placement warrants exercisable
  into 129,310 ordinary shares. Those warrants are exercisable until March 2009
  at $ 1.16 per ordinary share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

F - 40

---

---



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

|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----------- | -------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14:   | SHAREHOLDERS DEFICIENCY (Cont.)
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            | g.                               | Credit line
  and warrant agreement:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                  | On July 30,
  2003, the Company signed a credit line and warrant agreement (the
  Agreement) with several investors including the then controlling shareholder
  (the Investors) according to which the Investors undertook to lend to the
  Company up to $ 3,500 (the Credit Line) in consideration for (i) the
  issuance by the Company to the Investors of an aggregate of 1,009,615
  warrants to purchase ordinary shares (the Warrants) (equal to 15% of the
  Credit Line divided by $ 0.52) exercisable at $ 0.52 per share for a period of
  five years from the closing (as defined in the Agreement) and (ii) an
  aggregate cash commitment fee of $ 70 (the Fee) equal to 2% of the Credit
  Line.                                                                                                                                                                                                                             
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                  | The Company
  was entitled to draw funds under the Credit Line at any time within one year
  from the date of the Agreement (the Availability Period) which funds, when
  drawn, would be evidenced by a convertible loan note. Any convertible notes
  issued would (1) be due 42 months after issuance, (2) be convertible at $ 0.62
  per share and (3) bear interest at a rate of 12%. During the Availability
  Period, the Company was entitled, subject to ten days prior notice and
  assuming no funds had been drawn under the Credit Line, to cancel the Credit
  Line in which case the Investors would have been entitled to retain the
  Warrants and the Fee. Under the terms of the Agreement, the Investors were
  entitled to replace any undrawn portion of the Credit Line at any time during
  the Availability Period in exchange for the purchase of up to 5,645,161 ordinary
  shares at a purchase price of $ 0.62 per share.
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                  | According to
  the terms of the Agreement, the placement agents were granted warrants equal
  to the following: (a) 1% of the Credit Line divided by $ 0.52 on the closing
  of the Agreement and, upon issuance of ordinary shares (the Placement
  Warrants) and (b) 2% of the aggregate amount received by the Company for the
  issued ordinary shares divided by $ 0.62 (the Conversion Warrants and
  together with the Placement Warrants, the Agent Warrants). These warrants
  are exercisable at a price of $ 0.52 and $ 0.62 per share, respectively, for a
  period of five years from the date of grant.                                                                                                                                                                                                                                                                                                                             
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                  | In October
  2003, the Company issued the Warrants and paid the Fee to the Investors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                  | On December
  22, 2003, the Investors exercised their right to replace $ 2,000 of the
  undrawn Credit Line by purchasing 3,225,806 ordinary shares for $ 2,000.
  Issuance expenses associated with this purchase totaled $ 133. These ordinary
  shares were issued to the Investors in January 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                  | On March 31,
  2004, the Investors exercised their right to replace the remaining $ 1,500
  available under the Credit Line through the purchase of 2,419,355 ordinary
  shares for $ 1,500. Issuance expenses associated with this purchase totaled
  $ 43. These ordinary shares, along with the Agent Warrants, were issued on
  March 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                  | The Credit
  Line was in essence a loan commitment given by the Investors to the Company
  in consideration for: (a) 1,009,615 Warrants issued to the Investors, (b) a cash
  commitment fee of $ 70, and (c) a call option for the issuance of
  approximately 5,645,000 ordinary shares that was embedded in the Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F - 41

---

---



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

|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- | -------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14:   | SHAREHOLDERS DEFICIENCY (Cont.)
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                  | The full
  consideration paid to the Investors (which includes the fair value of the
  Investors Warrants, the fair value of the embedded call option, and the Fee)
  was recorded as deferred expenses on account of receiving a loan commitment. The fair value of the Warrants and embedded
  call option were recorded against a corresponding increase to additional
  paid-in capital.                                                                                                                                                                          
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                  | Upon
  exercise of the Investors right to replace the outstanding Credit Line
  through the purchase of ordinary shares, the Company recorded the
  consideration received, net of the balance of the deferred expenses (which
  was comprised of the Fee, the fair value of the Warrants issued to the
  Investors, the fair value of the embedded call option and the Placement
  Warrants), in shareholders equity. As of December 31, 2003, the
  remaining balance of the deferred expenses recorded as an increase to
  additional paid-in capital was $ 1,643.
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                  | The
  Conversion Warrants are recorded as additional issuance expenses and deducted
  from the proceeds of the issuance of ordinary shares to the Investors.                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                  | The Company
  has measured at fair value the following instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                  | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | The Warrants
  granted to the Investors in connection with the establishment of the Credit
  Line. The fair value calculations resulted in a fair value of $ 811.                                                                                                                                                                                                                                                                                                                                            
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                  | 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | Warrants
  granted to the placement agents. The fair value calculations resulted in a fair
  value of $ 29.                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                  | 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | The embedded
  call option granted to the Investors. The fair value calculations resulted in
  a fair value of $ 3,086.                                                                                                                                                                                                                                                                                                                                                                                      
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                  | The Warrants and embedded call option were measured based on the
  Black-Scholes option pricing model. The fair value of the embedded call
  option was adjusted to reflect the fact that it was cancelable by the Company
  at any time subject to a 10 day notice.                                                                                                                                                                                                                                                                                                   
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | h.                               | Stock Option
  Plans:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                  | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | In December
  1998, the Companys shareholders approved the non-employee director stock
  option plan (1998 plan) according to which 250,000 options are available
  for grant with an exercise price of the average of the closing bid and sale
  price at the issuance date. Each option is vested immediately and will expire
  after 10 years. Generally, the Company grants options under the plan with an
  exercise price equal to the market price of the underlying shares on the date
  of grant.
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | In October
  2005, the Companys shareholders approved the increase in the number of options
  available for grant under the 1998 plan by 500,000.                                                                                                                                                                                                                                                                                                                                                           

F - 42

---

---



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

|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- | -------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 14:   | SHAREHOLDERS DEFICIENCY (Cont.)
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                  | In August
  2000, the Companys board of directors adopted the 2000 Stock Option Plan
  (the 2000 Plan). According to the 2000 Plan, 1,000,000 options may be
  granted to officers, directors, employees and consultants of the Company and its
  subsidiaries. The Options usually vest over a three or four-year period. The
  exercise price of the options under the 2000 Plan is determined to be not
  less than 80% of the fair market value of the Companys ordinary shares at
  the time of grant, and they usually expire after 10 years from the date of
  grant. The 2000 Plan expires on August 31, 2008, unless previously terminated
  or extended by the Companys board of directors. Generally, the Company
  granted options under the plan with an exercise price equal to the market
  price of the underlying shares on the date of grant.
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                  | In November
  2003, the Company decided to increase the number of ordinary shares
  authorized to be issued under the 2000 plan by 497,590 options which reflects
  the aggregate amount that was outstanding under these plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                  | In October
  2004 and October 2005, the Companys shareholders approved the increase in
  the number of options available for grant under the 2000 Plan by 500,000 and
  14,500,000, respectively. In October 2005, the Companys shareholders also
  approved the increase of the available number of ordinary shares authorized
  for issuance under the 2000 Plan by the number of ordinary shares underlying
  options cancelled (except in the case of surrender for the exercise into shares)
  or which cease to be exercisable under the Companys previously terminated
  option plans.                                                                                                                                                                                                                                                                    
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                  | During 2003,
  2004 and 2005, the Company granted to directors (including the Chairman of
  the board of directors) 27,501, 46,667 and 58,544 options, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                  | Under the
  Companys 1998 and 2000 Plans, the Company reserved for issuance 466,739,
  1,735,671, 750,000 and 17,661,890 ordinary shares, respectively. As of December 31, 2005, 45,832, and
  11,063,003 options, respectively, are still available for future grants under
  these plans. Option that are cancelled or forfeited before expiration, become
  available for future grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

F - 43

---

---



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

|            |                                  | 
|----------- | -------------------------------- | 
|NOTE 14:   | SHAREHOLDERS DEFICIENCY (Cont.) | 

| |  |    |                                                                                                            
| |  | -- | -----------------------------------------------------------------------------------------------------------
| |  | 2. | A summary of
  the Companys share option activity through December 31, 2005 for the
  Plans is as follows:

| |                                 |  |                       |            |                                      |   |      | 
| | ------------------------------- |  | --------------------- | ---------- | ------------------------------------ | - | ---- | 
| |                                 |  | Options
  outstanding |           
| |                                 |  |                       |           
| |                                 |  | Number
  Of options   |            | Weighted
  average 
  exercise price |  
| |                                 |  |                       |            |                                      |  
| |                                 |  |                       |            |                                      |   |      | 
| | Balance as of January 1, 2003   |  |                       | 2,002,852  |                                      | $ | 1.55 | 
| |                                 |  |                       |            |                                      |   |      | 
| | Options granted                 |  |                       | 1,363,001  |                                      | $ | 1.06 | 
| | Options exercised               |  |                       | (73,668    | )                                    | $ | 0.73 | 
| | Options forfeited or cancelled  |  |                       | (630,475   | )                                    | $ | 1.72 | 
| |                                 |  |                       |            |                                      |   |      | 
| |                                 |  |                       |            |                                      |   |      | 
| | Balance as of December 31, 2003 |  |                       | 2,661,710  |                                      | $ | 1.22 | 
| |                                 |  |                       |            |                                      |   |      | 
| | Options granted                 |  |                       | 1,246,367  |                                      | $ | 0.98 | 
| | Options exercised               |  |                       | (344,884   | )                                    | $ | 0.72 | 
| | Options forfeited or cancelled  |  |                       | (326,159   | )                                    | $ | 1.70 | 
| |                                 |  |                       |            |                                      |   |      | 
| |                                 |  |                       |            |                                      |   |      | 
| | Balance as of December 31, 2004 |  |                       | 3,237,034  |                                      | $ | 1.11 | 
| |                                 |  |                       |            |                                      |   |      | 
| | Options granted                 |  |                       | 4,643,544  |                                      | $ | 0.42 | 
| | Options exercised               |  |                       | (10,834    | )                                    | $ | 0.38 | 
| | Options forfeited or cancelled  |  |                       | (1,172,463 | )                                    | $ | 0.81 | 
| |                                 |  |                       |            |                                      |   |      | 
| |                                 |  |                       |            |                                      |   |      | 
| | Balance as of December 31, 2005 |  |                       | 6,697,281  |                                      | $ | 0.65 | 
| |                                 |  |                       |            |                                      |   |      | 

| |                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| | The number
  of options exercisable as of December 31, 2003, 2004 and 2005 was 1,244,878,
  1,370,022 and 1,938,847, respectively.              
| |                                                                                                                                                 
| | The weighted
  average exercise price of options exercisable as of December 31, 2003, 2004
  and 2005 is $ 7.52, $ 1.33 and $ 1.08, respectively

F - 44

---

---



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

|            |                                 
|----------- | --------------------------------
|NOTE 14:   | SHAREHOLDERS DEFICIENCY (Cont.)

| |  |    |                                                                                                                   
| |  | -- | ------------------------------------------------------------------------------------------------------------------
| |  | 3. | The options
  outstanding as of December 31, 2005 have been separated into ranges of
  exercise price, as follows:

| |                           |  |                                                  |           |                                                  |  |                                    |  |                                                   |       |                                                            |  |           |  |   |       | 
| | ------------------------- |  | ------------------------------------------------ | --------- | ------------------------------------------------ |  | ---------------------------------- |  | ------------------------------------------------- | ----- | ---------------------------------------------------------- |  | --------- |  | - | ----- | 
| | Range of
  exercise price |  | Options
  outstandingas of
  December 31,
  2005 |           | Weighted
  averageremaining
  contractual
  life |  | Weightedaverage
  exercise
  Price |  | Options
  exercisableas of 
  December 31,
  2005 |       | Weightedaverage
  exerciseprice of
  exercisable
  options | 
| |                           |  |                                                  |           |                                                  |  |                                    |  |                                                   |       |                                                            | 
| |                           |  |                                                  |           | Years                                            |  |                                    |  |                                                   |       |                                                            | 
| |                           |  |                                                  |           |                                                  |  |                                    |  |                                                   |       |                                                            | 
|
| | $ 0.31-0.40               |  |                                                  | 4,490,824 |                                                  |  | 9.10                               |  | $                                                 | 0.40  |                                                            |  | 574,167   |  | $ | 0.38  | 
| | $ 0.48-0.80               |  |                                                  | 621,137   |                                                  |  | 8.52                               |  | $                                                 | 0.61  |                                                            |  | 283,417   |  | $ | 0.71  | 
| | $ 0.85-1.40               |  |                                                  | 1,165,485 |                                                  |  | 6.89                               |  | $                                                 | 0.96  |                                                            |  | 732,046   |  | $ | 0.94  | 
| | $ 1.63-1.88               |  |                                                  | 317,335   |                                                  |  | 6.22                               |  | $                                                 | 1.64  |                                                            |  | 246,717   |  | $ | 1.64  | 
| | $ 1.94-3.20               |  |                                                  | 38,000    |                                                  |  | 2.39                               |  | $                                                 | 2.26  |                                                            |  | 38,000    |  | $ | 2.26  | 
| | $ 4.67-7.5                |  |                                                  | 54,500    |                                                  |  | 4.60                               |  | $                                                 | 6.47  |                                                            |  | 54,500    |  | $ | 6.47  | 
| | $ 13.5                    |  |                                                  | 10,000    |                                                  |  | 0.84                               |  | $                                                 | 13.50 |                                                            |  | 10,000    |  | $ | 13.50 | 
| |                           |  |                                                  |           |                                                  |  |                                    |  |                                                   |       |                                                            |  |           |  |   |       | 
| |                           |  |                                                  |           |                                                  |  |                                    |  |                                                   |       |                                                            |  |           |  |   |       | 
| |                           |  |                                                  | 6,697,281 |                                                  |  |                                    |  | $                                                 | 0.65  |                                                            |  | 1,938,847 |  | $ | 1.08  | 
| |                           |  |                                                  |           |                                                  |  |                                    |  |                                                   |       |                                                            |  |           |  |   |       | 

| |  |    |                                                                                                 
| |  | -- | ------------------------------------------------------------------------------------------------
| |  | 4. | Weighted
  average fair values and exercise price of options on dates of grant are as
  follows:

|                                            |  |                      |      |                       |   |                              |  |      |      |      |   |      |  |      |   |      |   |      |  |   |      |  |   |   |  |   |      | 
|------------------------------------------- |  | -------------------- | ---- | --------------------- | - | ---------------------------- |  | ---- | ---- | ---- | - | ---- |  | ---- | - | ---- | - | ---- |  | - | ---- |  | - | - |  | - | ---- | 
|                                            |  | Equal
  market price |      | Exceed
  market price |   | Are less
  than market price | 
|                                            |  |                      |      |                       |   |                              | 
|                                            |  | 2003                 |      | 2004                  |   | 2005                         |  | 2003 |      | 2004 |   | 2005 |  | 2003 |   | 2004 |   | 2005 | 
|                                            |  |                      |      |                       |   |                              |  |      |      |      |   |      |  |      |   |      |   |      | 
|                                           
|Weighted
  average exercise prices          |  | $                    | 0.61 |                       | $ | 0.98                         |  | $    | 0.47 |      | $ | 1.62 |  | $    | - |      | $ | 0.41 |  | $ | 0.06 |  | $ | - |  | $ | 0.40 | 
|                                            |  |                      |      |                       |   |                              |  |      |      |      |   |      |  |      |   |      |   |      |  |   |      |  |   |   |  |   |      | 
|Weighted
  average fair value on grant date |  | $                    | 0.48 |                       | $ | 0.48                         |  | $    | 0.28 |      | $ | 1.27 |  | $    | - |      | $ | 0.23 |  | $ | 0.08 |  | $ | - |  | $ | 0.29 | 
|                                            |  |                      |      |                       |   |                              |  |      |      |      |   |      |  |      |   |      |   |      |  |   |      |  |   |   |  |   |      | 

F - 45

---

---



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

|            |                                 
|----------- | --------------------------------
|NOTE 14:   | SHAREHOLDERS DEFICIENCY (Cont.)

| |    |                                                                              
| | -- | -----------------------------------------------------------------------------
| | i. | The
  Companys outstanding warrants as of December 31, 2005, are as follows:

| |                 |  |                                 |            |                              |  |                         |  |                   |            |  |  |                  | 
| | --------------- |  | ------------------------------- | ---------- | ---------------------------- |  | ----------------------- |  | ----------------- | ---------- |  |  | ---------------- | 
| | Issuance
  date |  | Number of 
  warrants 
  issued |            | Exercise
  price
  per share |  | Warrants 
  exercisable |  | Expiration
  date |           
| |                 |  |                                 |            |                              |  |                         |  |                   |           
| |                 |  |                                 |            | $                            |  |                         |  |                   |           
| |                 |  |                                 |            |                              |  |                         |  |                   |           
| |                 |  |                                 |            |                              |  |                         |  |                   |           
| | January
  2002  |  |                                 | 612,500    |                              |  | 4.50                    |  |                   | 612,500    |  |  | January
  2006   | 
| | February
  2002 |  |                                 | 120,000    |                              |  | 5.00                    |  |                   | 120,000    |  |  | August
  2007    | 
| | November
  2002 |  |                                 | 11,000     |                              |  | 0.78                    |  |                   | 11,000     |  |  | November
  2006  | 
| | March
  2003    |  |                                 | 240,000    |                              |  | 0.34                    |  |                   | 240,000    |  |  | September
  2008 | 
| | June
  2003     |  |                                 | 27,000     |                              |  | 0.72                    |  |                   | 27,000     |  |  | December
  2008  | 
| | August
  2003   |  |                                 | 953,000    |                              |  | 0.62                    |  |                   | 953,000    |  |  | January
  2009   | 
| | October
  2003  |  |                                 | 1,019,230  |                              |  | 0.52                    |  |                   | 1,019,230  |  |  | October
  2008   | 
| | March
  2004    |  |                                 | 646,542    |                              |  | 1.54                    |  |                   | 646,542    |  |  | March
  2009     | 
| | March
  2004    |  |                                 | 112,903    |                              |  | 0.62                    |  |                   | 112,903    |  |  | March
  2009     | 
| | March
  2004    |  |                                 | 129,310    |                              |  | 1.16                    |  |                   | 129,310    |  |  | March
  2009     | 
| | April
  2005    |  |                                 | 3,000,000  |                              |  | 0.75                    |  |                   | 3,000,000  |  |  | April
  2010     | 
| | October
  2005  |  |                                 | 25,714,286 |                              |  | 0.40                    |  |                   | 25,714,286 |  |  | April
  2010     | 
| | December
  2005 |  |                                 | 8,000,000  |                              |  | 0.35                    |  |                   | 8,000,000  |  |  | April
  2010     | 
| | December
  2005 |  |                                 | 300,000    |                              |  | 0.51                    |  |                   | -          |  |  | December
  2007  | 
| |                 |  |                                 |            |                              |  |                         |  |                   |            |  |  |                  | 
| |                 |  |                                 |            |                              |  |                         |  |                   |            |  |  |                  | 
| |                 |  |                                 | 40,885,771 |                              |  |                         |  |                   | 40,585,771 |  |  |                  | 
| |                 |  |                                 |            |                              |  |                         |  |                   |            |  |  |                  | 

| |    |                                                                                                                                                                                                                                       
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | j. | 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.

F - 46

---

---



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

|            |                
|----------- | ---------------
|NOTE 15:   | TAXES ON INCOME

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Tax benefits
  under the Israeli Law for the Encouragement of Capital Investments, 1959
  (the law):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | Certain of
  the Companys production facilities have been granted the status of Approved
  Enterprise under the law, for three separate investment plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | According to
  the provisions of this law, the Company elected to enjoy alternative
  benefits which provide tax benefits in exchange for waiver of grants.
  Accordingly, the Companys income from the Approved Enterprise will be
  tax-exempt for a period of two, four and four years, for the first, second
  and third plan, respectively, commencing with the year it first earns taxable
  income. Based on the percentage of foreign ownership of the Company, income
  derived during the remaining periods of five, three and three years,
  respectively of benefits is taxable at the rate of 15%-25%.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The period
  of tax benefits detailed above is subject to limits of 12 years from the commencement
  of production, or 14
  years from receiving the approval, whichever is earlier. Given the
  abovementioned conditions, the period of benefits for the first and second
  plans commenced in 1994 and 1999, respectively. The first plan was terminated
  in 2001 and the second plan was terminated in 2004. The period of benefits
  for the third plan has not yet commenced.                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The
  entitlement to the above benefits is conditional upon the Company fulfilling
  the conditions stipulated by the above law, regulations published thereunder
  and the letters of approval for the specific investments in Approved
  Enterprises. In the event of failure to comply with these conditions, the
  benefits may be canceled and the Company may be required to refund the amount
  of the benefits, in whole or in part, including interest. As of the balance
  sheet date, the Company complies with all these conditions.                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The
  tax-exempt profits earned by the Companys Approved Enterprise can be
  distributed to shareholders, without imposing a tax liability on the Company,
  only upon the complete liquidation of the Company. If these retained
  tax-exempt profits are distributed in a manner other than upon the complete
  liquidation of the Company, they would be taxed at the corporate tax rate
  applicable to such profits as if the Company had not elected the alternative
  tax benefits.                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The Company
  has decided to permanently reinvest the tax exempt profits resulting from the
  Approved Enterprise status and not to distribute such profits as dividends.
  Accordingly, no deferred income taxes have been provided in respect of the
  said tax exempt profits. As of December 31, 2005, the Company has no such
  retained tax exempt profits.                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The law also
  entitles the Company to claim accelerated rates of depreciation on equipment
  used by the Approved Enterprise during five tax years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

F - 47

---

---



|                                                             
|-------------------------------------------------------------
|NUR MACROPRINTERS 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.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Income from
  sources other than the Approved Enterprise during the benefit period will
  be subject to tax at the regular corporate tax rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | On April 1,
  2005, an amendment to the Investment Law came into effect (the Amendment)
  and has significantly changed the provisions of the Investment Law. The
  Amendment limits the scope of enterprises which may be approved by the
  Investment Center by setting criteria for the approval of a facility as a
  Beneficiary Enterprise, such as provisions generally requiring that at least
  25% of the Approved Enterprises income will be derived from export.
  Additionally, the Amendment enacted major changes in the manner in which tax
  benefits are awarded under the Investment Law so that companies no longer
  require Investment Center approval in order to qualify for tax benefits
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | In addition,
  the Investment Law provides that terms and benefits included in any
  certificate of approval already granted will remain subject to the provisions
  of the law as they were on the date of such approval. Therefore, the
  Companys existing Approved Enterprise will generally not be subject to the
  provisions of the Amendment. As a result of the amendment, tax-exempt income
  generated under the provisions of the new law, will subject the Company to
  taxes upon distribution or liquidation and the Company may be required to
  record deferred tax liability with respect to such tax-exempt income.                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | b. | 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/U.S. 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 reporting currency and the tax
  bases of assets and liabilities.                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | c. | Tax benefits
  under the Law for the Encouragement of Industry (Taxation), 1969:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | The Company
  is an industrial company, as defined by this law and, as such, is entitled
  to certain tax benefits, including accelerated rates of depreciation, in
  accordance with regulations published under the inflationary adjustments law.
  The Company is also entitled to claim public issuance expenses and patent
  amortization costs from its taxable income in three and eight equal annual
  installments, respectively.                                                                                                                                                                                                                                                                       

F - 48

---

---



|                                                           
|-----------------------------------------------------------
|NUR MACROPRINTERS 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:                                                                                                                                                           
|   |                                                                                                                                                                                       
|   | A
  reconciliation of the theoretical tax expense, assuming all income is taxed
  at the statutory rate applied to corporations in Israel and the actual tax
  expense, is as follows:

|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|------------------------------------------------------------------------------------------------------------ |  | ------------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                                                                             |  | Year ended
  December 31, |        
|                                                                                                             |  |                           |        
|                                                                                                             |  | 2003                      |         | 2004 |   | 2005    |  
|                                                                                                             |  |                           |         |      |   |         |  
|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|Loss before
  taxes on income                                                                                |  | $                         | (25,179 | )    | $ | (21,948 | ) | $ | (14,668 | )
|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|Statutory
  tax rate                                                                                         |  |                           | 36      | %    |   | 35      | % |   | 34      | %
|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|Theoretical
  tax benefit                                                                                    |  | $                         | (9,064  | )    | $ | (7,682  | ) | $ | (4,987  | )
|Increase
  (decrease) in taxes:                                                                              |  |                           |         |      |   |         |   |   |         |  
|Approved enterprise                                                                                          |  |                           | 57      |      |   | 2,897   |   |   | 2,190   |  
|Reduced statutory tax rate of a
subsidiary                                                                   |  |                           | (506    | )    |   | 201     |   |   | 111     |  
|Non-deductible expenses                                                                                      |  |                           | 82      |      |   | 1,390   |   |   | 590     |  
|Foreign exchange (see note b above)                                                                          |  |                           | -       |      |   | -       |   |   | 395     |  
|Utilization of carryforward losses for
  which valuation allowance was provided                              |  |                           | -       |      |   | -       |   |   | (1,050  | )
|Deferred taxes on losses, reserves and
  allowances for which a valuation allowance was provided             |  |                           | 10,622  |      |   | 3,213   |   |   | 2,789   |  
|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|Actual tax
  expense                                                                                         |  | $                         | 1,191   |      | $ | 19      |   | $ | 38      |  
|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|Basic and diluted net loss per share amount
  of the tax benefit resulting from Approved Enterprise status |  |                           | (*)     |      |   | 0.12    |   |   | 0.07    |  
|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|                                                                                                             |  |                           |         |      |   |         |   |   |         |  
|(*)       Less
  than $ 0.01                                                                                 |  |                           |         |      |   |         |   |   |         |  

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

|          |  |   |       |   |   |    |  |   |      |  
|--------- |  | - | ----- | - | - | -- |  | - | ---- | -
|Current:  |  |   |       |   |   |    |  |   |      |  
|Domestic  |  | $ | (450  | ) | $ | 19 |  | $ | -    |  
|Foreign   |  |   | 52    |   |   | -  |  |   | 144  |  
|          |  |   |       |   |   |    |  |   |      |  
|          |  |   |       |   |   |    |  |   |      |  
|          |  |   | (398  | ) |   | 19 |  |   | 144  |  
|          |  |   |       |   |   |    |  |   |      |  
|Deferred: |  |   |       |   |   |    |  |   |      |  
|Domestic  |  |   | 1,589 |   |   | -  |  |   | -    |  
|Foreign   |  |   | -     |   |   | -  |  |   | (106 | )
|          |  |   |       |   |   |    |  |   |      |  
|          |  |   |       |   |   |    |  |   |      |  
|          |  |   | 1,589 |   |   | -  |  |   | (106 | )
|          |  |   |       |   |   |    |  |   |      |  
|          |  |   |       |   |   |    |  |   |      |  
|          |  | $ | 1,191 |   | $ | 19 |  | $ | 38   |  
|          |  |   |       |   |   |    |  |   |      |  

F - 49

---

---



|                                                             
|-------------------------------------------------------------
|NUR MACROPRINTERS 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, |        
|                                                     |  |                |        
|                                                     |  | 2004           |         | 2005 |  
|                                                     |  |                |         |      |  
|                                                     |  |                |         |      |   |         |  
|Deferred tax asset:                                  |  |                |         |      |   |         |  
|Net operating losses and deductions
carryforward     |  | $              | 25,960  |      | $ | 28,149  |  
|Others                                               |  |                | 88      |      |   | 139     |  
|                                                     |  |                |         |      |   |         |  
|                                                     |  |                |         |      |   |         |  
|Net deferred tax assets before valuation
  allowance |  |                | 26,048  |      |   | 28,288  |  
|                                                     |  |                |         |      |   |         |  
|                                                     |  |                |         |      |   |         |  
|Valuation allowance (1)                              |  |                | (25,915 | )    |   | (28,049 | )
|                                                     |  |                |         |      |   |         |  
|                                                     |  |                |         |      |   |         |  
|Net deferred tax assets (2)                          |  | $              | 133     |      | $ | 239     |  
|                                                     |  |                |         |      |   |         |  

| |     |                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The Group
  has provided valuation allowances in respect of deferred tax assets resulting
  from tax losses carryforward and other temporary differences. Management
  currently believes that since the Company has a history of losses it is more
  likely than not that the deferred tax regarding all loss carryforwards
  (except in NUR Japan) will not be utilized in the foreseeable future.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                     
| | (2) | As of
  December 31, 2005, deferred taxes are recorded in short-term other accounts
  receivable and long-term other assets.                                                                                                                                                                                                                                                                        

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | g. | Carryforward
  tax losses and deductions:                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | As of
  December 31, 2005, the Company had available carryforward tax losses and
  deductions aggregating to $ 22,000, which have no expiration date.                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Additional
  carryforward losses of NUR America and NUR Salsa, in the amount of $ 31,516,
  which are located in the U.S., will expire in 2024. Utilization of U.S. net
  operating losses may be subject to substantial annual limitation due to the
  change in ownership provision of the Internal Revenue Code of 1986 and
  similar state provisions. The annual limitation may result in the expiration
  of net operating losses before utilization.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | NUR Asia
  Pacific and NUR Shanghai had available carryforward losses as of December 31,
  2005 aggregating to $ 19,349, which have no expiration date.                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | NUR Japan
  had available carryforward losses as of December 31, 2005 aggregating to
  $ 435, expiring in 2012.                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | NUR Europe
  and NUR Media Solutions had available carryforward losses as of December 31,
  2005 aggregating to $ 22,689  which
  have no expiration date.                                                                                                                                                                                                                                                                                                   

F - 50

---

---



|                                                             
|-------------------------------------------------------------
|NUR MACROPRINTERS 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. | Loss before
  taxes on income consists of the following:

|         |  |                           |         |      |   |         |   |   |         |  
|-------- |  | ------------------------- | ------- | ---- | - | ------- | - | - | ------- | -
|         |  | Year ended
  December 31, |        
|         |  |                           |        
|         |  | 2003                      |         | 2004 |   | 2005    |  
|         |  |                           |         |      |   |         |  
|         |  |                           |         |      |   |         |   |   |         |  
|Domestic |  | $                         | 249     |      | $ | (8,178  | ) | $ | (11,296 | )
|Foreign  |  |                           | (25,428 | )    |   | (13,770 | ) |   | (3,372  | )
|         |  |                           |         |      |   |         |   |   |         |  
|         |  |                           |         |      |   |         |   |   |         |  
|         |  | $                         | (25,179 | )    | $ | (21,948 | ) | $ | (14,668 | )
|         |  |                           |         |      |   |         |   |   |         |  

|            |                                            |                                                                                                                                                                                                                                                                                                                                                                                       
|----------- | ------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 16:   | MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
|            |                                            |                                                                                                                                                                                                                                                                                                                                                                                       
|            | a.                                         | Summary
  information about geographic areas:                                                                                                                                                                                                                                                                                                                                         
|            |                                            |                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                            | The Company
  manages its business on the basis of one reportable segment. Refer to Note 1a
  for a brief description of the Companys business. The following data is
  presented in accordance with SFAS No. 131, Disclosures about Segments of an
  Enterprise and Related Information. Total revenues are attributed to
  geographical areas based on location of end customers.
|            |                                            |                                                                                                                                                                                                                                                                                                                                                                                       
|            |                                            | The
  following table presents total revenues and long-lived assets for the years
  ended December 31, 2003, 2004 and 2005 and as of December 31, 2004 and
  2005, respectively:                                                                                                                                                                                                      

|        |  |                  |        |                  |   |                     |  |                  |       |                     |   |        |  |   |       | 
|------- |  | ---------------- | ------ | ---------------- | - | ------------------- |  | ---------------- | ----- | ------------------- | - | ------ |  | - | ----- | 
|        |  | 2003             |        | 2004             |   | 2005                | 
|        |  |                  |        |                  |   |                     | 
|        |  | Total
  revenues |        | Total
  revenues |   | Long-lived
  assets |  | Total
  revenues |       | Long-lived
  assets |  
|        |  |                  |        |                  |   |                     |  |                  |       |                     |  
|        |  |                  |        |                  |   |                     |  |                  |       |                     |   |        |  |   |       | 
|Asia    |  | $                | 10,760 |                  | $ | 11,451              |  | $                | 90    |                     | $ | 12,401 |  | $ | 51    | 
|Europe  |  |                  | 39,385 |                  |   | 38,429              |  |                  | 4,830 |                     |   | 37,731 |  |   | 4,310 | 
|America |  |                  | 18,569 |                  |   | 26,843              |  |                  | 207   |                     |   | 21,246 |  |   | 484   | 
|        |  |                  |        |                  |   |                     |  |                  |       |                     |   |        |  |   |       | 
|        |  |                  |        |                  |   |                     |  |                  |       |                     |   |        |  |   |       | 
|        |  | $                | 68,714 |                  | $ | 76,723              |  | $                | 5,127 |                     | $ | 71,378 |  | $ | 4,845 | 
|        |  |                  |        |                  |   |                     |  |                  |       |                     |   |        |  |   |       | 

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

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

|                           |  |                           |        |      |   |        |  |   |        | 
|-------------------------- |  | ------------------------- | ------ | ---- | - | ------ |  | - | ------ | 
|                           |  | Year ended
  December 31, |       
|                           |  |                           |       
|                           |  | 2003                      |        | 2004 |   | 2005   | 
|                           |  |                           |        |      |   |        | 
|                           |  |                           |        |      |   |        |  |   |        | 
|Printers and
  spare parts |  | $                         | 44,325 |      | $ | 51,198 |  | $ | 46,783 | 
|Ink                        |  |                           | 17,637 |      |   | 18,379 |  |   | 19,226 | 
|Substrates                 |  |                           | 2,321  |      |   | 1,749  |  |   | 1,063  | 
|Services                   |  |                           | 4,431  |      |   | 5,397  |  |   | 4,306  | 
|                           |  |                           |        |      |   |        |  |   |        | 
|                           |  |                           |        |      |   |        |  |   |        | 
|                           |  | $                         | 68,714 |      | $ | 76,723 |  | $ | 71,378 | 
|                           |  |                           |        |      |   |        |  |   |        | 

F - 51

---

---



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

|            |                                                   
|----------- | --------------------------------------------------
|NOTE 16:   | MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION (Cont.)

|   |                                                                                                                                  
|-- | ---------------------------------------------------------------------------------------------------------------------------------
|c. | Major
  customer data as a percentage of total revenues:                                                                         
|   |                                                                                                                                  
|   | The Group
  does not have any major customers that represents 10% or more of the
  consolidated revenues for 2003, 2004 and 2005.

|            |                                       
|----------- | --------------------------------------
|NOTE 17:   | SELECTED STATEMENTS OF OPERATIONS DATA

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

|                                                                                      |  |                           |       |      |   |       |  |   |       | 
|------------------------------------------------------------------------------------- |  | ------------------------- | ----- | ---- | - | ----- |  | - | ----- | 
|                                                                                      |  | Year ended
  December 31, |      
|                                                                                      |  |                           |      
|                                                                                      |  | 2003                      |       | 2004 |   | 2005  | 
|                                                                                      |  |                           |       |      |   |       | 
|                                                                                      |  |                           |       |      |   |       |  |   |       | 
|Research and development expenses                                                     |  | $                         | 7,118 |      | $ | 8,008 |  | $ | 7,086 | 
|Less - participation of the Belgian
  government in research and development projects |  |                           | 572   |      |   | -     |  |   | -     | 
|                                                                                      |  |                           |       |      |   |       |  |   |       | 
|                                                                                      |  |                           |       |      |   |       |  |   |       | 
|                                                                                      |  | $                         | 6,546 |      | $ | 8,008 |  | $ | 7,086 | 
|                                                                                      |  |                           |       |      |   |       |  |   |       | 

|   |                                    
|-- | -----------------------------------
|b. | Financial
  income (expenses), net:

|                                                 |  |   |        |   |   |        |   |   |        |  
|------------------------------------------------ |  | - | ------ | - | - | ------ | - | - | ------ | -
|Expenses:                                        |  |   |        |   |   |        |   |   |        |  
|Interest on short-term bank credit and
  charges |  | $ | (2,021 | ) | $ | (1,436 | ) | $ | (1,244 | )
|Interest on long-term loans                      |  |   | -      |   |   | (1,195 | ) |   | (1,630 | )
|Foreign currency translation differences         |  |   | (2,673 | ) |   | (3,912 | ) |   | (4,350 | )
|                                                 |  |   |        |   |   |        |   |   |        |  
|                                                 |  |   |        |   |   |        |   |   |        |  
|                                                 |  |   | (4,694 | ) |   | (6,543 | ) |   | (7,224 | )
|                                                 |  |   |        |   |   |        |   |   |        |  
|Income:                                          |  |   |        |   |   |        |   |   |        |  
|Interest on bank deposits and other              |  |   | 490    |   |   | -      |   |   | 132    |  
|Foreign currency translation differences         |  |   | 2,798  |   |   | 3,904  |   |   | 3,644  |  
|                                                 |  |   |        |   |   |        |   |   |        |  
|                                                 |  |   |        |   |   |        |   |   |        |  
|                                                 |  |   | 3,288  |   |   | 3,904  |   |   | 3,776  |  
|                                                 |  |   |        |   |   |        |   |   |        |  
|                                                 |  |   |        |   |   |        |   |   |        |  
|                                                 |  | $ | (1,406 | ) | $ | (2,639 | ) | $ | (3,448 | )
|                                                 |  |   |        |   |   |        |   |   |        |  

F - 52

---

---

# Report of Independent
Registered Public Accounting Firm

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

We have audited the accompanying
balance sheets of NUR Asia Pacific Limited (the Company) as of December 31,
2005 and 2004 and the related statements of income, stockholders deficit and cash
flows for the years ended December 31, 2005 and 2004. 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 audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. 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, 2005 and 2004, and the results of
its operations and cash flows for the years ended December 33, 2005 and 2004, in
conformity with accounting principles generally accepted in the United States of America.

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

Hong Kong, May 2, 2006



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Auditors report

Report of
Independent Certified Public Accountants

To the Shareholders and the Board of
Directors NUR Japan Ltd.

We have audited the accompanying
balance sheet of NUR Japan Ltd. (a wholly owned subsidiary of NUR Macroprinter) as of
December 31, 2003, and the related statements of income, cash flow and changes in
stockholders equity for the year then ended. The financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on the financial statements based on our audit.

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

In our opinion, the financial
statements referred to above present fairly, in all material respects, in US dollars, the
financial position of the Company as of December 31, 2003, and the results of its
operations and cash flows for the year then ended, in conformity with accounting
principles generally

/s/ ASG Audit Corporation
Member of Grant Thornton International
Tokyo, Japan January 26, 2004



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