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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington,
D.C. 20549




Form 20-F


|                                 |   |                                                                                                 
|-------------------------------- | - | ------------------------------------------------------------------------------------------------
|(Mark
  One)                    
|                                 |   |                                                                                                 
|                                 | o | REGISTRATION STATEMENT PURSUANT TO
  SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                 |   |                                                                                                 
|                                 |   | OR                                                                                              
|                                 |   |                                                                                                 
|                                 | x | ANNUAL REPORT PURSUANT TO SECTION 13
  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|                                 |   |                                                                                                 
|                                 |   | For the
  fiscal year ended December 31, 2007                                                   
|                                 |   |                                                                                                 
|                                 |   | OR                                                                                              
|                                 |   |                                                                                                 
|                                 | o | TRANSITION REPORT PURSUANT TO
  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      
|                                 |   |                                                                                                 
|                                 |   | OR                                                                                              
|                                 |   |                                                                                                 
|                                 | o | SHELL COMPANY REPORT PURSUANT TO
  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   
|                                 |   |                                                                                                 
|                                 |   | Date of
  event requiring this shell company
report ________________________                    
|                                 |   |                                                                                                 
|                                 |   | For the
  transition period from ______ to ______                                               
|                                 |   |                                                                                                 
|Commission File Number 000-26498

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

ISRAEL(Jurisdiction
of incorporation or organization)

Ackerstein Towers
11 Hamenofim St.
P.O.Box 2148
Herzliya  46120, Israel(Address of principal
executive offices)

Yosef Zylberberg, Interim CEO &
CFO
Tel: +972-9-971-5614; Facsimile: +972-9-950-2942
Ackerstein Towers, 11 Hamenofim St.
Herzliya  46120, Israel(Name, Telephone, E-mail
and/or Facsimile number and Address of Company Contact Person)

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

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

|                           
|---------------------------
|ordinary shares            
|NIS 1.0 par value per share
|                           
|Title of Class             



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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, 2007: 72,710,505 ordinary shares, NIS 1.0 par
value per share

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

Yes o   No 
x


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

Yes o   No 
x


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

Yes x   No 
o


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

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

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

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

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

Item 17 o   Item 18 
o

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

Yes x 
  No o


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Table of Contents

|                           |                                                           |  |   |      |  | 
|-------------------------- | --------------------------------------------------------- |  | - | ---- |  | 
|                           |                                                           |  |   | Page
|                           |                                                           |  |   |      | 
|Forward-Looking Statements |                                                           |  | 4 |     
|                           |                                                           |  |   |      | 
|Part I                     |                                                           |  |   |     
|                           |                                                           |  |   |      | 
|Item 1:                    | Identity of Directors, Senior Management and Advisers     |  |   | 5    | 
|                           |                                                           |  |   |      | 
|Item 2:                    | Offer Statistics and Expected Timetable                   |  |   | 5    | 
|                           |                                                           |  |   |      | 
|Item 3:                    | Key Information                                           |  |   | 5    | 
|                           | Selected Financial
Data                                   |  |   | 5    | 
|                           | Risk
Factors                                              |  |   | 7    | 
|                           |                                                           |  |   |      | 
|Item 4:                    | Information on Ellomay                                    |  |   | 14   | 
|                           | History and Development
of Ellomay                        |  |   | 14   | 
|                           | Business
Overview                                         |  |   | 16   | 
|                           | Organizational
Structure                                  |  |   | 27   | 
|                           | Property, Plants and
Equipment                            |  |   | 27   | 
|                           |                                                           |  |   |      | 
|Item 4A:                   | Unresolved Staff Comments                                 |  |   | 27   | 
|                           |                                                           |  |   |      | 
|Item 5:                    | Operating and Financial Review and Prospects              |  |   | 28   | 
|                           | Operating
Results                                         |  |   | 28   | 
|                           | Liquidity and Capital
Resources                           |  |   | 41   | 
|                           | Research and
Development, Patents and
  Licenses, Etc.    |  |   | 46   | 
|                           | Trend
Information                                         |  |   | 47   | 
|                           | Off-Balance Sheet
Arrangements                            |  |   | 47   | 
|                           | Contractual
Obligations                                   |  |   | 47   | 
|                           |                                                           |  |   |      | 
|Item 6:                    | Directors, Senior Management and Employees                |  |   | 48   | 
|                           | Directors and Senior
Management                           |  |   | 48   | 
|                           | Compensation                                              |  |   | 54   | 
|                           | Board
Practices                                           |  |   | 56   | 
|                           | Employees                                                 |  |   | 64   | 
|                           | Share
Ownership                                           |  |   | 65   | 
|                           |                                                           |  |   |      | 
|Item 7:                    | Major Shareholders and Related Party Transactions         |  |   | 70   | 
|                           | Major
Shareholders                                        |  |   | 70   | 
|                           | Related Party
Transactions                                |  |   | 74   | 
|                           |                                                           |  |   |      | 
|Item 8:                    | Financial Information                                     |  |   | 74   | 
|                           | Consolidated Statements
and Other Financial
  Information |  |   | 74   | 
|                           | Significant
Changes                                       |  |   | 77   | 

2

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|          |                                                                                |  |  |     | 
|--------- | ------------------------------------------------------------------------------ |  |  | --- | 
|Item 9:   | The Offer and Listing                                                          |  |  | 77  | 
|          | Stock Price
History                                                            |  |  | 77  | 
|          | Markets                                                                        |  |  | 78  | 
|          |                                                                                |  |  |     | 
|Item 10:  | Additional Information                                                         |  |  | 79  | 
|          | Memorandum of
Association and Amended and
  Restated Articles of Association   |  |  | 79  | 
|          | Material
Contracts                                                             |  |  | 84  | 
|          | Exchange
Controls                                                              |  |  | 86  | 
|          | Taxation                                                                       |  |  | 86  | 
|          | Documents on
Display                                                           |  |  | 95  | 
|          |                                                                                |  |  |     | 
|Item 11:  | Quantitative and Qualitative Disclosures about Market Risk                     |  |  | 96  | 
|          |                                                                                |  |  |     | 
|Item 12:  | Description of Securities Other than Equity Securities                         |  |  | 96  | 
|          |                                                                                |  |  |     | 
|Part II   |                                                                                |  |  |    
|          |                                                                                |  |  |     | 
|Item 13:  | Defaults, Dividend Arrearages and Delinquencies                                |  |  | 97  | 
|          |                                                                                |  |  |     | 
|Item 14:  | Material Modifications to the Rights of Security Holders and Use of
  Proceeds |  |  | 97  | 
|          |                                                                                |  |  |     | 
|Item 15:  | Controls and Procedures                                                        |  |  | 97  | 
|          |                                                                                |  |  |     | 
|Item 16:  | [Reserved]                                                                     |  |  | 99  | 
|          |                                                                                |  |  |     | 
|Item 16A: | Audit Committee Financial Expert                                               |  |  | 99  | 
|          |                                                                                |  |  |     | 
|Item 16B: | Code of Ethics                                                                 |  |  | 99  | 
|          |                                                                                |  |  |     | 
|Item 16C: | Principal Accountant Fees and Services                                         |  |  | 99  | 
|          |                                                                                |  |  |     | 
|Item 16D: | Exemptions from the Listing Standards for Audit Committees                     |  |  | 100 | 
|          |                                                                                |  |  |     | 
|Item 16E: | Purchases of Equity Securities by the Company and Affiliated
  Purchasers      |  |  | 100 | 
|          |                                                                                |  |  |     | 
|Part III  |                                                                                |  |  |    
|          |                                                                                |  |  |     | 
|Item 17:  | Financial Statements                                                           |  |  | 101 | 
|          |                                                                                |  |  |     | 
|Item 18:  | Financial Statements                                                           |  |  | 101 | 
|          |                                                                                |  |  |     | 
|Item 19:  | Exhibits                                                                       |  |  | 101 | 

3

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(ELLOMAY CAPTIAL LIMITED LOGO)

FORWARD-LOOKING
STATEMENTS

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

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|· | our ability to identify, evaluate and consummate suitable business
  opportunities and strategic alternatives;                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|· | the price and market liquidity of our ordinary shares;                                                                                                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|· | the fact that we may be deemed to be an investment company under
  the Investment Company Act of 1940 under certain circumstances (including as
  a result of the investments of assets following the sale of our business),
  and/or the risk that we
  may be required to take certain actions with respect to the investment of our
  assets or the distribution of cash to shareholders in order to avoid being
  deemed an investment company;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|· | our plans with respect to the management of our financial and other
  assets;                                                                                                                                                                                                                                                                                                                                                                          
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|· | our exposure to indemnity claims from Hewlett-Packard Company
  following the sale of our business; and                                                                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|· | the possibility of future litigation.                                                                                                                                                                                                                                                                                                                                                                                                                  

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 Advisers

Not
Applicable.

ITEM 2: Offer Statistics and Expected
Timetable

Not
Applicable.

ITEM 3: Key Information

Unless the
context in which such terms are used would require a different meaning, all
references to Ellomay, we, our or the Company refer to Ellomay Capital
Ltd. and its consolidated subsidiaries.
In February 2008, we sold our business, including the right to the name
NUR Macroprinters Ltd., to Hewlett-Packard Company (HP).  Our Corporate name was changed to Ellomay
Capital Ltd. in connection with such sale.

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

The
selected consolidated statements of operations data for the years ended
December 31, 2005, 2006 and 2007, and the selected consolidated balance sheet
data as of December 31, 2006 and 2007, have been derived from the audited
consolidated financial statements of Ellomay Capital Ltd. set forth in Item
18: Financial Statements. The selected consolidated statement of operations
data for the years ended December 31, 2003 and 2004 and the selected
consolidated balance sheet data as of December 31, 2003, 2004 and 2005 have
been derived from our audited consolidated financial statements not included in
this report. Our consolidated financial statements have been prepared in
accordance with United States generally accepted accounting principles.

The
following tables present the financial data for Ellomay together with its
subsidiaries as of the periods presented: NUR Media Solutions, NUR America, NUR
Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers, NUR Hungary
Trading and Software Licensing Limited Liability Company, NUR DO Brazil Ltda.,
Encre Consumables B.V., NUR Japan, NUR Italy, NUR UK and Excite Ink. Financial
data for 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 Ellomays consolidated
financial statements and the related notes, as well as Item 5: Operating and
Financial Review and Prospects included elsewhere in this annual report.

5

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

|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|------------------------------------------------------------------------------------------ |  | ----------------------- | ---------- | ---- | - | ---------- | - | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                                           |  | Year ended December 31, |           
|                                                                                           |  |                         |           
|                                                                                           |  | 2003                    |            | 2004 |   | 2005       |   | 2006 |            | 2007 |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Revenues:                                                                                  |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Products                                                                                   |  |                         | 64,283     |      |   | 71,326     |   |      | 67,072     |      |   | 72,576     |   |   | 80,228     |  
|Services                                                                                   |  |                         | 4,431      |      |   | 5,397      |   |      | 4,306      |      |   | 5,392      |   |   | 5,379      |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Total revenues                                                                             |  |                         | 68,714     |      |   | 76,723     |   |      | 71,378     |      |   | 77,968     |   |   | 85,607     |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Cost of revenues:                                                                          |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Products                                                                                   |  |                         | 34,505     |      |   | 44,612     |   |      | 43,505     |      |   | 43,060     |   |   | 46,549     |  
|Inventory write-off                                                                        |  |                         | 13,154     |      |   | 9,658      |   |      | 2,721      |      |   | 806        |   |   | 1,169      |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         | 47,659     |      |   | 54,270     |   |      | 46,226     |      |   | 43,866     |   |   | 47,718     |  
|Services                                                                                   |  |                         | 6,832      |      |   | 6,278      |   |      | 5,772      |      |   | 7,379      |   |   | 8,759      |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Total cost of revenues                                                                     |  |                         | 54,491     |      |   | 60,548     |   |      | 51,998     |      |   | 51,245     |   |   | 56,477     |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Gross profit                                                                               |  |                         | 14,223     |      |   | 16,175     |   |      | 19,380     |      |   | 26,723     |   |   | 29,130     |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Operating expenses:                                                                        |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Research and development expenses,
net                                                     |  |                         | 6,546      |      |   | 8,008      |   |      | 7,086      |      |   | 5,827      |   |   | 7,046      |  
|Selling and marketing                                                                      |  |                         | 11,321     |      |   | 9,529      |   |      | 10,865     |      |   | 11,747     |   |   | 13,815     |  
|General and administrative                                                                 |  |                         | 11,134     |      |   | 10,819     |   |      | 12,171     |      |   | 9,803      |   |   | 11,129     |  
|Doubtful accounts expenses
(income)                                                        |  |                         | 6,694      |      |   | 6,266      |   |      | (1,132     | )    |   | (314       | ) |   | 942        |  
|Amortization of other intangible
assets                                                    |  |                         | 118        |      |   | 862        |   |      | 169        |      |   | 167        |   |   | 42         |  
|Restructuring charges                                                                      |  |                         | 2,001      |      |   |           |   |      |           |      |   |           |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Total operating expenses                                                                   |  |                         | 37,814     |      |   | 35,484     |   |      | 29,159     |      |   | 27,230     |   |   | 32,974     |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Operating loss                                                                             |  |                         | (23,591    | )    |   | (19,309    | ) |      | (9,779     | )    |   | (507       | ) |   | (3,844     | )
|Financial expenses, net                                                                    |  |                         | (1,406     | )    |   | (2,639     | ) |      | (3,448     | )    |   | (1,316     | ) |   | (1,738     | )
|Fair value of warrants issued to former
director                                           |  |                         |           |      |   |           |   |      | (1,441     | )    |   |           |   |   |           |  
|Other expenses, net                                                                        |  |                         | (182       | )    |   |           |   |      |           |      |   |           |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Loss before taxes on income                                                                |  |                         | (25,179    | )    |   | (21,948    | ) |      | (14,668    | )    |   | (1,823     | ) |   | (5,582     | )
|Taxes on income                                                                            |  |                         | 1,191      |      |   | 19         |   |      | 38         |      |   | 98         |   |   | 838        |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Net loss                                                                                   |  | $                       | (26,370    | )    | $ | (21,967    | ) | $    | (14,706    | )    | $ | (1,921     | ) |   | (6,420     | )
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Basic and diluted net loss per
share                                                       |  | $                       | (1.52      | )    | $ | (0.91      | ) | $    | (0.46      | )    | $ | (0.03      | ) | $ | (0.09      | )
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Weighted average number of shares used
in computing basic and diluted
  net loss per share |  |                         | 17,272,089 |      |   | 24,235,406 |   |      | 31,932,345 |      |   | 60,506,854 |   |   | 71,537,501 |  
|                                                                                           |  |                         |            |      |   |            |   |      |            |      |   |            |   |   |            |  

6

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

|                                   |  |                 |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|---------------------------------- |  | --------------- | ---------- | ---- | - | ---------- | - | ---- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                   |  | At December 31, |           
|                                   |  |                 |           
|                                   |  |                 |           
|                                   |  | 2003            |            | 2004 |   | 2005       |   | 2006 |            | 2007 |  
|                                   |  |                 |            |      |   |            |   |      |            |      |  
|                                   |  |                 |            |      |   |            |   |      |            |      |   |            |   |   |            |  
|Working capital
  (deficiency)     |  | $               | 14,636     |      | $ | (27,744    | ) | $    | (3,444     | )    | $ | 356        |   | $ | (4,972     | )
|Total assets                       |  | $               | 61,481     |      | $ | 51,586     |   | $    | 39,716     |      | $ | 41,203     |   | $ | 52,327     |  
|Total liabilities                  |  | $               | 66,494     |      | $ | 75,228     |   | $    | 67,270     |      | $ | 62,206     |   | $ | 74,506     |  
|Total shareholders
  (deficiency) |  | $               | (5,013     | )    | $ | (23,642    | ) | $    | (27,554    | )    | $ | (21,003    | ) | $ | (22,179    | )
|Capital stock                      |  | $               | 51,782     |      | $ | 56,631     |   | $    | 74,211     |      | $ | 75,591     |   | $ | 82,850     |  
|Ordinary shares
  outstanding      |  |                 | 17,414,281 |      |   | 26,165,215 |   |      | 60,498,062 |      |   | 60,523,886 |   |   | 72,710,505 |  

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

Not
Applicable.

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

Not
Applicable.

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

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

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

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

7

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

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

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

8

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

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

The
consummation of a business combination may lead to the dilution of the value of
our shares, and may involve the issuance of additional shares of our capital
stock or the issuance of debt securities. Issuance of our capital stock would
have a dilutive effect over the interests of our shareholders.In
the event we enter into a business combination or similar arrangement, it may
involve the allocation of a significant amount of cash held by us as a result
of the sale of our business to HP. Depending upon the value of the assets
acquired in such business combination or investment, the per share value of our
ordinary shares may increase or decrease, possibly significantly. In addition,
we may need to raise additional financing by issuing our ordinary shares to
investors, issuing debt securities or incurring bank or other debt in order to
consummate business combinations or acquisitions. Our amended and restated
certificate of incorporation authorizes the issuance of up to 170,000,000
ordinary shares. There are currently 43,674,005 ordinary shares available for issuance
(after appropriate reservation for the issuance of the shares upon full
exercise of our outstanding stock options and warrants). Although we have no
commitment as of the date of this report, the issuance of additional ordinary
shares  may significantly reduce your equity interest in Ellomay
and may adversely affect prevailing market prices for our ordinary shares. The
incurrence of bank debt or the issuance of debt securities may place
restrictions on our ability to operate our business, including leading to
default and foreclosure on our assets, subjecting us to restrictive covenants
and limiting our ability to obtain additional financing.

The
current general economic and business condition around the world and any
subsequent economic downturn may adversely affect our ability to consummate a
business combination, the prospects of any business we may acquire and the
trading price of our ordinary shares. During the previous years and increasingly
during the previous months, due also to the sub-prime and credit crisis in the
United States and the rising costs of various commodities, the general economic
and business condition in many countries around the world has worsened,
affecting, among other things, credit ratings, credit risk, spending habits of
consumers, and the ability to procure financing due to the rising interest
rates. If this current crisis continues, or any economic downturn ensues, it
may adversely affect our ability to procure financing required for prospective
business combinations, the value of businesses we acquire and our financial
condition and results of operations. In addition, this economic downturn also
affects the trading prices of securities in various capital markets around the
world and may adversely affect the trading price of our ordinary shares.

9

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

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

If
we are characterized as a passive foreign investment company, our U.S.
shareholders may suffer adverse tax consequences.As a
result of the sale of our business to HP, our assets mainly consist of cash and
cash equivalents producing passive income. If, for any taxable year, our
passive income, or our assets that produce passive income, exceed specified
levels, we may be characterized as a passive foreign investment company, or
PFIC, for U.S. federal income tax purposes. This characterization could result
in adverse U.S. tax consequences for our U.S. shareholders, which may include
having gains realized on the sale of our ordinary shares treated as ordinary
income, rather than as capital gains income, and having potentially punitive
interest charges apply to the proceeds of sales of our ordinary shares  and certain distributions. The
tests for determining PFIC status are applied annually and it is difficult to
make accurate predictions of future income and assets, which are relevant to
this decision. We believe that for fiscal year 2008 we meet the requirements
set forth in Section 1298(b)(3) of the Internal Revenue Code, providing an
exception from the PFIC status for a change of business situation. We cannot
assure you, however, that the Internal Revenue Service or the courts would
agree with our conclusion if they were to consider our situation. In addition,
we cannot use such exception for two years in succession and therefore there is
no assurance that we will not become a PFIC in subsequent years. For a more
detailed discussion of the consequences of our being classified as a PFIC, see
Item 10.E: Taxation under the caption U.S. Tax Considerations Regarding
Ordinary Shares.

10

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We
may be deemed an investment company under the Investment Company Act of 1940,
which could subject us to material adverse consequences.As a result of the sale of our business
to HP, we could be deemed to be an investment company under the Investment
Company Act of 1940 (the Investment Company Act). We are not currently deemed
an investment company under the Investment Company Act, however, because we
rely on an exemption from that act which generally exempts transient investment
companies for a twelve-month period, which commenced upon the sale of our
business to HP. At the end of such twelve-month period, if we have not entered
into a business combination or developed an operating business, we would fall
within the definition of investment company.
If we were deemed to be an investment company, we would not be
permitted to register under the Investment Company Act without an order from
the SEC permitting us to register because we are incorporated outside of the
United States and, prior to being permitted to register, we would not be
permitted to publicly offer or promote our securities in the United States.
Such order will subject us to additional commitments and regulatory compliance.
As a result, we may be required to take certain actions with respect to the
investment of our assets in order to avoid being deemed an investment
company.  Such investments might not be
as favorable to us as the investments we may have made if we were not
potentially subject to regulation under the Investment Company Act.  We seek to conduct our operations, including
by way of investing our cash and cash equivalents, to the extent possible, so
as not to become subject to regulation under the Investment Company Act.

We
are undergoing, and may in the future undergo, tax audits and may have to make
material payments to tax authorities at the conclusion of these audits,
including in connection with the sale of our business to HP.  Previously to the sale of our business to
HP, we conducted business globally and a substantial part of our operations was
conducted in various countries. Our domestic and international tax liabilities
are subject to the allocation of revenues and expenses in different
jurisdictions and the timing of recognizing revenues and expenses and were not
assumed or purchased by HP as part of the business sold. Additionally, the
amount of income taxes paid is subject to our interpretation of applicable laws
in the jurisdictions in which we file. Not all of the tax returns of our
operations in other countries and in Israel are final and may be subject to
further audit and assessment by the applicable tax authorities. The
consummation of the transaction with HP may increase the likelihood of
additional audits of our tax returns in the future. While we believe we comply
with applicable income tax laws, there can be no assurance that a governing tax
authority will not have a different interpretation of the law and assess us
with additional taxes, as a result of which our future results may be adversely
affected.

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

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

11

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

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

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

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

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

12

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Our
stock price has decreased significantly and may continue to be volatile, which could adversely
affect the market liquidity of our ordinary shares and our ability to raise
additional funds.  Our
ordinary shares have experienced substantial price volatility, particularly as
a result of variations between our anticipated and actual financial results,
the published expectations of analysts, and announcements by our competitors
and us. The market price for our ordinary shares has generally followed a
historical downward trend since 2000. On May 19, 2005, our ordinary shares
were delisted from the Nasdaq Capital Market due to our failure to comply with
the minimum stockholders equity requirement for continued listing. Our
ordinary shares are currently quoted on the over-the-counter market in the
Pink Sheets under the symbol EMYCF.PK. 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. We are now subject to price and volume fluctuations that affect
trading in the security of shell companies, special purpose acquisition
companies and other publicly traded investment vehicles.  These factors, as well as general economic
and political conditions, may materially adversely affect the market price of
our ordinary shares in the future. Additionally, volatility or a lack of
positive performance in our stock price may adversely affect our ability to
retain or attract key employees, many of whom are generally granted stock
options as part of their compensation package, and negatively affect our
ability to raise funds through both debt and equity, discourage potential
customers and partners from doing business with us, and could result in a
material adverse effect on our business, financial condition, and results of
operations.

If
we fail to implement and maintain effective disclosure controls and procedures,
our business, operating results and share price could be materially adversely
affected. In addition, we have identified material weaknesses in our internal
controls over financial reporting under Section 404 of the Sarbanes-Oxley Act.  Pursuant to the requirements of Section 302
of the Sarbanes-Oxley Act of 2002, our management is required to design and
evaluate the effectiveness of our disclosure controls and procedure as of the
end of the fiscal year that is the subject of this report. Following its review
of our disclosure controls and procedures for the fiscal year ended December
31, 2007, our management concluded that due to the material weaknesses
identified in our internal controls over financial reporting, our disclosure
controls and procedures as of the end of 2007 were not effective. Our
management reached the same conclusion with respect to the effectiveness of our
disclosure controls and procedures as of the end of 2006. Including such a
statement by our management with respect to our disclosure controls and
procedures may materially adversely affect the liquidity and trading price of
our securities and our ability to raise additional funds, whether from
prospective lenders or investors. In addition, if we fail to implement
effective disclosure controls and procedures our business and operating results
could be materially adversely affected.
Beginning with this annual report for our fiscal year ending December
31, 2007, Section 404 of the Sarbanes-Oxley Act of 2002 requires 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. 
Due to the existence of several material weaknesses, management was required to
conclude that our internal control over financial reporting was not effective
as of December 31, 2007.  See Item 15,
Controls and Procedures.  Beginning
with our annual report for our fiscal year ending December 31, 2009, the report
must also contain a statement that our independent registered public accounting
firm have issued an attestation report on their assessment of such internal
controls. We have not completed the evaluation of the internal control over
financial reporting for our current operations, following the sale of our
business to HP. Once we complete such evaluation, we may be required to
implement new internal control procedures over financial reporting. We may also
experience higher than anticipated operating expenses and fees in this context.
If we are unable to implement these changes effectively or efficiently, or if
our internal controls are found to be ineffective in future periods, it could
harm our operations, financial reporting or financial results and could result
in our being unable to obtain an unqualified report on internal controls from
our independent auditors.

13

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We are controlled by a small
number of shareholders, who may make decisions with which you may disagree.In
February and March 2008, a group of investors comprised of Kanir Joint Investments (2005)
Limited Partnership (Kanir) and S. Nechama Investments (2008) Ltd.
(Nechama Investments), acquired a substantial amount of our securities in a
series of private transactions and have also entered into a shareholders agreement.
Consequently, these shareholders are currently the beneficial owners of 71.5% 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 Ellomay,
which could prevent a change of control and, therefore, depress the price of
our shares.Israeli corporate law regulates mergers,
requires tender offers for acquisitions of shares above specified thresholds,
requires special approvals for transactions involving directors, officers or
significant shareholders and regulates other matters that may be relevant to
these types of transactions. Furthermore, Israeli tax considerations may make
potential transactions unappealing to us or to some of our shareholders. These
provisions of Israeli law may delay, prevent or make difficult an acquisition
of Ellomay, which could prevent a change of control and therefore depress the
price of our shares.

ITEM 4: Information on Ellomay

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

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

Ellomay
was incorporated  as an Israeli corporation under the name Nur Advertisement Industries 1987 Ltd. on July 29, 1987. On August 1, 1993, the Company changed
its name to NUR Advanced Technologies Ltd., on November 16, 1997, it again
changed its name to NUR Macroprinters Ltd and on April 7, 2008, it again
changed its name to Ellomay Capital Ltd. Our corporate governance is
controlled by the Israeli Companies Law, 1999, as amended (the Companies
Law).

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

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Significant Events

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

On
February 29, 2008, the sale of our business to HP was finalized. The purchase
price adjustment on such date was approximately $4 million, increasing the
total consideration under the Asset Purchase Agreement from $117.5 million to
$121.5 million. At closing, $14.5 million of the purchase price was retained in
an indemnity escrow account, approximately $1.6 million was withheld until
final calculation of our net debt position at closing and $1.5 million was
withheld until the assignment of NUR Europes obligations with respect to its
capital lease and Government grants to us, resulting in the receipt of $103.9
million by us at closing.

Following
the consummation of the HP Transaction, in March 2008 we repaid our short-term
debt to our lender banks, Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and
Israel Discount Bank Ltd. (the Lender Banks), in the amount of $9.8 million
and, in early April 2008, we fully repaid our long-term debt to the Lender
Banks in the amount of $11.9 million.

Our
current plan of operation is to identify and evaluate suitable business
opportunities and strategic alternatives, including through the acquisition of
all or part of an existing business, pursuing business combinations or
otherwise. Following the closing of the HP Transaction, we have ceased
conducting any operating activity and substantially all of our assets consist
of cash and cash equivalents. We now only conduct activities relating to the
attempt to locate business opportunities and strategic alternatives, activities
relating to the investment of our funds and activities relating to the smooth
transition of the business acquired by HP.

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

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During
2005 we did not have material capital expenditures or divestitures. During the
first half of 2006 we made leasehold improvements in our new manufacturing site
in Lod, Israel. We invested in these leasehold improvements approximately $0.80
million. During 2007, our ERP system and IT infrastructure was upgraded for an
aggregate investment of approximately $0.69 million. We do not have any
principal capital expenditures and divestitures currently in progress.

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

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

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

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

Prior
to the closing of the HP Transaction, Ellomay was a leading supplier of wide
format and super-wide format digital printing systems worldwide. We developed,
manufactured, sold and serviced digital color printers for the printing of
large images such as billboards, posters and banners, point of purchase
displays, exhibition and trade show displays, as well as decorations and
backdrops for construction scaffolding covers, showrooms, television and film
studios, museums and exhibits. We also supplied our customers with ink and
solvent products for use with wide format and super-wide format digital
printers.

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

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

Prior
to the consummation of the HP Transaction, we offered both solvent-ink based
and UV-ink based printers. In the solvent market we offered the NUR Fresco
series and the NUR Tango. In the UV market, we offered the NUR Tempo series and
the NUR Expedio series. These printers are sometimes referred to collectively
herein as our printers.

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

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

Industry Background

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

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

Traditional Wide
Format and Super-wide Format Printing Methods

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

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

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

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

Wide Format and
Super-wide Format Digital Printing

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

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

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

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

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

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

Products

Our
revenues were derived primarily from the sale and service of our printers and
the sale of ink and solvent products used with our printers. See Item 5.A:
Geographic Breakdown of Revenues for more information on the breakdown of
revenues by category of activity and into geographic markets. As previously
mentioned, all products detailed herein have been sold to HP in connection with
the HP Transaction.

Printers

UV-Ink Based Roll-Fed Printers

NUR Expedio Series

The NUR Expedio Series included NUR
Expedio 5000, a 5-meter/16-feet super-wide inkjet production printer that uses UV-curable
inks, NUR Expedio Revolution, designed to enable billboard printers to print at
exceptionally high production speeds of up to 300 square meters (3200 square feet) per
hour using a special billboard ink that produces excellent billboard quality with a very
low ink coverage, NUR Expedio 3200, a 3.2 meter, UV roll-to-roll printer, printing
at a speed of up to 120 square meter/hour, NUR Expedio Inspiration, a 3.2 meter,
wide-format inkjet production printer that offers high quality and high productivity on
the same platform with the ability to print on both flexible and rigid materials when
combined with the NUR Expedio 3200 / Expedio Inspiration Flatbed Module, a flatbed
add-on module for the NUR Expedio 3200 and the NUR Expedio Inspiration wide-format
UV-inkjet production printers.

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UV-Flatbed
Digital Printers

NUR Tempo Series

The NUR Tempo Series included the NUR
Tempo, a printer that used UV-curable inks that gave it the flexibility to print on almost
any type of substrate, including corrugated board, foam-core paperboard, acrylic sheets,
PVC, polycarbonate, fluted polypropylene, glass, wood and standard rolled media, NUR Tempo
L, a mid-range, four-color flatbed printer, NUR Tempo II, a flatbed wide-format inkjet
printer that provides a digital solution to conventional and digital print service
providers on short- and medium-run jobs and NUR Tempo Q, a high quality printer with
capacity up to 100 square meters (1,070 square feet) per hour in its 4-color mode and up
to 50 square meters (530 square feet) per hour in its 8-color mode.

Solvent-ink based Digital Printers

NUR Fresco Series

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

NUR Tango

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

Our Printers - General

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

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

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Unlike hand
painting, screen or offset printing, the layout can be viewed through the
pre-press workstation prior to printing, permitting last minute fine-tuning. By
running a single copy of the print, corrections of text, enhancements of
images, and additions of color can all be accomplished with minimal time,
effort and cost. Additionally, since the format can readily be changed, our
printers 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.

As of the
end of fiscal 2007, the retail prices of our printers generally ranged from
$120,000 to $450,000 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
also prints on a variety of media, including standard, less expensive, uncoated
substrates that ensure low operating costs and higher profit margins. The ink
enables the output of the NUR Tempo and NUR Expedio to be used both for indoor
and outdoor advertising without additional lamination.

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

We
manufactured ink in our plant in Ashkelon, Israel, and our ink research and
development activities were located in Lod, Israel.

Sales and Marketing

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

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

In
addition, we worked to develop, market and sell a wide range of advanced ink
products, all of which are designed to work with our 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 2007 we
did not receive grants from the Marketing Fund and we were not eligible to
receive such grants. Under the terms of grants awarded in prior years by the
Marketing Fund, Ellomay 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 had been repaid. In connection with a dispute with the Ministry of
Industry, Trade and Labor, Ellomay withheld payments owed to the Marketing
Fund. In February 2006, as part of the OCS Settlement Agreement described
below, the District Court in Jerusalem approved a settlement between Ellomay
and the Ministry of Industry, Trade and Labor in connection with our
outstanding debt to the Marketing Fund. Under the terms of the approved
settlement, Ellomay was required to make aggregate payments of approximately
$0.78 million to the Marketing Fund over a three-year period. As of June 15,
2008, the debt to the Marketing Fund is in the amount of $26,000. For more
details regarding the settlement agreement see Item 8.A: Legal Proceedings.

Production and Sources of Supply

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

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

During the
conduct of our business, we were able to obtain adequate supplies of the
components necessary to produce our printers and did not have any material
problems with our subcontractors. The prices of our principal components did
not materially change during 2007.

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

Service and Support

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

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Research and Development

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

Total net
research and development expenses were approximately $7.1 million, $5.8 million
and $7.0 million in the years ended December 31, 2005, 2006 and 2007,
respectively.

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

Between
1997 and 2003, NUR Media Solutions, our subsidiary and NUR Europe, our former
subsidiary (sold to HP), received three research and development grants in the
aggregate amount of approximately EUR 2.4 million from local authorities in
Belgium. The obligation to pay royalties from the sales of products developed
with these grants was retained by NUR Media Solutions in connection with the HP
Transaction and we undertook to release NUR Europe from its obligations, if
any, pursuant to these grants. These grants are subject to certain terms and
conditions pursuant to agreements entered into between the subsidiaries and the
local authorities in Belgium. Under the terms of the grants, the subsidiaries
have an obligation to pay royalties at the higher of a certain minimum annual
amount or at a rate of 4% on the sales of products developed with funds
provided by the local authorities in Belgium, up to an amount equal to the
research and development grants received in connection with such products,
linked to the Euro. The commencement of the royalty payments to the local
authorities in Belgium is contingent upon such subsidiaries generating sales
from products developed under these grants. The grants are not repayable in the
event that the subsidiaries decide to cease the research and development
activities or the exploitation of the products developed under these grants and
all know- how and results of the research and development are transferred to
the local authorities. In the event that such subsidiaries decide to cease
exploitation of the products developed under these grants a notification
thereof should be given to the local authorities in Belgium. Total royalties
paid by such subsidiaries amounted to $0.236 million, $0 and $0 for the years
ended December 31, 2005, 2006 and 2007, respectively. The subsidiaries ceased
the research and development activities and the exploitation of certain
products for which grants were received but did not submit notification to the
local authorities and instead continued to pay royalties, with a total of EUR
0.659 million remitted through 2005.  As
of December 31, 2007, the aggregate amount of grants received from the Belgium
authorities that had not yet been repaid, amounted to EUR 1.776 million. The
grant agreements with the local Belgian authorities require the subsidiaries to
meet certain conditions. NUR Media Solutions started discussions with the
Belgian local authorities regarding certain grants already received and its meeting
the conditions of such grant. NUR Media Solutions intends to offer the Belgian
authorities a settlement proposal by which the authorities will waive the
repayment of a portion of the grants representing failed development projects
and in return the company will pay back in full the remaining balance for the
other projects. 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.

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In the
past, we received grants from the Government of Israel, through the Office of
the Chief Scientist, or the OCS, for the development of our systems and
products. The terms of the grants prohibit the manufacture of products
developed with government grants outside of Israel without the prior consent of
the OCS. These restrictions do not bar exports from Israel of products
developed with such technologies. In addition, the know-how and the technology
developed pursuant to these grants may not be transferred to third parties or
out of Israel without the approval of the OCS. The approval of the OCS, if
granted, generally subject us to additional financial obligations. These
restrictions do not terminate following repayment of the grants. Other than
with respect to the MAGNET and Magneton projects described below, we have not
received research and development grants from the OCS since 2001. The OCS
awards grants of up to 50% (and in certain circumstances up to 66%) of a
projects approved expenditures in return for royalties. Under the terms of
previously granted funding, royalties were payable generally at a rate of 2% to
3% on sales of products developed from the funded project up to 100% to 150% of
the dollar value of the original grant. During 2001, we made royalty payments
of $0.2 million in respect of such grants to the OCS.  In February 2005, we filed a claim with the District Court in
Jerusalem against the OCS for a declaratory judgment denying an alleged liability
for unpaid royalties to the OCS of approximately $0.8 million and for the
recovery of approximately $0.27 million that was previously paid to the OCS. In
February 2006, the court approved a settlement between us and the OCS (the OCS
Settlement Agreement). Under the terms of the OCS Settlement Agreement, we
were required to make aggregate payments of approximately $0.6 to the OCS over
a three-year period. We also agreed to make payments equal to 5% of our
operating income in order to accelerate the repayment of the agreed upon
royalties. The amounts required to be paid by us pursuant to the OCS Settlement
Agreement were fully repaid by us in February 2008. For additional information
regarding the OCS dispute please see Item 8.A: Legal Proceedings.

In addition
to the OCS grants described above, following our participation in a research
and development consortium of industrial companies and academic institution
within the framework of the MAGNET program of the OCS, we worked on an ink
technology project with the Technion  The Israel Institute of Technology,
which received the approval of the Mini-MAGNET (or Magneton) committee of the
OCS. The Magneton is designated to support knowledge-transfer relationships
between industry and academic institutions. Under the terms of the Magneton
program, the OCS contributes 66% of the OCS-approved program research budget.
No royalties are payable to the OCS with respect to this funding, however, the
terms of our agreement with the Technion required us to pay royalties to the
Technion on the proceeds from sales of products resulting from this project
when such sales commenced. The terms of the program prohibit both the
manufacture of products using technology developed in the context of the
program outside of Israel and the transfer of technology developed under the
program, without the prior written consent of the OCS.  Such consent may require the refund of the
grants awarded. We have not received any monies relating to the Magneton
project, as a majority of the monies due to us in connection with grants were
applied against our debt to the OCS pursuant to the OCS Settlement Agreement.

All of the intellectual property used
in our business was sold to HP in connection with the HP Transaction, including
intellectual property developed with the assistance of the OCS. HP may decide to transfer
the manufacturing of products developed with the assistance of the OCS outside of Israel,
in which case, we may be required to reimburse HP for payments made to the OCS in
connection with such transfer of manufacturing. It is too early to determine what amounts,
if any, will be paid by HP to the OCS. In the event that any payments are required,
amounts due are to be deducted from the indemnity escrow account created in connection
with the HP Transaction.

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Competition

The
principal competitive factors that affected the sales of our products were
their performance relative to price, productivity and throughput; product
features and technology; quality, reliability, cost of operation and
consumables; the quality and costs of training, support and service and our
ability to be flexible in adapting to customers applications of our products.
Other competitive factors included the ability to provide access to product
financing, our reputation and the customers confidence that we would
continually develop new products and product accessories that would help them
maintain and grow their business.

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

Trade Secrets, Patents and Proprietary Rights

Prior to
the sale of our business to HP, we relied on a combination of trade secrets,
licenses and patents, together with non-disclosure and confidentiality
agreements, to establish and protect our proprietary rights in our products and
intellectual property. We cannot provide any assurance that our existing or
previously owned patents will not be challenged, invalidated, or circumvented.
There can be no assurance that third parties will not assert infringement
claims against us or HP in the future, in connection with intellectual property
we sold to HP.  The cost of responding
to such assertions, regardless of their validity, could be significant. In
addition, such claims may be found to be valid and could result in awards
against us or HP, which could have a material effect on our results or on the
amounts deposited in the escrow account in connection with the HP Transaction.

We believe
that our success was less dependent upon the legal protection afforded by
patent and other proprietary rights than on the knowledge, ability, experience
and technological expertise of our employees and our key suppliers. It was our
policy to have employees sign confidentiality agreements, to have selected
parties, including key suppliers, subcontractors and distributors, sign
non-competition agreements, and to have third parties sign non-disclosure
agreements. Although we take and have in the past taken precautionary measures
to maintain our trade secrets, no assurance can be given that others have not
acquired equivalent trade secrets or otherwise gained access to or disclosed
our proprietary technology.

Insurance

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

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Government Regulations

Investment Company Act of 1940

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

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

As a result
of the sale of our business to HP, we could fall within the definition of an
investment company under the Investment Company Act. We are not currently an
investment company under the Investment Company Act, however, because we rely
on an exemption from that act which generally exempts transient investment
companies for a twelve-month period, which commenced upon the sale of our
business to HP.  At the end of such
twelve-month period, if we have not entered into a business combination or
developed an operating business, we may be required to take certain actions
with respect to the investment of our assets in order to avoid being deemed an
investment company.  The results of such
investments may not be as favorable to us as the results of other investments
we would make if we were not potentially subject to regulation under the
Investment Company Act. If we are deemed to be an investment company, we could
be found to be in violation of the Investment Company Act. We seek to conduct
our operations, including by way of investing our cash and cash equivalents, to
the extent possible so as not to become subject to regulation under the
Investment Company Act.

Shell Company Status

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

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

26

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

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

We operated
our business through wholly owned subsidiaries that conducted sales and
marketing activities in pre-defined geographical regions.

As part of
the HP Transaction, we sold our holdings in three wholly owned subsidiaries
(NUR Europe, NUR Japan and NUR Do Brazil) to several of HPs subsidiaries.
Following the consummation of the HP Transaction, we wholly own, directly and
indirectly, several subsidiaries that are currently inactive.

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

Prior to
the consummation of the HP Transaction, our production facilities were located
in Lod, Israel and Ashkelon, Israel and our main office was located in Lod,
Israel. We also leased additional premises (offices, demo centers and storage
spaces) in Europe, the United States, Asia Pacific and Japan. All of our leases
were either assigned to and assumed by HP or its subsidiaries or terminated
following the consummation of the HP Transaction.

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

ITEM 4A: Unresolved Staff Comments

Not
applicable.

27

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ITEM 5: Operating and Financial Review and
Prospects

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

As the sale
of our wide-format printing business to HP was consummated on February 29,
2008, our consolidated financial statements do not reflect the results of such
sale, including the receipt of the consideration or the discontinuing of our
operations in the wide-format printing business. Such changes will only be
reflected in our consolidated financial statements for the fiscal year ending
December 31, 2008. Therefore, the data
presented in our consolidated financial statements and in our discussion below
are not indicative of our future operating results or financial position.

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

General

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

Our
total revenues increased from $71.4 million in the year ended December 31, 2005
to $78.0 million in the year ended December 31, 2006 and to $85.6 million in
the year ended December 31, 2007. Our net loss for the years ended December 31,
2005, 2006 and 2007 was $14.7 million, $1.9 million and $6.4 million, respectively.

We believe
the increase in total revenues in 2007 was the result of increased demand for
our UV based ink products as we continued to increase our install base and our
customers continued to increase their production using UV based systems. There
was also increased interest and demand for our UV based inkjet printers in
Japan as well as enhanced activity in the newly-formed Middle East and Africa
region.

Our
revenues up to February 29, 2008 were derived from the sale of our printers and
from the sale of ink products, spare parts and related services.

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

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

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

Certain Critical Accounting Policies and Estimates

Our
discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have been prepared in
accordance with United States generally accepted accounting principles. For additional
information regarding our significant accounting policies see Note 2 to our
consolidated financial statements included as a part of this annual report on
Form 20-F. While all the accounting policies impact the financial statements,
certain policies may be viewed to be critical. These policies are most
important for the fair portrayal of our financial condition and results of
operations and are those that require our management to make difficult,
subjective and complex judgments, estimates and assumptions, based upon
information available at the time that they are made, historical experience and
various other factors that are believed to be reasonable under the
circumstances. These estimates, judgments and assumptions can affect the
reported amounts of assets and liabilities as of the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
periods presented. Actual results could differ from those
estimates.

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

Our
management believes that the significant accounting policies which affected
managements more significant judgments and estimates used in the preparation
of our consolidated financial statements and which were, during the period
prior to the sale of our business to HP as described above, the most critical
to aid in fully understanding and evaluating our reported financial results
include those in respect to: Revenue Recognition, Allowance for Doubtful
Accounts, Inventory Valuation, Income Taxes, Litigation and Stock-Based
Compensation.

Revenue Recognition

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

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

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

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

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

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

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

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

Our revenue
recognition policy took into consideration the creditworthiness and past
transaction history of each customer in determining the probability of
collection as a criterion of revenue recognition. This determination required
the exercise of judgment, which affected our revenue recognition. If we
determined that collection of a fee was not probable, we deferred the revenue
recognition until such time that collection became probable, which was
generally upon receipt of cash.

Allowance for Doubtful Accounts

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

30

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Inventory Valuation

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

Income Taxes

We record
income taxes using the liability method. 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 previous years, 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 previous years 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.

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

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

31

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Litigation

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

Stock-Based Compensation

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

Recently Issued Accounting Guidance

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
No. 157). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. The provisions of SFAS No. 157 are
effective for the Company beginning January 1, 2008. The FASB issued a FASB
Staff Position (FSP) to defer the effective date of SFAS No. 157 for one year
for all nonfinancial assets and nonfinancial liabilities, except for those
items that are recognized or disclosed at fair value in the financial
statements on a recurring basis. We do not expect the adoption of SFAS No. 157
will have a material impact on our consolidated financial statements.

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In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits companies to
choose to measure certain financial instruments and certain other items at fair
value. The standard requires that unrealized gains and losses on items for
which the fair value option has been elected be reported in earnings. The
provisions of SFAS No. 159 are effective for the Company beginning January 1,
2008. We do not expect the adoption of SFAS No. 159 will have an impact on our
consolidated financial statements.

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

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Geographic Breakdown of Revenues

Prior to
the consummation of the HP Transaction, we sold our products and services
throughout the world. Revenues are generally attributed to the location of the
sale of the product or service to the end-user. The tables below shows the
breakdown of revenues by categories of activities and into geographic markets
in the years ended December 31, 2007, 2006 and 2005.

|                               |  |                                  |        |      |   |        |  |   |        | 
|------------------------------ |  | -------------------------------- | ------ | ---- | - | ------ |  | - | ------ | 
|                               |  | Year Ended December 31,          |       
|                               |  |                                  |       
|REGION                         |  | 2005                             |        | 2006 |   | 2007   | 
|                               |  |                                  |        |      |   |        | 
|                               |  | (In
  thousands of U.S. dollars) |       
|                               |  |                                  |       
|                               |  |                                  |       
|Asia                           |  | $                                | 12,401 |      | $ | 8,740  |  | $ | 10,811 | 
|America                        |  |                                  | 21,246 |      |   | 26,837 |  |   | 26,453 | 
|Europe, Middle East &
  Africa |  |                                  | 37,731 |      |   | 42,391 |  |   | 48,344 | 
|                               |  |                                  |        |      |   |        |  |   |        | 
|Total Revenues                 |  | $                                | 71,378 |      | $ | 77,968 |  | $ | 85,607 | 
|                               |  |                                  |        |      |   |        |  |   |        | 

|                         |  |                                  |        |      |   |        |  |   |        | 
|------------------------ |  | -------------------------------- | ------ | ---- | - | ------ |  | - | ------ | 
|                         |  | Year Ended December 31,          |       
|                         |  |                                  |       
|CATEGORY                 |  | 2005                             |        | 2006 |   | 2007   | 
|                         |  |                                  |        |      |   |        | 
|                         |  | (In
  thousands of U.S. dollars) |       
|                         |  |                                  |       
|                         |  |                                  |       
|Printers and Spare Parts |  | $                                | 46,783 |      | $ | 50,120 |  | $ | 53,592 | 
|Ink                      |  |                                  | 19,226 |      |   | 22,456 |  |   | 26,636 | 
|Other                    |  |                                  | 1,063  |      |   |       |  |   |       | 
|Services                 |  |                                  | 4,306  |      |   | 5,392  |  |   | 5,379  | 
|                         |  |                                  |        |      |   |        |  |   |        | 
|Total Revenues           |  | $                                | 71,378 |      | $ | 77,968 |  | $ | 85,607 | 
|                         |  |                                  |        |      |   |        |  |   |        | 

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Results of Operations

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

|                                                 |  |                           |   |      |      |      |  |      |   | 
|------------------------------------------------ |  | ------------------------- | - | ---- | ---- | ---- |  | ---- | - | 
|                                                 |  | Year Ended
  December 31, |  
|                                                 |  |                           |  
|                                                 |  | 2005                      |   | 2006 |      | 2007 | 
|                                                 |  |                           |   |      |      |      | 
|                                                 |  |                           |   |      |      |      | 
|Revenues:                                        |  |                           |   |      |      |      |  |      |   | 
|Products                                         |  | 94.0                      | % |      | 93.0 | %    |  | 93.7 | % | 
|Service                                          |  | 6.0                       |   |      | 7.0  |      |  | 6.3  |   | 
|Total
  revenues                                 |  | 100                       |   |      | 100  |      |  | 100  |   | 
|                                                 |  |                           |   |      |      |      |  |      |   | 
|Cost of
  revenues:                              |  |                           |   |      |      |      |  |      |   | 
|Products                                         |  | 60.9                      |   |      | 55.2 |      |  | 54.4 |   | 
|Inventory write-off                              |  | 3.8                       |   |      | 1.0  |      |  | 1.4  |   | 
|                                                 |  | 64.7                      |   |      | 56.2 |      |  | 55.8 |   | 
|Services                                         |  | 8.1                       |   |      | 9.5  |      |  | 10.2 |   | 
|Total
  cost of revenues                         |  | 72.8                      |   |      | 65.7 |      |  | 66.0 |   | 
|                                                 |  |                           |   |      |      |      |  |      |   | 
|Gross profit                                     |  | 27.2                      |   |      | 34.3 |      |  | 34.0 |   | 
|                                                 |  |                           |   |      |      |      |  |      |   | 
|Research and development, net                    |  | 9.9                       |   |      | 7.5  |      |  | 8.2  |   | 
|Selling and marketing                            |  | 15.2                      |   |      | 15.1 |      |  | 16.1 |   | 
|General and administrative
expenses              |  | 17.1                      |   |      | 12.6 |      |  | 13.0 |   | 
|Doubtful accounts expenses
(income)              |  | (1.6                      | ) |      | (0.4 | )    |  | 1.1  |   | 
|Amortization of other intangible
assets          |  | 0.2                       |   |      | 0.2  |      |  | 0    |   | 
|Operating loss                                   |  | (13.7                     | ) |      | (0.7 | )    |  | (4.5 | ) | 
|Financial expenses, net                          |  | 4.8                       |   |      | 1.7  |      |  | 2.0  |   | 
|Fair value of warrants issued to former
Director |  | 2.0                       |   |      |     |      |  |     |   | 
|Taxes on income                                  |  | 0.1                       |   |      | 0.1  |      |  | 1    |   | 
|Net loss                                         |  | (20.6                     | ) |      | (2.5 | )    |  | (7.5 | ) | 

The above
table presents the financial data for Ellomay together with our subsidiaries
NUR America, NUR Europe (which was sold to HP), NUR Asia Pacific, NUR DO Brazil
(which was sold to HP), NUR Japan (which was sold to HP), NUR Italy, NUR UK,
NUR Hungary Trading and Software Licensing Limited Liability Company and Encre
Consumables B.V.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Financial
expenses increased to $1.7 million in the year ended December 31, 2007,
compared to $1.3 million in the year ended December 31, 2006. This increase was
primarily due to exchange rate differences driven primarily by the appreciation
of the New Israeli Shekel compared with the US Dollar. In addition, interest
payments in the amounts of $1.5 million and $1.3 million for 2007 and 2006,
respectively, were recorded as a reduction of the carrying amount of the debt
(accrued interest) instead of interest expenses in the statement of operations
in accordance with the provisions of SFAS No. 15 Accounting by Debtors and
Creditors for Troubled Debt Restructuring (see Note 9 to our consolidated
financial statements, which are included as a part of this annual report).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Financial
expenses decreased to $1.3 million in the year ended December 31, 2006,
compared to $3.4 million in the year ended December 31, 2005. This decrease was
primarily due to the fact that our interest payments in the amount of $1.3
million were recorded as a reduction of the carrying amount of the debt
(accrued interest) instead of as interest expenses in the statement of
operations in accordance with the provisions of SFAS No. 15 Accounting by
Debtors and Creditors for Troubled Debt Restructuring (see Note 9 to the
financial statements).

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

Impact of Inflation,
Devaluation and Fluctuation of Currencies

Prior to
the consummation of the HP Transaction, most of our sales were in U.S. dollars
and in Euro. In addition, a substantial portion of costs were incurred outside
of Israel in U.S. dollars or were paid in U.S. dollars, Euro or in New Israeli
Shekels (NIS) linked to the exchange rate of the U.S. dollar. Costs not
effectively denominated in U.S. dollars are translated to U.S. dollars when
recorded, at prevailing exchange rates for the purposes of our consolidated
financial statements, and will increase if the rate of inflation in Israel
exceeds the devaluation of the Israeli currency against the U.S. dollar, if the
timing of such devaluations were to lag considerably behind inflation or if
there is a devaluation of the U.S. dollar against the Israeli currency not
fully offset by price deflation. Consequently, we were affected by changes in
the prevailing NIS/U.S. dollar exchange rate.

In
addition, our sales of products and services in Europe, as well as purchases of
components, were dominated by the Euro. The existence of a balance of Euro
based assets which are mostly derived from sale of products and service over
Euro based liabilities which are mostly related to purchase of components,
exposed us to financial losses deriving from a potential devaluation of the
U.S. dollar against the Euro. In order to reduce such exposure to the Euro, we
offset balances of Euro based assets by taking loans in Euro.

The
consideration received from HP upon consummation of the HP Transaction was
denominated in U.S. dollars. Some of the liabilities we retained were
denominated in other currencies (most notably severance payments in Israel). As
a result of the devaluation of the U.S. dollar against the New Israeli Shekel,
the value of those liabilities increased. We currently conduct our business in
Israel and most of our expenses are in NIS. We therefore expect to continue to
be affected by changes in the prevailing NIS/U.S. dollar exchange rate in the
future. We may also be affected by the U.S. dollar exchange rate to the Euro.
As we are exploring business opportunities around the world, our investment in
prospective businesses may be denominated in non U.S. dollar currencies, which
for the most part appreciated significantly against the U.S. dollar during 2007
and the beginning of 2008.

The Euro
was devaluated against the U.S. dollar by approximately 13.3% in 2005,
revaluated by approximately 11.3% in 2006 and revaluated by approximately 11.7%
in 2007.

The annual
rate of inflation in Israel was 2.38% in the year ended December 31, 2005,
decreased to (0.1)% in the year ended December 31, 2006 and increased to 3.4%
in the year ended December 31, 2007. The New Israeli Shekel was devaluated by
approximately 6.8% against the U.S. dollar in 2005, evaluated by approximately
8.2% in 2006 and evaluated by approximately 8.9% in 2007. We cannot predict the
rate of revaluation/devaluation of the New Israeli Shekel against the U.S.
dollar in the future and whether these changes will have a material adverse
effect on us.

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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 3.846 for one-dollar
U.S. on December 31, 2007. The representative dollar exchange rate was NIS
4.225 for one-dollar U.S. on December 31, 2006 and NIS 4.603 on December 31,
2005.

Certain
transactions and certain of our balances and the balances of certain of our
subsidiaries are denominated in U.S. dollars and are presented at their
original amounts. Non-dollar transactions and balances have been remeasured to
dollars in accordance with Statement of Financial Accounting Standards No. 52,
Foreign Currency Translation.  All
transaction gains and losses from the remeasurement of monetary balance sheet
items denominated in non-dollar currencies are reflected in the statements of
operations as financial income or expenses, as appropriate. For those
subsidiaries whose functional currency has been determined to be their local
currency, assets and liabilities are translated at year-end exchange rates and
statement of operations items are translated at average exchange rates prevailing
during the year. Such translation adjustments are recorded as a separate
component of accumulated other comprehensive loss in shareholders deficiency.
The average exchange rates for converting the New Israeli Shekel to U.S.
dollars during the years ended December 31, 2005, 2006 and 2007 were 4.487,
4.456 and 4.1081 NIS for one U.S. dollar, respectively. The exchange rate as of
May 31, 2008 was NIS 3.233 for one U.S. dollar.

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

We have
incurred operating losses during the last five years. Following the
consummation of the HP Transaction and the payment of some related liabilities
(including repayment of our short and long-term debt), as of June 15, 2008, we
hold approximately $78.7
million in cash and cash equivalents. Among our other current
liabilities, we expect to use approximately $3.1 million of this balance for
the repurchase of employee stock options shortly.  Our current plan of operation is to identify and evaluate
suitable business opportunities and strategic alternatives, including through
the acquisition of all or part of an existing business, pursuing business
combinations or otherwise. Although we now hold the consideration received from
HP in connection with the sale of our business, we may need additional funds if
we seek to acquire certain new businesses and operations. If we are unable to
raise funds through public or private financing of debt or equity, we will be
unable to fund certain business combinations that could ultimately improve our
financial results. We cannot assure you that additional financing will be
available on commercially reasonable terms or at all. We currently have no
commitments for additional financing.

Prior to
the consummation of the HP Transaction, our capital requirements and level of
expenses depended upon numerous factors, including the scope and success of our
marketing and customer service efforts, and of our research and development
activities, as well as the demand for our products and services. As discussed
previously, due to the increase in demand for our products and the need to
increase our working capital, we would have been required to raise more equity
or debt in order to support our growth.
Now that the HP Transaction has been consummated, we have only nominal
operations and we believe our working capital is sufficient for our present
requirements.

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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, 2007 we had
approximately $4.3 million of cash and cash equivalents compared with $4.9 at
December 31, 2006 and $9.3 million at December 31, 2005.

As of
December 31, 2007, we did not have material commitments for capital
expenditures.

Operating activities

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

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

In the year
ended December 31, 2005, we had a net loss of $14.7 million. Net cash used in
operating activities was approximately $4.1 million. The main changes in our
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.

Following
the consummation of the HP Transaction, we have ceased conducting any operating
activity and substantially all of our assets consist of cash and cash
equivalents. We now only conduct activities relating to attempting to locate
business opportunities and strategic alternatives, activities relating to the
investment of our funds and activities relating to the smooth transition of the
business acquired by HP. We cannot at this point predict whether following the
consummation of a business transaction we will have sufficient working capital
in order to fund our operations.

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Investing activities

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

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

Net cash
used in investing activities was approximately $0.1 million in the year ended
December 31, 2005, which is primarily due to the 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.

Financing activities

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

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

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, a $1.5 million increase
in short-term bank credit and short-term bank loans and a principal repayment
of long-term loans in the amount of $2.1 million.

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.

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

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We
maintained long and short-term credit facilities, excluding accrued interest on
restructured debt and a note from a related party, in an aggregate amount of
approximately $22.0 million as of December 31, 2006 and December 31, 2007. As
of December 31, 2007, the total usage of our credit line exceeded the approved
line of $9.85 million (excluding guarantees) by $0.152 million due to the
increase in the Euro exchange rate; however, we had an unutilized short-term
credit in the aggregate amount of $0.1 million in two of the three Lender
Banks. The Lender Banks did not request an immediate reduction of the
short-term bank credit due to the temporary increase in outstanding balance.
During 2006 and 2007, we did not make any principal payments on our long-term
loans. As of December 31, 2007, our 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, 2007, debt to leasing companies carries interest at a rate
ranging between 4.95% and 6.3% per annum. As previously noted, interest
payments in the amounts of $1.3 million and $1.5 million for 2006 and 2007,
respectively, were recorded as a reduction of the carrying amount of the
accrued interest in accordance with the provisions of SFAS No. 15 Accounting
by Debtors and Creditors for Troubled Debt Restructuring (see Note 9 to the
consolidated financial statements included in this report).

The following table shows the outstanding
amounts we owed to Bank Hapoalim, Bank Leumi and Discount Bank as of December
31, 2007:

|                |  |                                                  |       |                       |   |        |  |   |        | 
|--------------- |  | ------------------------------------------------ | ----- | --------------------- | - | ------ |  | - | ------ | 
|                |  | Outstanding Debt(in
  thousands of U.S. dollars) |      
|                |  |                                                  |      
|                |  | Credit Lines and
  short term loans(1)           |       | Long-term
  loans (2) |   | Total  | 
|                |  |                                                  |       |                       |   |        | 
|                |  |                                                  |       |                       |   |        |  |   |        | 
|Bank
  Hapoalim |  | $                                                | 5,582 |                       | $ | 5,880  |  | $ | 11,462 | 
|Bank
  Leumi    |  |                                                  | 4,086 |                       |   | 4,033  |  |   | 8,119  | 
|Discount
  Bank |  |                                                  | 238   |                       |   | 2,127  |  |   | 2,365  | 
|                |  |                                                  |       |                       |   |        |  |   |        | 
|Total           |  | $                                                | 9,906 |                       | $ | 12,040 |  | $ | 21,946 | 
|                |  |                                                  |       |                       |   |        |  |   |        | 

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

On
September 12, 2005, we entered into a debt restructuring agreement with 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.

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Under the
new agreements, we also agreed to extend the expiration period of 1,340,000
warrants that were previously issued to the Lender Banks. The value of the
8,000,000 warrants issued to the Lender Banks in connection with the debt
restructuring, together with the value of the extension of expiration of the
previously issued warrants, amounted to $4 million, which is recorded as an
increase in our additional paid-in capital. Under Statement of Financial
Accounting Standard No. 15, Accounting by Debtors and Creditors for Troubled
Debt Restructuring, the balance between (a) the $14.5 million converted into
8,000,000 warrants, and (b) the sum of the additional paid-in capital related
to the Lender Banks warrants, is attributed to our 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, 2007, this accrued interest aggregates to $7.6 million.

Our loans
were secured by a floating lien on all of our assets, 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 contained 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. The loans are governed by the laws of the State of
Israel.

Upon
consummation of the HP Transaction, we repaid our short-term debt to our lender
banks in the amount of $9.8 million and, in early April 2008, we fully repaid
our long-term debt to out lenders in the amount of $11.9 million. Following the
repayment of the loans, two of the three lender banks terminated the floating
liens and the securities given by our subsidiaries were terminated. We still
have outstanding guarantees which were provided by us to suppliers during the
course of our business and which were not yet terminated as a result of the
sale of our business to HP. The aggregate value of such guarantees, as of May
30, 2008, is $0.3 million. The guarantees issued by the two lender banks that
terminated the floating liens are secured by liens placed on specific deposits
held with such, up to the amount of the guarantees. In addition, in May 2008
the subordinated notes that were assigned by the Lender Banks to Fortissimo
were cancelled effective March 30, 2008.

As of
December 31, 2007, our total current assets amounted to approximately $44.6
million, out of which $4.3 million was in cash and cash equivalents, compared
with total current liabilities of approximately $49.6 million. The main reason
for the difference between the current liabilities and the current assets is
the classification of the note to related parties in the short-term
liabilities. The note was valid through November 2008 and it was due to expire
without payment unless we entered into liquidation procedures prior to the
termination of the note. As stated above, the note was cancelled in May 2008,
effective as of March 30, 2008.

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

As of
December 31, 2005, our total current assets amounted to approximately $33.7
million, out of which $9.3 million was in cash and cash equivalents, compared
with total current liabilities of approximately $37.1 million.

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Outstanding Warrants

As of June 15, 2008, we had
outstanding warrants to purchase a total of 43,412,756 ordinary shares, all of which are
currently exercisable. Of such warrants (i) 50,000 were issued to Bank Leumi as part of
the rescheduling of our long-term debt and are exercisable at $5.00 per share no later
than August 2009, (ii) 140,000 were issued to Bank Hapoalim and 100,000 were issued to
Bank Leumi as part of the amendments of the covenants governing the rescheduling of our
long-term debt and are exercisable at $0.34 per share no later than September 2008, (iii)
27,000 were issued to Discount Bank as part of the amendments of the covenants governing
our debt and are exercisable at $0.72 per share no later than December 2008, (iv) 505,000
were issued to Bank Hapoalim, 350,000 were issued to Bank Leumi and 98,000 were issued to
Discount Bank as part of the amendments of the covenants governing the rescheduling of our
long-term debt and are exercisable at $0.62 per share no later than January 2009, (v)
951,922 were granted to the investors participating in our credit line commitment in
October 2003 and are exercisable at $0.52 per share no later than October 2008, (vi)
67,308 were granted to the placement agent in connection with our credit line commitment
in October 2003 and are exercisable at $0.52 per share no later than October 2008, (vii)
112,903 were granted to the placement agent in connection with our October 2003 credit
line commitment and are exercisable at $0.62 per share no later than March 2009, (viii)
646,542 were granted to the investors participating in our private placement in March 2004
and are exercisable at $1.54 per share no later than March 2009, (ix) 129,310 were issued
to Duncan Capital Group, LLC as placement agent in connection with our private placement
of March 2004 and are exercisable at $1.16 per share no later than March 2009, (x)
3,000,000 were granted to Dan Purjes in connection with a voting trust agreement and
voting agreement and are exercisable at $0.75 per share no later than April 2010; (xi)
25,714,286 were granted to investors participating in our private placement in August 2005
and are exercisable at $0.40 per share no later than October 2010, (xii) 8,000,000 were
issued to Bank Hapoalim, Bank Leumi and Discount Bank in September 2005 in connection with
a debt restructuring agreement discussed in Item 5.B: Liquidity and Capital
Resources and are exercisable at $0.35 per share no later than December 2010, and
(xiii) 3,520,485 were granted to the investors participating in our private placement in
January and February 2007 discussed in Item 10.C: Material Contracts and are
exercisable at $0.65 per share no later than January or February 2012.

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

Our
research and development center, which prior to the consummation of the HP
Transaction engaged 54 employees, was focused on developing new products,
enhancing the quality and performance relative to price of our existing
products, reducing manufacturing costs, upgrading and expanding our product
line through the development of additional features and improving functionality
in response to market demand.

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

Net
research and development expenses were approximately $7.1 million, $5.8 million
and $7.0 million in the years ended December 31, 2005, 2006 and 2007,
respectively. We did not receive royalty-bearing grants in 2005, 2006 and 2007.
We received non royalty bearing grants in the amount of $0.5 million in 2007.

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

46

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---

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

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

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

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

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

The
following table of our material contractual obligations as of December 31,
2007, summarizes the aggregate effect that these obligations are expected to
have on our cash flows in the periods indicated:

|                                         |  |                                                           |        |                    |  |               |  |               |       |                     |  |        |  |  |       | 
|---------------------------------------- |  | --------------------------------------------------------- | ------ | ------------------ |  | ------------- |  | ------------- | ----- | ------------------- |  | ------ |  |  | ----- | 
|                                         |  | Payments
  due by period
  (in thousands of U.S. dollars) |       
|                                         |  |                                                           |       
|Contractual Obligations                  |  | Total                                                     |        | Less than
  1 year |  | 1  3
  years |  | 3  5
  years |       | more than
  5 years | 
|                                         |  |                                                           |        |                    |  |               |  |               |       |                     | 
|                                         |  |                                                           |        |                    |  |               |  |               |       |                     |  |        |  |  |       | 
|Long-Term Rent
  Obligations(1)          |  |                                                           | 3,141  |                    |  | 1,296         |  |               | 1,845 |                     |  |        |  |  |       | 
|Capital (Finance) Lease
  obligations(2) |  |                                                           | 1,023  |                    |  | 197           |  |               | 591   |                     |  | 235    |  |  |       | 
|Operating Lease
  Obligations(3)         |  |                                                           | 2,165  |                    |  | 1,112         |  |               | 1,053 |                     |  |        |  |  |       | 
|Accrued severance pay(4)                 |  |                                                           | 1,637  |                    |  |               |  |               |       |                     |  |        |  |  | 1,637 | 
|Long term debt obligations
  (5)         |  |                                                           | 17,242 |                    |  | 866           |  |               | 4,406 |                     |  | 11,970 |  |  |       | 
|Uncertain tax positions
  (6)            |  |                                                           | 3,428  |                    |  |               |  |               |       |                     |  |        |  |  | 3,428 | 
|                                         |  |                                                           |        |                    |  |               |  |               |       |                     |  |        |  |  |       | 
|Total                                    |  |                                                           | 28,636 |                    |  | 3,471         |  |               | 7,895 |                     |  | 12,205 |  |  | 5,065 | 
|                                         |  |                                                           |        |                    |  |               |  |               |       |                     |  |        |  |  |       | 

|    |                                                                                                                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | During the periods
  reported, we operated from leased premises in Lod and Ashkelon in Israel. We
  also leased premises for our subsidiaries activities in the United States,
  Hong Kong and Japan.                                                                                                                                                                                 
|(2) | NUR Europe conducted its
  activities in Belgium from premises leased by it. Upon completion of
  payments, the lessee 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 $362 is
  unfunded.                                                                                                               
|(5) | Certain of our debt
  contained 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                                                                                                                                                
|(6) | Uncertain income tax
  position under FASB Interpretation No. 48, Accounting for Uncertainty
  in Income Taxes, (FIN 48) are due upon settlement and we are unable to
  reasonably estimate the ultimate amount or timing of settlement. See Note 14c
  of the Notes to Consolidated Financial Statements for further information
  regarding the Companys liability under FIN 48.

47

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ITEM 6: Directors, Senior Management and
Employees

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

Following
the consummation of the HP Transaction, a majority of the members of our senior
management ceased to be employed by us and following the change of control of
the Company on March 30, 2008, three of our directors, including the Chairman
of our Board of Directors, resigned from our Board. The following chart provides
details of such directors and members of senior management:

|                  |  |     |  |                                              
|----------------- |  | --- |  | ---------------------------------------------
|Name              |  | Age |  | Former
  Position with Ellomay               
|                  |  |     |  |                                              
|                  |  |     |  |                                              
|Yuval Cohen       |  | 45  |  | Chairman of the Board of
  Directors         
|Eli Blatt         |  | 45  |  | Director                                     
|Shmoulik Barashi  |  | 45  |  | Director                                     
|David Reis        |  | 47  |  | President and Chief
  Executive Officer      
|Assaf Eyal        |  | 47  |  | Executive Vice President                     
|Shuky Garibi      |  | 50  |  | Vice President of Research
  and Development 
|Itzik Arbesfeld   |  | 41  |  | Vice President of Human
  Resources          
|Eran Cohen        |  | 49  |  | Vice President of
  Operation                
|Menashe Ben Chaim |  | 45  |  | Vice President of
  Consumables              
|Igal Zeitoun      |  | 38  |  | Vice President of Customer
  Support         
|Mark Packman      |  | 53  |  | President, NUR America,
  Inc.               
|Jean Marc Blum    |  | 42  |  | Managing Director, Middle
  East and Africa  
|Andrew Middleton  |  | 45  |  | Managing Director, NUR
  Europe S.A.         
|Roni Klein        |  | 47  |  | Managing Director, NUR
  Asia Pacific Limited

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

|                           |  |     |  |                                                              
|-------------------------- |  | --- |  | -------------------------------------------------------------
|Name                       |  | Age |  | Position
  with Ellomay                                      
|                           |  |     |  |                                                              
|                           |  |     |  |                                                              
|Shlomo Nehama(1)(5)        |  | 53  |  | Chairman of the Board of
  Directors                         
|Hemi Raphael(2)            |  | 56  |  | Director                                                     
|Anita Leviant(5)           |  | 53  |  | Director                                                     
|Ran Fridrich(1)(5)         |  | 55  |  | Director                                                     
|Oded Akselrod(3)           |  | 62  |  | Director                                                     
|Lauri A. Hanover (1)(3)(4) |  | 48  |  | Director                                                     
|Alon Lumbroso(3)(4)        |  | 51  |  | Director                                                     
|Yosef Zylberberg           |  | 47  |  | Interim Chief Executive
  Officer and Chief Financial Officer

|    |                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Member of
  Ellomays Stock Option and Compensation Committee.                                                                                                                                                                                             
|(2) | Elected
  pursuant to the Shareholders Agreement, dated as of October 31, 2005, between
  Fortissimo (on behalf of the several partnerships with respect to which it
  serves as general partner) and Kanir Joint Investments (2005) Limited
  Partnership.
|(3) | Member of
  Ellomays Audit Committee.                                                                                                                                                                                                                     
|(4) | External
  Director.                                                                                                                                                                                                                                       
|(5) | Elected
  pursuant to the Shareholders Agreement, dated as of March 24, 2008, between
  S. Nechama Investments (2008) Ltd. and Kanir Joint Investments (2005) Limited
  Partnership.                                                                       

48

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

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

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

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

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

49

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Oded Akselrodhas served as a director of
Ellomay 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 the
international lending division of Bank Leumi Trust Company of New York. Mr. Akselrod
holds a Bachelors degree in Agriculture Economics from Hebrew University,
Jerusalem and an MBA degree from Tel Aviv University.  Mr. Akselrod is also a director of Gadish Global Ltd., Gadish
Investments in Provident Funds Ltd., Gadish Global Financial Services (2007)
Ltd., Geva Dor Investments Ltd. and Shalag Industries Ltd.

Lauri A. Hanoverhas served as an external
director of Ellomay since November 2003. Ms. Hanover serves as Chief Executive
Officer of Gross, Kleinhendler, Hodak, Halevy and Greenberg & Co. since
January 2008. Prior to that, she served as senior vice president and chief
financial officer of Lumenis Ltd. from 2004 through  2007 and as the corporate vice president and chief financial
officer of NICE Systems Ltd. from 2000 to 2004. She previously served as
executive vice president and chief financial officer of Sapiens International
Corporation N.V., from 1997 to 2000.
From 1984 to 1997, Ms. Hanover served in a variety of financial management
positions, including corporate controller, at Scitex Corporation Ltd. and from
1981 to 1984 as financial analyst at Philip Morris Inc. (Altria).  Ms. Hanover holds a Bachelors degree in
finance from the Wharton School of Business and a Bachelor-of-Arts degree from
the College of Arts and Sciences, both of the University of Pennsylvania.  Ms. Hanover also holds a Masters degree in
business administration from New York University.  Ms. Hanover qualifies as an external director according to the
Companies Law.

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

Yosef Zylberberg has served as interim
chief executive officer since March 2008 and as chief operating officer and
chief financial officer since February 2006. Prior to joining Ellomay, Mr.
Zylberberg served as chief financial officer and chief operating officer of
several private and public companies. In his most recent position, Mr.
Zylberberg served as chief operating officer of Kodak Versamark, a wholly owned
subsidiary of Eastman Kodak Company (formerly Scitex Digital Printing).
Previously, Mr. Zylberberg served in various senior positions in Scitex
Corporation Ltd., a corporation traded on both Nasdaq and the Tel Aviv Stock
Exchange, including as chief operating officer of Scitex Digital Printing,
Inc., as corporate vice president and chief financial officer of Scitex
Corporation Ltd., and as CFO and VP operations at Scitex America, Inc. Mr.
Zylberberg holds a B.A. in Accounting and Economics and an MBA from Tel Aviv
University.

50

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---

Members of
our Board of Directors and senior management that also served during 2007 but
are no longer directors of or employed by Ellomay:

Yuval Cohenserved as a director of
Ellomay from October 2005 until March 2008. Mr. Cohen is the Founding and
Managing Partner of Fortissimo Capital Fund, which was established in January
2003. From February 2002 through January 2003, Mr. Cohen worked on the
formation of Fortissimo and served on the boards of directors of several
technology companies in Israel. From September 1997 through February 2002, Mr.
Cohen was a General Partner at Jerusalem Venture Partners (JVP), an
international venture capital firm with over $650 million under management. As
a General Partner of JVP, Mr. Cohen co-led fundraising efforts, and was
involved in all investment decisions and the management of various JVP
portfolio companies. Mr. Cohen led the investment and served on the board of
several JVP portfolio companies, including the following: Precise Software
Solutions, Inc. (Nasdaq: PRSE, later sold to Veritas  Nasdaq:VRTS), T.sqware,
Inc. (sold to Globespan, Inc., Nasdaq: GSPN), PowerDsine Ltd. (Nasdaq: PDSN),
Sheer Networks (sold to Cisco, Nasdaq: CSCO) and XmPie (sold to Xerox, NYSE:
XRX). From June 1996 through August 1997, Mr. Cohen was the Vice President of
Marketing at VDOnet Corporation, a provider of software solutions for video
over the Internet. From May 1995 through June 1996, Mr. Cohen served as the
Vice President of Business Development at DSP Group, Inc. (Nasdaq: DSPG), a
provider of DSP software and hardware solutions for communications and computer
markets. From December 1991 through May 1995, Mr. Cohen served as the Manager
of Business Development at Intel Capital at Intel Corporation (Nasdaq: INTC).
Mr. Cohen is the Chairman of the board of directors of Telrad Networks Ltd.
(Telrad), a telecommunication equipment provider, of Soda Club Enterprises
N.V. (Soda Club), a manufacturer of home carbonation systems, and of
Fortissimo Acquisition Corp., a special purpose acquisition corporation formed
by Fortissimo, and is a director of Hadasit Bio-Holdings Ltd., a holding
company of medical and biotech startup companies controlled by Hadassah
Hospital in Israel and publicly traded on the Tel Aviv Stock Exchange. Mr.
Cohen received an MBA from the Harvard Business School and a B.Sc. in
Industrial Engineering from Tel Aviv University.

Eli Blatt served as a director of Ellomay
from October 2005 until March 2008.  Mr.
Blatt joined Fortissimo as a partner in January 2005. Prior to joining
Fortissimo, from March 1999 through December 2004, Mr. Blatt was the Chief
Financial Officer and Vice President operations of Noosh, Inc., a supplier of
cross-enterprise e-business software solutions. At Noosh, Mr. Blatt was
responsible for the general management of Nooshs Finance and Operations
activities, including the companys M&A strategy and initiatives. From
September 1997 through February 1999, Mr. Blatt was the Director of Operations
at CheckPoint Software Technologies Inc., an Internet security company, where
he was responsible for OEM operations, product licensing and customer service.
From February 1995 through August 1997, Mr. Blatt served as the Operations
Controller at Madge Networks (sold to Lucent). From September 1993 through
January 1995, Mr. Blatt held Finance and Operations positions at Intel
Corporation. Mr. Blatt serves on the boards of directors of Telrad, Fortissimo
Acquisition Corp, Soda Club and RadView Software Ltd. (RadView; OTC
BB:RDVWF), a provider of application testing software and services. Mr. Blatt received
an MBA degree from Indiana University and a B.Sc. degree in Industrial
Engineering from Tel Aviv University. Mr. Blatt also served as a fighter pilot
in the Israeli air force.

51

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---

Shmoulik Barashiserved as a director of
Ellomay from October 2005 until March 2008. Mr. Barashi joined Fortissimo as a
partner in May 2005. From January 2001 through May 2005, Mr. Barashi served as
a senior partner in BDO Ziv Haft, one of the five largest accounting firms in
Israel. Ziv Haft is the Israeli representative office of the international
accounting firm of BDO. At BDO, Mr. Barashi specialized in corporate finance,
IPOs, deal structuring, business consultancy, auditing and tax. From March
1993 through December 2000, Mr. Barashi managed his own accounting firm, which
he later merged into BDO Ziv Haft. Mr. Barashi serves on the board of directors
of Fortissimo Acquisition Corp and Soda Club. Mr. Barashi received an MBA from
Hebrew University (specialty  finance) and an LLM from Bar Ilan University.
Mr. Barashi is a certified public accountant in Israel.

David Reis served as president and chief
executive officer from February 2006 until February 2008. Prior to joining
Ellomay, Mr. Reis served as president and CEO of ImageID, a venture-backed
technology startup. Prior thereto, from 1996 to 2002 he was the president and
CEO of Scitex Vision Ltd. (formerly Idanit), a manufacturer of wide-format
digital printers that was acquired by Scitex Corporation in 1998. Mr. Reis
holds a B.A. in Economics and Business Administration and an MBA from Denver
University.

Assaf Eyal served as an executive vice
president responsible for sales, marketing, business development, ink and
service from June 2006 until February 2008. Prior to joining Ellomay, 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 served as vice president of
research and development from March 2006 until February 2008. Prior to joining
Ellomay, Mr. Garibi served in various senior positions in Scitex Corporation,
later Creo and recently Eastman Kodak Co.
(NYSE: EK).  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 served as vice president
of human resources from November 2005 until February 2008. Prior to joining
Ellomay, 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 Amdocs
Corporation, in Israel and in the UK, 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.

52

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Eran Cohen served as vice president of
operations from April 2006 until February 2008.  Prior to joining Ellomay, Mr. Cohen served as vice president of
finance and operations of Orbotech Japan, a subsidiary of Orbotech Ltd., a
leading multi-national manufacturer of inspection tools serving the electronics
and the Flat Panel Display industries. Prior thereto, from 1999 to 2002, Mr.
Cohen was the director of corporate logistic of Orbotech Ltd. Prior to joining
Orbotech, Mr. Cohen was chairman and managing director of Agada, a kibbutzs
holding company. Mr. Cohen holds a B.Sc. in Economics and Management from the
Technion and an EMBA from Tel-Aviv University.

Menashe Ben Chaim served as vice president
of consumables from September 2006 until February 2008. Prior to that, Mr. Ben
Chaim led the ink operations and ink research and development at Ellomay from
2003 to 2006. Prior to joining Ellomay, Mr. Ben Chaim served as Vice President
of Operations at Electric Fuel Corporation, a world leading producer of Zinc
Air batteries. Prior thereto, Mr. Ben Chaim served as President and Vice
President of Operations at Chaman, one of the biggest paper converting
enterprises in Israel. Mr. Ben Chaim holds a B.Sc in Mechanical engineering
from Tel Aviv University and Diploma in Business Administration from Haifa
University.

Igal Zeitoun served as vice president of
customer support from April 2007 until February 2008. Prior to that Mr. Zeitoun
served as a senior project manager at Ellomays research and development
department since 2005. Prior to joining Ellomay, Mr. Zeitoun served in various
R&D positions at Objet Geometries Ltd., a company that specializes in
Ink-jet 3D modeling. From 1996 to 1998 Mr. Zeitoun served as a product leader
at Medtronic-InStent Ltd., an Israeli company that specialized in medical
devices. Mr. Zeitoun holds a Master of Science in Mechanical Engineering and a
Bachelor of Science in Mechanical Engineering from the Technion Institute of
Technology in Haifa, Israel.

Mark Packman served as president of NUR
America, Inc. from November 2006 until February 2008. Prior to joining Ellomay,
Mr. Packman served as National Leasing Manager for Neopost, an international
leader in the mailing industry from 2005 to 2006. Mr. Packman also had
extensive work in the financial community from 2003 to 2005. Prior to that,
from 2001-2002, Mr. Packman served as president of Object Geometrics, a private
Israeli start-up company. Mr. Packnam also served as director of sales of
Scitex and of Creo Inc. (now a wholly owned subsidiary of Eastman Kodak Co.
(NYSE: EK)) from 1995 to 2000. Mr. Packman holds a Bachelor of Science degree
in Business Administration from The University of Phoenix.

Jean Marc Blum served as managing director
of NUR Middle East & Africa from October 2006 until February 2008. Prior to
joining Ellomay, from 2005 to 2006, Mr. Blum was the Vice President of Sales
& Marketing at Printar Ltd., a company developing digital solutions for the
PCB market. From 1996 to 2004, Mr. Blum held different positions, including
Director of Business Development and VP Marketing, at Scitex Vision Ltd. Mr.
Blum holds a BSc Degree in Electrical Engineering and a Diploma in Business
Administration from the Technion in Haifa, Israel.

Andrew Middleton served as managing
director of NUR Europe from February 2007 until February 2008. In his most
recent position, from 2004 to 2007, Mr. Middleton served as vice president
sales EMEA at HP Indigo Press. Before that, from 2000 to 2004, Mr. Middleton
served as general manager worldwide distribution channels at HP Digital Press
and, from 1994 to 2000, held various positions at Indigo (currently HP Indigo).
Prior to his thirteen years at HP Indigo, Mr. Middleton held several positions
at Dainippon Screen. Mr. Middleton holds a degree from Cauldon College in the
United Kingdom.

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Roni Klein served as Managing Director of
NUR Asia Pacific Limited from April 2006 until February 2008.  Prior to joining Ellomay, from 2001 to 2006
Mr. Klein served as director and manager of South East Asian Branch of Orbotech
Asia Pacific, a wholly-owned subsidiary of Orbotech Ltd. (Nasdaq: ORBK), a
world market leader in Automated Optical Inspection solutions for the PCB, PCBA
and FPD markets. Prior thereto, from 1996 to 2001, Mr. Klein served as regional
manager for Orbotech Inc., a wholly-owned subsidiary of Orbotech Ltd.

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

Salaries,
fees, commissions and bonuses paid with respect to all of our directors and
senior management as a group (including the members of our senior management
who left during 2008) in the fiscal year ended December 31, 2007 was $2.8
million, out of which an amount of $0.2 million was related to pension,
retirement and other similar benefits.

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

In
addition, a total of 460,000 options to purchase ordinary shares were granted
in 2007 to members of our senior management and directors (including the
members of our senior management who left during 2008). The 460,000 options
granted had a weighted average exercise price of approximately $0.64 per share
and have expiration dates in 2017. As of June 15, 2008, directors and senior
management of Ellomay hold options to purchase an aggregate of 1,203,334
ordinary shares issuable upon exercise of such securities. The options were
granted pursuant to the plans and arrangements described under Item 6.E: Share
Ownership.

In
connection with the HP Transaction, our Board approved the acceleration of the
vesting of all outstanding employee stock options, including all stock options
held by members of senior management and the repurchase, subject to the
fulfillment of regulatory requirements, of currently outstanding employee stock
options to purchase approximately 9.9 million ordinary shares of the Company.
The aggregate consideration for such employee stock options is expected to be
up to $3.8 million. Of the total, $3.1 million is expected to be paid during
June or July 2008 and an additional payment, up to the aggregate amount, will
be calculated after all HP Transaction related issues and other financial
aspects of the Company are known and verified and will be paid following the
release to the Company of the funds deposited in the indemnity escrow account
in connection with the HP Transaction. This resolution does not apply to
options held by our non-employee directors.

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

In connection with the investment of
the Fortissimo Entities, we entered into a management agreement with the Fortissimo
Entities in 2005. In consideration of the performance of the management services and the
board services under the terms of the management agreement we agreed to pay Fortissimo an
aggregate annual management services fee in the amount of $250,000 plus value added tax
pursuant to applicable law. This fee was paid to Fortissimo for services rendered during
2007 and the first quarter of 2008. The management services agreement with Fortissimo was
terminated in March 2008 in connection with the sale of substantially all of
Fortissimos holdings in Ellomay and the resignation of three members of our Board
who are affiliated with Fortissimo.

As approved
by our shareholders, we pay our directors (Oded Akselrod, Lauri Hanover and
Alon Lumbroso) remuneration for their services as directors. This remuneration
includes an annual payment of $8,000 and additional payments of $500 per
meeting and $250 per committee meeting. As chairperson of our audit committee,
Ms. Hanover is also entitled to receive an additional annual fee of $5,000.
Each of these directors also receives an annual grant of options to purchase
10,000 ordinary shares under the terms and conditions set forth in Ellomays
1998 Non-Employee Director Share Option Plan. The directors do not receive any
additional remuneration upon termination of their services as directors.

In 1998,
Ellomay adopted the 1998 Non-Employee Director Share Option Plan (the 1998
Plan) to provide for grants of options to purchase ordinary shares to
non-employee directors of Ellomay. The 1998 Plan, as amended, is administered,
subject to Board approval, by the Non-Employee Director Share Option Committee.
An aggregate amount of not more than 750,000 ordinary shares is reserved for
grants under the 1998 Plan. The original expiration date of the 1998 Plan
pursuant to its terms was December 8, 2008 (10 years after adoption). At the
Annual General Meeting of our shareholders, held on January 31, 2008, the term
of the 1998 Plan was extended and as a result it will expire on December 8,
2018, unless earlier terminated by the Board.

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

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

The term of
each option granted under the 1998 Plan is 10 years from the applicable date of
grant. All options granted vest immediately upon the date of grant.

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

In March
2008, in connection with the resignation of three members of our Board, our
Board members appointed Shlomo Nehama, Anita Leviant and Ran Fridrich as
directors to fill the vacancies created and to serve until the next general
meeting of our shareholders. Pursuant to the Companies Law, any agreement
between us and these new directors with respect to their compensation, as
directors or otherwise, is required to be approved by our audit committee,
Board and general meeting. In addition, any agreement between us and any of
these directors who may be deemed to be a controlling person is required to
be approved with special majority requirements as described in Item 10.B:
Memorandum of Association and Amended and Restated Articles of Association.

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

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

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

Terms of Directors

Our Board
currently consists of seven members, including two external directors. Unless
otherwise prescribed by resolution adopted at a General Meeting of
shareholders, the Board shall consist of not less than four (4) nor more than
twelve (12) directors (including the external directors). The members of the
Board are elected annually at Ellomays annual shareholders meeting and remain
in office until the next annual shareholders meeting, unless the director has previously
resigned, vacated his office, or was removed in accordance with the Articles.
The last annual meeting was held on January 31, 2008. In addition, the Board
may elect additional members to the Board, to serve until the next
shareholders meeting, so long as the number of directors on the Board does not
exceed the maximum number established according to the Articles.

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On March
30, 2008, three members of our Board, Yuval Cohen, Shmoulik Barashi and Eli
Blatt, resigned their position as directors of Ellomay following the sale of
the ordinary shares and a majority of the warrants held by the Fortissimo
entities. Pursuant to the Articles, the Board members appointed Shlomo Nehama,
Anita Leviant and Ran Fridrich as directors, to serve until the next general
meeting of our shareholders. The members of the Board do not receive any
additional remuneration upon termination of their services as directors.

External Directors

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

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

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

Following
consummation of the HP Transaction and the changes in our Board of Directors,
Alon Lumbroso, one of our external directors, informed us of his intent to
resign his position effective as of the next general meeting of our
shareholders. Mr. Lumbroso subsequently notified the Board that he is willing
to remain in office and will reevaluate his position when the Companys future
line of business is ascertained.

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

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

Our Board
further determined that at least two directors out of the whole Board shall be
required to have accounting and financial expertise pursuant to the
requirements of the Companies Law. Accordingly, our Board determined that
Shlomo Nehama shall be designated as the additional accounting and financial
expert.

Alternate Directors

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

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

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

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

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

Committees of the Board of Directors

Audit Committee

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

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Ellomays
Audit Committee, acting pursuant to a written charter, currently consists of
Lauri A. Hanover, Alon Lumbroso and Oded Akselrod. Approval by the Audit
Committee and thereafter by the Board is required for (i) proposed extraordinary
transactions to which Ellomay intends to be a party in which an office holder
has a direct or indirect personal interest, (ii) actions or arrangements which
may otherwise be deemed to constitute a breach of fiduciary duty or of the duty
of care of an office holder to Ellomay, (iii) arrangements with directors as to
their terms of office, compensation, compensation for other positions held with
the company, including the provision of indemnification or an undertaking to
indemnify and the procurement of insurance,
(iv) indemnification and insurance of office holders, other than
directors, (v) an extraordinary transaction of the company in which a
controlling shareholder, that is, a shareholder holding the ability to direct
the actions of the company, other than by virtue of being a director or holding
a position with the company, including a shareholder holding twenty five
percent or more of the voting rights of the company if there is no other
shareholder holding over fifty percent of the voting rights of the company, has
a personal interest, (vi) an arrangement with a controlling shareholder or its
relative (if such a relative is also an office holder) concerning the terms of
his or her employment with the company, (vii) certain private placements of the
companys shares and (viii) compensation and scope of work of the independent
auditor. Arrangements with directors as to the terms of their service or
compensation also require shareholder approval. In certain circumstances, some
of the matters referred to above may also require shareholder approval.

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

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

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

Stock Option and Compensation Committee

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

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The
Companies Law provides that the Board is entitled to delegate to Board
committees its power, among other things, to allocate shares or securities
convertible into shares of Ellomay relating to employees incentive plans, and
employment or salary agreements between Ellomay and its employees, provided,
that any such grant is subject to a detailed plan approved by the Board. The
Board is also entitled to delegate to the general manager or person recommended
by the general manager the Boards authority to issue ordinary shares issuable
upon exercise or conversion of Ellomays securities.

In March
1998, Ellomay established a Stock Option and Compensation Committee to
administer Ellomays stock option plans, other than the 1998 Non-Employee
Director Share Option Plan. The Stock Option and Compensation Committee is
charged with administering and overseeing the allocation and distribution of
stock options under the approved stock option plans of Ellomay and approval of
Ellomays executive officers annual compensation. All arrangements as to
compensation of office holders who are not directors also require the approval
of the Board. The Stock Option and Compensation Committee is presently composed
of three members: Shlomo Nehama, Ran Fridrich and Lauri A. Hanover.

Non-Employee Director Share Option Plan
Committee

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

Indemnification and Exculpation of Executive
Officers and Directors

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

Indemnification

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

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

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

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

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

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Exemption

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

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

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

Insurance

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

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

Following
the changes in composition of our Board on March 2008, our Audit Committee and
Board approved the entering into indemnification agreements with, the provision
of exculpation letter to, and the inclusion in our directors and officers
liability insurance policy of, our new directors. The approval as it relates to
Shlomo Nehama and Ran Fridrich, who are both considered to be controlling
shareholders, is subject to further approval by our shareholders, requiring a
special majority as more fully described in Item 10.B: Memorandum
of Association and Amended and Restated Articles of Association under the
caption Certain Transactions with Controlling Persons.

63

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Internal Auditor

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

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

As of
December 31, 2007, we had 330 employees and independent contractors compared to
312 employees and independent contractors as of December 31, 2006 and 304 as of
December 31, 2005. Out of our 330 employees and independent contractors, as of
December 31, 2007, 51 were in sales and marketing, 59 were in research and
development, 167 were in customer support, operations and production, and 53
were in management, finance and administration. As of December 31, 2007, we had
193 employees located in Israel, 58 employees located in Europe, 39 employees
located in the U.S., 9 employees located in Central and Latin America and 31
employees located in Asia Pacific and Japan.

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

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

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

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

In
connection with and following the consummation of the HP Transaction,
approximately 80% of our employees world-wide have been rolled over to various
HP related entities. We have terminated the employment of a majority of the
other employees, including the majority of our senior management. The employees
who were terminated were eligible to termination related severance and/or
notice periods ranging between one and six months. In connection with such
terminations, we recorded as of the HP Transaction closing date
severance-related expenses in the approximate amount of $2.8 million. Other
than one employee who is still within his termination notice period, as of June
15, 2008 we have six active employees/contractors, all located in Israel.

64

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

Beneficial Ownership of Executive Officers
and Directors

The
following table sets forth certain information regarding the beneficial
ownership of Ellomays ordinary shares as of June 15, 2008, of (i) each
director of Ellomay and (ii) each member of senior management of Ellomay. All
of the information with respect to beneficial ownership of the ordinary shares
is given to the best of Ellomays knowledge and has been furnished in part by
the respective directors and member of senior management.

|                           |  |                                         |            |                  |  |  |       |  
|-------------------------- |  | --------------------------------------- | ---------- | ---------------- |  |  | ----- | -
|Name of
  Beneficial Owner |  | Number of Shares
  Beneficially Held(1) |            | Percent of Class
|                           |  |                                         |            |                 
|                           |  |                                         |            |                  |  |  |       |  
|Shlomo Nehama(2)           |  |                                         | 38,992,915 |                  |  |  | 43.79 | %
|Hemi Raphael (3)           |  |                                         |           |                  |  |  |      |  
|Anita Leviant              |  |                                         |           |                  |  |  |      |  
|Ran Fridrich(3)            |  |                                         |           |                  |  |  |      |  
|Lauri A. Hanover           |  |                                         | *          |                  |  |  | *     |  
|Alon Lumbroso              |  |                                         | *          |                  |  |  | *     |  
|Oded Akselrod              |  |                                         | *          |                  |  |  | *     |  
|Yosef Zylberberg(4)        |  |                                         | 1,100,000  |                  |  |  | 1.49  | %

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Less than one percent of the outstanding ordinary shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(1) | As used in
  this table, beneficial ownership means the sole or shared power to vote or
  direct the voting or to dispose or direct the disposition of any security.
  For purposes of this table, a person is deemed to be the beneficial owner of
  securities that can be acquired within 60 days from June 15, 2008 through the
  exercise of any option or warrant. Ordinary shares subject to options or
  warrants that are currently exercisable or exercisable within 60 days are
  deemed outstanding for computing the ownership percentage of the person
  holding such options or warrants, but are not deemed outstanding for
  computing the ownership percentage of any other person. The amounts and
  percentages are based upon 72,720,505 ordinary shares outstanding as of June
  15, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|(2) | The 38,992,915
  ordinary shares beneficially owned by Mr. Nehama consist of: (1) 22,661,551
  ordinary shares and currently exercisable warrants to purchase 10,067,172
  ordinary shares held by Nechama Investments, which together constitute
  approximately 39.5% of the outstanding ordinary shares and (ii) currently
  exercisable warrants to purchase 6,264,192 ordinary shares held directly by
  Mr. Nehama, which constitute approximately 7.9% of the outstanding ordinary
  shares. Mr. Nehama, as the sole officer, director and shareholder of Nechama
  Investments, may be deemed to indirectly beneficially own any ordinary shares
  beneficially owned by Nechama Investments, which constitute (together with
  his warrants) approximately 43.8% of the outstanding ordinary shares. By
  virtue of the 2008 Shareholders Agreement (as defined below), Mr. Nehama,
  Nechama Investments, Kanir and Messrs. Raphael and Fridrich may be deemed to
  be members of a group that holds shared voting power with respect to
  45,322,427 ordinary shares and currently exercisable warrants to purchase
  23,556,754 ordinary shares, which together constitute approximately 71.5% of
  the outstanding ordinary shares, and holds shared dispositive power with
  respect to 36,432,972 ordinary shares, which constitute 50.1% of the
  outstanding ordinary shares. Accordingly, Mr. Nehama may be deemed to
  beneficially own approximately 73.3% of the outstanding ordinary shares. Mr.
  Nehama and Nechama Investments both disclaim beneficial ownership of the
  ordinary shares beneficially owned by Kanir.

65

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | By virtue of
  their positions as sole shareholders and directors of Kanir Investments Ltd.
  (Kanir Ltd.), the general partner in Kanir, and limited partners in Kanir,
  Hemi Raphael and Ran Fridrich may be deemed to indirectly beneficially own
  the ordinary shares and ordinary shares underlying warrants beneficially
  owned by Kanir. Messrs. Raphael and Fridrich disclaim beneficial ownership of
  such shares.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(4) | The exercise
  price of such options is $0.58 and the options expire on February 13, 2016.
  These options are expected to be repurchased by the Company in connection
  with the repurchase of employee stock options described below.                                                                                                                                                                                          

The
directors and senior management of Ellomay hold, in the aggregate, options
exercisable into 1,203,334 ordinary shares. The 1,203,334 options have a
weighted average exercise price of approximately $0.59 per share and have
expiration dates until 2017. Under the 1998 Plan, Oded Akselrod, a director of
Ellomay, was granted options to purchase 10,000 ordinary shares on December 30,
2004, August 1, 2005, August 1, 2006 and August 1, 2007. Lauri A. Hanover, an
external director of Ellomay as of November 18, 2003, was granted 6,667 options
on November 18, 2003 and was also granted options to purchase 10,000 ordinary
shares on December 30, 2004, August 1, 2005, August 1, 2006 and August 1, 2007.
Alon Lumbroso, an external director of Ellomay as of November 26, 2006, was
granted 6,667 options on November 27, 2006 and was also granted options to
purchase 10,000 ordinary shares on August 1, 2007. The exercise price for the
underlying shares of such options is the Fair Market Value (as defined in the
1998 Plan) of the ordinary shares of Ellomay at the date of grant.

Outstanding Options

As of June 15, 2008, Ellomay had outstanding options under Ellomays stock option plans to
purchase a total of 10,192,734 of its ordinary shares. Of such options, none
have been issued under the 1995 Israel Stock Plan, 20,900 have been issued
under the 1997 Stock Option Plan, 103,334 have been issued under the 1998
Non-Employee Director Share Option Plan and 10,068,500 have been issued under
the 2000 Stock Option Plan. The options granted under the 1995 Plan, the 1997
Plan and the 2000 Plan were subject to various vesting requirements and have
been issued at exercise prices ranging from $0.40 to $7.50per share with various expiration dates.
The vesting of all such options was accelerated and all options became
immediately exercisable upon consummation of the sale of our business to HP on
February 29, 2008. The options granted under the 1998 Plan are not subject to
vesting requirements and have an exercise price ranging from $0.31 to $1.86 per
share, with various expiration dates. See Note 13 to Ellomay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,
Ellomay adopted the 1995 Israel Stock Option Plan (the 1995 Plan), which
provides for grants of stock options to employees and consultants of Ellomay.
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.

66

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At the
annual shareholders meeting held on November 18, 2003, our shareholders
approved the Boards resolution to terminate the 1995 Plan and to increase the
number of ordinary shares authorized for issuance under Ellomay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 Ellomays 2000 Stock Option Plan by
33,261. At the annual shareholders meeting held on October 27, 2005, our
shareholders approved an increase in the number of ordinary shares authorized
for issuance under the 2000 Stock Option Plan by the number of ordinary shares
underlying options cancelled under the 1995 Plan.

1997 Stock Option Plan

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

At the
annual shareholders meeting held on November 18, 2003, our shareholders
approved the Boards resolution to terminate the 1997 Plan and to increase the
number of ordinary shares authorized for issuance under Ellomay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 Ellomays 2000 Stock Option Plan by 464,329. At
the annual shareholders meeting held on October 27, 2005, our shareholders
approved an increase in the number of ordinary shares authorized for issuance
under the 2000 Stock Option Plan by the number of ordinary shares underlying
options cancelled under the 1997 Plan.

1998 Non-Employee Director Share Option Plan

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

2000 Stock Option Plan

In 2000,
Ellomay 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 Ellomay. The 2000 Plan
provides that it may be administered by the Board, or by a committee appointed
by the Board, and is currently administered by the Stock Option and
Compensation Committee subject to Board approval.

At the
annual shareholders meetings held on November 18, 2003 and October 27, 2004,
our shareholders approved increases in the number of ordinary shares authorized
for issuance under the 2000 Plan (as amended) to 2,997,590. At the annual
shareholders meeting held on October 27, 2005, our shareholders approved an
additional increase in the number of ordinary shares authorized for issuance
under the 2000 Plan (as amended) by 14,500,000, from 2,997,590 to 17,497,590
and by the number of ordinary shares underlying options surrendered (except in
the case of surrender for the exercise into shares) or which cease to be
exercisable under the 1995 Plan and the 1997 Plan. As of June 15, 2008, the
additional number of ordinary shares underlying options cancelled under the
1995 Plan and the 1997 Plan increased the number of ordinary shares authorized
for issuance under the 2000 Plan by 227,000 from 17,497,590 to 17,724,590. The
2000 Plan will expire on August 31, 2008, unless previously terminated or
extended by the Board.

67

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The Board
has broad discretion to determine the persons entitled to receive options under
the 2000 Plan, the terms and conditions on which options are granted, and the
number of ordinary shares subject thereto. The Board delegated to Ellomay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 Ellomays ordinary shares. For purposes of the 2000 Plan (as amended),
the fair market value means, as of any date, the last reported closing price of
the ordinary shares on such principal securities exchange on the most recent
prior date on which a sale of the ordinary shares took place.

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

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

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

As of
December 31, 2007, there were outstanding options to purchase 10,228,201
ordinary shares of Ellomay, out of which 3,817,120 options were vested.

Changes in Options Following Consummation of
the HP Transaction

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

68

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

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

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

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

Pursuant to
the terms of our option plans, all options that are not repurchased are
expected to expire 90 days following the termination of employment of the
employees holding 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
Ellomays ordinary shares as of June 15, 2008, by each person known by Ellomay
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 Ellomays knowledge.

|                                                          |  |                                           |  |                                                  |  |      |   |  | 
|--------------------------------------------------------- |  | ----------------------------------------- |  | ------------------------------------------------ |  | ---- | - |  | 
|                                                          |  | Ordinary
  Shares
  Beneficially Owned(1) |  | Percentage of Ordinary Shares Beneficially Owned | 
|                                                          |  |                                           |  |                                                  | 
|                                                          |  |                                           |  |                                                  |  |      |   |  | 
|Shlomo Nehama (2)                                         |  | 38,992,915                                |  |                                                  |  | 43.8 | % |  | 
|Kanir Joint Investments (2005) Limited Partnership
(3)(4) |  | 36,150,458                                |  |                                                  |  | 41.9 | % |  | 
|Old Lane Luxemburg Master Fund S.a.r.l (5)                |  | 4,814,815                                 |  |                                                  |  | 6.5  | % |  | 
|Fortissimo Entities (6)                                   |  | 4,184,957                                 |  |                                                  |  | 5.4  | % |  | 

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As used in
  this table, beneficial ownership means the sole or shared power to vote or
  direct the voting or to dispose or direct the disposition of any security.
  For purposes of this table, a person is deemed to be the beneficial owner of
  securities that can be acquired within 60 days from June 15, 2008 through the
  exercise of any option or warrant. Ordinary shares subject to options or
  warrants that are currently exercisable or exercisable within 60 days are
  deemed outstanding for computing the ownership percentage of the person
  holding such options or warrants, but are not deemed outstanding for
  computing the ownership percentage of any other person. The amounts and
  percentages are based on a total of 72,720,505 ordinary shares outstanding as
  of June 15, 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2) | The
  38,992,915 ordinary shares beneficially owned by Mr. Nehama consist of: (i)
  22,661,551 ordinary shares and currently exercisable warrants to purchase
  10,067,172 ordinary shares held by Nechama Investments, which together
  constitute approximately 39.5% of the outstanding ordinary shares and (ii)
  currently exercisable warrants to purchase 6,264,192 ordinary shares held
  directly by Mr. Nehama, which constitute approximately 7.9% of the
  outstanding ordinary shares. Mr. Nehama, as the sole officer, director and
  shareholder of Nechama Investments, may be deemed to indirectly beneficially
  own any ordinary shares beneficially owned by Nechama Investments, which
  constitute (together with his warrants) approximately 43.8% of the
  outstanding ordinary shares. By virtue of the 2008 Shareholders Agreement,
  Mr. Nehama, Nechama Investments, Kanir, Kanir Ltd. and Messrs. Raphael and
  Fridrich may be deemed to be members of a group that holds shared voting
  power with respect to 45,322,427 ordinary shares and currently exercisable
  warrants to purchase 23,556,754 ordinary shares, which together constitute
  approximately 71.5% of the outstanding ordinary shares, and holds shared
  dispositive power with respect to 36,432,972 ordinary shares, which
  constitute 50.1% of the outstanding ordinary shares. Accordingly, Mr. Nehama
  may be deemed to beneficially own approximately 73.3% of the outstanding
  ordinary shares. Each of Mr. Nehama and Nechama Investments disclaims
  beneficial ownership of the ordinary shares beneficially owned by Kanir.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(3) | According to
  information provided by the holder, Kanir is an Israeli limited partnership.
  The holdings of Kanir include currently exercisable warrants to purchase
  13,489,582 ordinary shares. Kanir Ltd. in its capacity as the general partner
  of Kanir LP has the voting and dispositive power over the ordinary shares
  directly beneficially owned by Kanir. As a result, Kanir Ltd. may be deemed
  to indirectly beneficially own the ordinary shares beneficially owned by
  Kanir. Messrs. Raphael and Fridrich are the sole shareholders and directors
  of Kanir Ltd. As a result, they may be deemed to indirectly beneficially own
  the ordinary shares beneficially owned by Kanir. Messrs. Raphael and Fridrich
  disclaim beneficial ownership of such ordinary shares. By virtue of the 2008
  Shareholders Agreement, Mr. Nehama, Nechama Investments, Kanir, Kanir Ltd.
  and Messrs Raphael and Fridrich may be deemed to be members of a group that
  holds shared voting power with respect to 45,322,427 ordinary shares and
  currently exercisable warrants to purchase 23,556,754 ordinary shares, which
  together constitute approximately 71.5% of the outstanding ordinary shares,
  and holds shared dispositive power with respect to 36,432,972 ordinary
  shares, which constitute 50.1% of the outstanding ordinary shares. Each of
  Kanir, Kanir Ltd. and Messrs. Raphael and Fridrich disclaims beneficial
  ownership of the ordinary shares beneficially owned by Nechama Investments.                                                                                                     

70

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(4) | Bonstar
  Investments Ltd. (Bonstar), an Israeli company, currently holds warrants to
  purchase 846,906 ordinary shares, which constitute approximately 1.2% of the
  outstanding ordinary shares. Mr. Joseph Mor and Mr. Ishay Mor are the sole
  shareholders of Bonstar and Mr. Joseph Mor serves as the sole director of
  Bonstar. By virtue of their control over Bonstar, Messrs. Joseph Mor and
  Ishay Mor may be deemed to indirectly beneficially own the ordinary shares
  beneficially owned by Bonstar. Bonstar is also a limited partner of Kanir and
  assisted Kanir in the financing of the purchase of some of its ordinary
  shares. Accordingly, Bonstar may be deemed to be a member of a group with
  Kanir and its affiliates, although there are no agreements between Bonstar
  and either of such persons and entities with respect to the ordinary shares
  beneficially owned by each of them. Each of Bonstar and Messrs. Joseph Mor
  and Ishay Mor disclaims beneficial ownership of the ordinary shares
  beneficially owned by Kanir and Nechama Investments. The information provided
  in the foregoing paragraph is based on public filings made by Bonstar and
  Messrs. Joseph Mor and Ishay Mor.                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(5) | According to
  information provided by the holder, Old Lane Luxemburg Master Fund S.a.r.l
  (Old Lane) is a private company registered in Luxemburg. The 4,814,815
  ordinary shares held by Old Lane are held for the benefit of its shareholders
  as follows: (i) 2,207,408 ordinary shares and 662,222 ordinary shares
  underlying currently exercisable warrants held for the benefit of Old Lane
  Cayman Master Fund L.P., a limited partnership registered in the Cayman
  Islands (Old Lane Cayman), (ii) 625,926 ordinary shares and 187,778
  ordinary shares underlying currently exercisable warrants held for the
  benefit of Old Lane HMA Master Fund, L.P., a limited partnership registered
  in the Cayman Islands (Old Lane HMA) and (iii) 870,370 ordinary shares and
  261,111 ordinary shares underlying currently exercisable warrants held for
  the benefit of Old Lane U.S. Master Fund L.P., a limited partnership
  registered in Delaware, USA (Old Lane US and, together with Old Lane Cayman
  and Old Lane HMA, the Old Lane Entities). Old Lane disclaims beneficial
  ownership of the shares held for the benefit of the Old Lane Entities.                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|(6) | According to
  information provided by the holders, the Fortissimo Entities consist of
  Fortissimo Capital Fund GP, LP (FFC-GP), Fortissimo Capital Fund (Israel),
  LP (FFC-Israel); Fortissimo Capital Fund (Israel-DP), LP (FFC-Israel-DP);
  and Fortissimo Capital Fund, LP (FFC Cayman). FFC-GP and FFC Cayman are
  limited partnerships incorporated in the Cayman Islands. FFC-Israel and
  FFC-Israel-DP are limited partnerships incorporated in Israel. FFC-GP is the
  general partner of each of FFC-Israel, FFC-Israel-DP and FFC Cayman, which
  invest together in the framework of parallel private equity funds. The
  holdings of the Fortissimo Entities consist of currently exercisable warrants
  to purchase 3,742,048 ordinary shares held directly by FFC-Israel, currently
  exercisable warrants to purchase 333,516 ordinary shares held directly by
  FFC-Israel-DP and currently exercisable warrants to purchase 109,393 ordinary
  shares held directly by FFC Cayman. The 2005 shareholders agreement between
  FFC-GP and Kanir was terminated in connection with the sale of all of the
  ordinary shares and a majority of the warrants to purchase ordinary shares
  held by the Fortissimo Entities to Kanir and Nechama Investments in March
  2008.

Significant Changes in the Ownership of Major
Shareholders

On October 31, 2005, we closed a
private placement with a group of investors led by FCF-GP (the Fortissimo
Investment). Following the private placement, the Fortissimo Entities beneficially
owned 44,999,999 (including 19,285,714 ordinary shares issuable upon exercise of warrants)
of our ordinary shares and Kanir beneficially owned 15,000,001 (including 6,428,572
ordinary shares issuable upon exercise of warrants) of our ordinary shares. On December 8,
2005, we consummated the debt restructuring agreement that included the issuance of
warrants to the Lender Banks.

71

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---

In January
and February 2007, we closed a private placement with certain investors. As of
June 15, 2008, Old Lane Luxemburg and entities affiliated with Meitav
Investment House Ltd. (the Meitav Entities), who participated in the private
placement, are the beneficial owners of 4,814,815 ordinary shares (including
1,111,111 ordinary shares issuable upon exercise of warrants), or 6.5% and
4,647,441 ordinary shares (including 952,371 ordinary shares issuable upon
exercise of warrants), or 6.34%, respectively. As a result of the private
placement in the beginning of 2007, Bank Leumi Le Israel B.M. ceased to be a
major shareholder of Ellomay.

In February
2008, Kanir purchased, in a series of private transactions, additional Ellomay
shares and warrants. The sellers in such private transactions included, among
others, Dan and Edna Purjes, and entities they control or are affiliated with.
Certain of the securities purchased by Kanir were subsequently transferred to
Shlomo Nehama. The Purjess beneficial ownership interest increased to 36.54%
in April 17, 2005 as a result of the grant of a warrant to purchase 3,000,000
ordinary shares in connection with the Voting Trust Agreement, decreased to
16.51% in October 2005 as a result of the Fortissimo Investment, and further
decreased to 12.51% as of May 2007 as a result of the private placement in early
2007. Pursuant to information provided by Mr. Purjes, as a result of the sale
of shares and warrants on February 2008, he and his affiliates no longer
beneficially own any Ellomay ordinary shares or warrants to purchase ordinary
shares.

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

As of June
15, 2008, (i) Shlomo Nehama is the beneficial owner of 6,264,192 ordinary
shares issuable upon exercise of warrants held directly and 32,728,723 ordinary
shares (including 10,067,172 ordinary shares issuable upon exercise of
warrants) held indirectly through Nechama Investments, or, in the aggregate,
43.8% of the outstanding ordinary shares, (ii) Kanir is the beneficial owner of
36,150,458 ordinary shares (including 13,489,582 ordinary shares issuable upon
exercise of warrants), or 41.9% of the outstanding ordinary shares and (iii)
the Fortissimo Entities are the beneficial owners of 4,184,957 ordinary shares
issuable upon exercise of warrants, or 5.4% of the outstanding ordinary shares.

Record Holders

Based on a
review of the information provided to us by our transfer agent and major
shareholders, as of June 15, 2008, there were 76* record holders of
ordinary shares, of which 25 represented United States* record holders
holding approximately 29.1% (of which approximately 28.2% are held by the Depository Trust Company) of the outstanding ordinary shares of Ellomay.

---

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

72

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2008 Shareholders Agreement

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

The parties
to the 2008 Shareholders Agreement agreed to vote all their Ellomay ordinary
shares as provided in the 2008 Shareholders Agreement. Where the 2008
Shareholders Agreement is silent as to a matter brought before the shareholders
of Ellomay, the parties will agree in advance as to how they will vote. In the
event that the parties do not reach an agreement regarding any such matter,
they will vote all of their ordinary shares against such matter. In addition,
the parties agreed to use their best efforts to amend Ellomays articles of
association to require that, if so requested by at least two directors of
Ellomay, certain matters will require the approval of a simple majority of the
outstanding ordinary shares, such as related party transactions and any
material change in Ellomays scope of business.

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

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

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

Encumbrances Placed on Ellomays Securities

Pursuant to
public filings made and information provided by Kanir and Nechama Investments
and their affiliates, on March 27, 2007, each of Kanir and Nechama Investments
entered into a separate five-year loan agreement with Israel Discount Bank Ltd.
in order to finance the purchase of Ellomay ordinary shares and warrants to
purchase ordinary shares. As collateral for the loans, Israel Discount Bank
Ltd. received a first-priority pledge over 19,020,872 ordinary shares and
warrants to purchase 2,027,426 ordinary shares, or, in the aggregate, 28.16% of
the outstanding ordinary shares, held by Kanir and over 19,021,547 ordinary
shares, or 26.16% of the outstanding ordinary shares, held by Nechama
Investments. A default of either of Kanir and Nechama Investments under their
agreements with Israel Discount Bank Ltd. could cause a foreclosure with
respect to the ordinary shares of Ellomay subject to the pledge to such bank,
which could result in a change of control of Ellomay.

73

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

For a discussion
of the transactions and balances with related parties see Note 12 to our
consolidated financial statements, which are included as a part of this annual
report.

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

ITEM 8: Financial Information

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

Consolidated Statements

For our
audited consolidated financial statements for the year ended December 31, 2007,
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. Pursuant to the
terms of the Asset Purchase Agreement with HP, a majority of the litigation we
are party to was not assumed by HP or any of its subsidiaries and we continue
to be responsible for the management and outcome of such litigation. In
addition, we undertook to continue to be responsible for the management and
outcome of the outstanding litigation involving NUR Europe, one of our
previously wholly-owned subsidiaries that was acquired by HP.

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

The US
dollar amounts presented below are based on applicable conversion rates in
effect as of December 31, 2007.

74

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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 claimed that the contract
between Printable and NUR Europe for the sale of two machines was null and
void, and it further sought damages amounting to approximately 1.57 million
(or $2.07 million). NUR Europe filed a counter claim for the collection of
outstanding amounts. In April 2004, the Commercial Court of Brussels denied
Printables claims and ordered Printable to pay NUR Europe an amount of
approximately 0.15 million (or $0.2 million). Printable appealed that
judgment. During 2007 Printable paid NUR Europe 100,000 and the case was closed.

In October
2001, Distrade SL, a client of NUR Europe, filed a suit against NUR Europe in
the Commercial Court of Brussels, alleging technical defaults in a machine
purchased by it. Distrade sought reimbursement of the purchase price it paid
amounting to approximately $0.18 million, as well as damages of approximately
0.23 million (or $0.33 million). NUR Europe filed a counterclaim of $0.216
million in respect of unpaid invoices. In October 2007 the court ruled that
Distrade was not entitled to any damages and NUR Europe should credit it for
the unpaid balance. Distrade was ordered to return the product to NUR Europe.
The ruling was deemed final in April 2008 when the official time for appeal
passed.

In March
2002, a former employee filed a lawsuit against a subsidiary in the amount of
0.25 million (or $0.37 million) plus certain indemnities and interest. In
September 2003, the Work Tribunal of Nivelles rendered a judgment instructing
the subsidiary to pay the former employee  0.25 million plus interest accruing
thereon. In January 2004, the subsidiary filed an appeal. In October 2005, the
court of appeal rendered a judgment instructing the subsidiary to indemnify the
former employee in the amount of  0.12 million (or $0.16 million) plus the
interest accrued thereon. During 2006 the court of appeal ruled in favor of the
former employee regarding, among other things, certain indemnities sought by
the former employee. The subsidiary paid all its obligations under the judgment
during 2007.

During
2002, two end-users, Jiaxing Dapeng Advertising Limited Company and Guangzhou
Junhao Printing Limited Company, filed separate lawsuits in China against
subsidiaries of the Company alleging bad quality of products and seeking
reimbursement in aggregate amount of $0.584 million. The local court ruled that
the subsidiaries should reimburse the clients with the aggregate amounts of
$0.472 million. One of subsidiaries is in the process of liquidation and has no
assets in China and the other is no longer active in China and based on advice
received from legal counsel the judgment against it cannot be enforced in Hong
Kong. The clients may file a suit in Hong Kong but have not done so to date.
Based on the managements estimate and the opinion of our legal counsel, it is less than likely that the subsidiaries
will be required to pay the amount claimed.

During
2003, Julius Heywinkel GmbH, a former supplier and manufacturer of NUR Media
Solutions filed suit against NUR Media Solutions in the Court of Osnabrück,
Germany, claiming that NUR Media Solutions owed penalties as a result of NUR
Media Solutions alleged failure to purchase certain minimum quantities
prescribed under an agreement between NUR Media Solutions and Heywinkel.
Heywinkel was seeking damages in approximately the amount of 0.93 million (or
$ 1.388 million). In February 2006, the Court of Osnabrück ordered NUR Media
Solutions to pay Heywinkel an aggregate amount of 1.2 million (or $1.76
million) representing penalties and accrued interest. NUR Media Solutions filed
an appeal, which was rejected by the High Regional Court in Oldenburg, Germany
in July 2006. During 2007, NUR Media Solutions reached an agreement with
Heywinkel to pay the amount due over a period of 40 months and, pursuant to the
terms of the payment arrangement, Ellomay provided a guarantee for the debt of
NUR Media Solutions to Heywinkel.

75

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In
September 2003, we filed a suit in the Magistrate Court of Tel Aviv, Israel
against R.R. Graphics Ltd., a former distributor in Israel, for the collection
of unpaid invoices totaling approximately $0.42 million. In February 2004, R.R.
Graphics filed a statement of defense denying our claims and it also filed a
counter-claim for alleged damages caused to it by us in the amount of
approximately $0.21 million. We believe that the counter-claim that was filed
by R.R. Graphics is without merit and we are both pursuing our own suit and
defending ourselves vigorously against the counter-claim.

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

In February
2005, the OCS initiated administrative proceedings for the confiscation of
certain of our assets to secure our alleged liability to the OCS of
approximately $0.8 million in unpaid royalties related to the sale of
equipment. On February 21, 2005, we filed a suit with the District Court in
Jerusalem against the OCS and the Marketing Fund requesting a declaratory
judgment denying the OCS claim for royalties and for the recovery of
approximately $0.27 million that was previously paid to the OCS. We also filed
a motion requesting the court to direct the OCS to cease and cancel the
confiscations procedures. In February 2006, the court approved a settlement
between Ellomay and the OCS. Under the terms of the approved settlement, we
were required to make aggregate payments of approximately $0.6 million to the
OCS and approximately $0.78 million to the Marketing Fund over a three-year
period. As of June 15, 2008, the debt to the OCS has been fully repaid and the
debt to the Marketing Fund is in the amount of $26 thousand.

In July
2005, the tribunal of the first instance of Nivelles confirmed a motion filed
against NUR Europe by a former employee for the seizure of that subsidiarys
tangible assets in the amount of ‎‎0.5 million (or $0.74 million).
In January 2006, the tribunal of the first instance of Nivelles reduced the
seizure to an amount of ‎0.12 million (or $0.176 million). NUR Europe
filed an appeal of that decision. In October 2005, the former employee filed a
lawsuit against NUR Europe in the amount of ‎0.48 million (or $0.71
million) plus certain indemnities and interest thereon. In May 2007, the court
ruled in favor of NUR Europe and dismissed all claims.

In October
2005, Dan Purjes, our former chairman and a former beneficial owner of approximately
16.51% of our ordinary shares, filed a complaint against us in the Supreme
Court, New York County seeking to recover the right to vote his ordinary
shares. The right to vote Mr. Purjess ordinary shares had been transferred to
us pursuant to a voting agreement dated January 23, 2005 by and between Mr.
Purjes and us. The complaint filed by Mr. Purjes sought to have the voting
agreement declared unenforceable. On March 14, 2008, following the sale of Mr.
Purjess shares and warrants, the parties filed a stipulation of discontinuance
with prejudice.

In
February 2007 a claim was filed against us and one of our former officers by a
person claiming to have been an agent of the company in West Africa for
commissions on sales of printers. The claim is for NIS 3,000 ($0.78 million).
We filed a statement of defense denying all claims, both with respect to the
causes of action and with respect to the factual allegations in the claim.
Based on management estimation and the opinion of its legal counsel no provision
was recorded with respect to this claim.

76

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In
May 2007 a former Managing Director of a subsidiary filed a lawsuit against us
and two of our subsidiaries claiming that his resignation was for just cause
due to demotion and therefore should be deemed as a termination of his
employment by the subsidiary. We deny all the claims made by the former
employee. Based on management estimation and the opinion of its legal counsel
no provision was recorded with respect to this claim.

In January
2008, a former distributor of NUR Asia Pacific filed a lawsuit against the
subsidiary claiming his distribution agreement was terminated in violation of
its terms and seeking damages in the amount of $AUD 5,562 thousand ($4.9
million). NUR Asia Pacific filed a statement of defense denying the claims and
a filed counterclaim against the former distributor for non-payment and other
damages in the amount of $882 thousand.

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

Dividends

Ellomay
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 changes have occurred
since December 31, 2007.

ITEM 9: The Offer and Listing

|   |                                        
|-- | ---------------------------------------
|A. | Offer and Listing Details              
|   |                                        
|   | Not
  applicable other than Item 9.A.4.

Stock Price History

The prices
set forth below are high and low closing market prices for the ordinary shares
of Ellomay as reported by Nasdaq National Market, the Nasdaq Capital Market or
the Pink Sheets, as applicable, for the fiscal year ended December 31 of each
year indicated below, for each fiscal quarter indicated below, and for each
month for the six-month period ending May 31, 2008. Such quotations reflect
inter-dealer prices, without retail markup, markdown, or commission and may not
necessarily represent actual transactions. Our ordinary shares are currently
quoted in the over-the-counter market in the Pink Sheets under the symbol
EMYCF.PK.

77

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|                         |  |           |       |          |   |       | 
|------------------------ |  | --------- | ----- | -------- | - | ----- | 
|Year                     |  | High (US) |       | Low (US) |  
|                         |  |           |       |          |  
|                         |  |           |       |          |   |       | 
|2003                     |  | $         | 2.44  |          | $ | 0.25  | 
|2004                     |  |           | 2.14  |          |   | 0.66  | 
|2005                     |  |           | 0.83  |          |   | 0.18  | 
|2006                     |  |           | 0.84  |          |   | 0.50  | 
|2007                     |  |           | 0.84  |          |   | 0.43  | 
|                         |  |           |       |          |   |       | 
|2006                     |  |           |       |          |   |       | 
|First Quarter            |  | $         | 0.84  |          | $ | 0.51  | 
|Second Quarter           |  |           | 0.82  |          |   | 0.63  | 
|Third Quarter            |  |           | 0.80  |          |   | 0.65  | 
|Fourth Quarter           |  |           | 0.68  |          |   | 0.50  | 
|                         |  |           |       |          |   |       | 
|2007                     |  |           |       |          |   |       | 
|First Quarter            |  | $         | 0.65  |          | $ | 0.43  | 
|Second Quarter           |  |           | 0.56  |          |   | 0.46  | 
|Third Quarter            |  |           | 0.62  |          |   | 0.44  | 
|Fourth Quarter           |  |           | 0.84  |          |   | 0.462 | 
|                         |  |           |       |          |   |       | 
|Most Recent
  Six Months |  |           |       |          |   |       | 
|May 2008                 |  | $         | 0.705 |          | $ | 0.65  | 
|April 2008               |  |           | 0.70  |          |   | 0.65  | 
|March 2008               |  |           | 0.73  |          |   | 0.60  | 
|February 2008            |  |           | 0.75  |          |   | 0.66  | 
|January 2008             |  |           | 0.715 |          |   | 0.69  | 
|December 2007            |  |           | 0.84  |          |   | 0.70  | 

|   |                     
|-- | --------------------
|B. | Plan of Distribution
|   |                     
|   | Not
  Applicable.   
|   |                     
|C. | Markets             

Markets

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

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

78

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|   |                      
|-- | ---------------------
|D. | Dilution             
|   |                      
|   | Not
  Applicable.    
|   |                      
|E. | Expenses of the Issue
|   |                      
|   | Not
  Applicable.    

ITEM 10: Additional Information

|   |                                                                             
|-- | ----------------------------------------------------------------------------
|A. | Share Capital                                                               
|   |                                                                             
|   | Not
  applicable.                                                           
|   |                                                                             
|B. | Memorandum of Association and Amended and Restated Articles of
  Association

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

Authorized Share Capital

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

Purpose and Objective

We are a
public company registered under the Companies Law as Ellomay Capital Ltd.,
registration number 52-003986-8. Pursuant to Section 3.1 of Ellomay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. In addition, we may contribute
reasonable amounts for any suitable purpose even if such contributions do not
fall within our business considerations. The Board may determine the amounts of
the contributions, the purpose for which the contribution is to be made, and
the recipients of any such contribution.

Board of Directors

Under the
Companies Law, the Board is authorized to set Ellomays strategy and supervise
the performance of the duties and actions of Ellomay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 Ellomay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).

79

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

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

Under the
Companies Law, all arrangements with regard to the compensation of office
holders who are not directors require the approval of the board of directors.
Arrangements regarding the compensation of directors require audit committee,
board and shareholder approval. Borrowing powers exercisable by the directors
are not specifically outlined in the Companys Articles.

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

Rights of Shareholders

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

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

80

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

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

Changing Rights Attached to Shares

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

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

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Dividends and Profits

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

Redemption Provisions

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

Certain Transactions with Controlling Persons

No
provision in the Articles discriminates against an existing or prospective
holder of securities, as a result of such shareholder owning a substantial
amount of shares. However, the Companies Law also provides that some
transactions between a public company and a controlling shareholder, or
transactions in which a controlling shareholder of the company has a personal
interest but which are between a public company and another entity, require the
approval of the board of directors and of the shareholders. The Companies Law
defines a controlling shareholder as a person who holds 25% or more of the
voting rights at the 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.

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Anti-takeover Provisions; Mergers and
Acquisitions under Israeli Law

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

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

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

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

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

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Duties of Shareholders

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

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

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

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

2007 Private Placement

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

Under the
subscription agreement entered into between Ellomay and each of the investors,
Ellomay was required, on a best efforts basis, to file a registration statement
registering the ordinary shares and ordinary shares underlying warrants for
resale within six months following the private placement. The investors in the
private placement were provided with the same registration rights as those
provided to the Fortissimo Investors and were also provided with the right to
receive partial liquidated damages in the event the Company did not meet
certain target dates set forth in the agreement in connection with the
registration of the shares. The partial liquidated damages are in an amount
equal to 1.0% of the aggregate purchase price paid by each investor per month
of default, subject to an overall limit of up to 24 months of partial
liquidated damages. On June 29, 2007, we filed a registration statement for the
resale of certain ordinary shares and ordinary shares underlying warrants held
by several of our shareholders, including the shares and shares underlying
warrants issued in January and February 2007. The registration statement became
effective on August 3, 2007 and temporarily lost its effectiveness on October
1, 2007, as it was not in compliance with financial disclosure requirements.

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Asset Purchase Agreement with Hewlett-Packard
Company

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

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

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

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

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

The sale of
our business to HP was consummated on February 29, 2008. The purchase price
adjustment on such date was approximately $4 million, increasing the total
consideration under the Asset Purchase Agreement from $117.5 million to $121.5
million. At closing, $14.5 million of the purchase price was retained in an
indemnity escrow account, approximately $1.6 million was withheld until final
calculation of our net debt position at closing and $1.5 million was withheld
until the assignment of NUR Europes obligations with respect to its capital
lease and Government grants to us, resulting in the receipt of $103.9 million
by us at closing.

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The
foregoing description of the Asset Purchase Agreement is only a summary and
does not purport to be complete and is qualified by reference to the full text
of the Asset Purchase Agreement filed by us as Exhibit 4.9 in Item 19.

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

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

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

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

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

Israeli Taxation and Investment Programs

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

General Corporate
Tax Structure

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

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Special Provisions
Relating to Taxation under Inflationary Conditions

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

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

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

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

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

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

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

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

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

Law for the
Encouragement of Capital Investments, 5719-1959

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

A company
owning an approved enterprise may elect to receive either governmental grants
or an alternative package of tax benefits. Certain of the our 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,
we elected to enjoy alternative benefits which provide tax benefits in
exchange for waiver of grants. Accordingly, our income from the Approved
Enterprise would have been 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 our approved
enterprise program would be subject, was dependent on the level of foreign investment
in the Company. 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.

Our
Approved Enterprise plans were assigned to one of HPs subsidiaries upon
consummation of the HP Transaction.

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

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

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

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

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

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

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

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

Capital Gains Tax on
Sales of Our Ordinary Shares

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

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Taxation of Israeli
Residents

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

Taxation of
Non-Israeli Residents

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

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

Tax Benefits for
Research and Development

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

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U.S. Tax Considerations Regarding Ordinary
Shares

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

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

| |     |                                                                                                                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | an
  individual citizen or resident of the United States,                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                             
| | (2) | a
  corporation or other entity taxable as a corporation for U.S. federal income
  tax purposes organized in or under the laws of the United States or any
  political subdivision thereof,                                                                                                                                 
| |     |                                                                                                                                                                                                                                                                                                                             
| | (3) | an estate
  the income of which is subject to U.S. federal income tax without regard to
  its source, or                                                                                                                                                                                                                    
| |     |                                                                                                                                                                                                                                                                                                                             
| | (4) | a trust, if
  such trust 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.

91

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

Taxation of U.S. Holders

Distributions on Ordinary
Shares. Subject to the discussion in Passive Foreign Investment Companies
below, distributions made by us with respect to ordinary shares generally will constitute
dividends for federal income tax purposes and will be taxable to a U.S. Holder as a
dividend to the extent of our undistributed current or accumulated earnings and profits
(as determined for United States federal income tax purposes). Distributions in excess of
our current 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, will be taxable to you at a maximum rate
of 15% provided that you hold ordinary shares for more than 60 days during the 120-day
period beginning 60 days before the ex-dividend date and meet other holding period
requirements.

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

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

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

92

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

Following the consummation of the HP
Transaction, our assets mainly consist of cash and cash equivalents producing passive
income. We believe that for fiscal year 2008 we meet the requirements set forth in Section
1298(b)(3) of the Internal Revenue Code, providing an exception from the PFIC status for a
change of business situation. We cannot assure you, however, that the Internal
Revenue Service or the courts would agree with our conclusion if they were to consider our
situation. Furthermore, the exception does not apply unless we dont expect to be,
and we in fact are not, a PFIC for the following two years. Therefore, we cannot assure
you that we will not be treated as a PFIC for the current year. In addition, we cannot use
such exception for two years in succession and therefore there is no assurance that we
will not become a PFIC in subsequent years. If we are classified as a PFIC, U.S. Holders
who own our ordinary shares during the taxable year in which we become a PFIC generally
will be subject to increased U.S. tax liabilities and reporting requirements for that
taxable year and all succeeding years, regardless of whether we continue to meet the
income or asset test for PFIC status, although shareholder elections may apply in certain
circumstances. U.S. Holders should consult their own tax advisors regarding our status as
a PFIC and the consequences of investment in a PFIC.

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

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

93

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

If we are a PFIC, you may not avoid
taxation under the rules described above by making a qualified electing fund
election to include your share of our income on a current basis because we do not
presently intend to prepare or provide information necessary to make such election.

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

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

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

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

94

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Taxation of Non-U.S. Holders

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

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

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

Backup Withholding and Information Reporting

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

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

|   |                            
|-- | ---------------------------
|F. | Dividends and paying agents
|   |                            
|   | Not Applicable.            
|   |                            
|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.

95

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

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

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

Not
  applicable.

ITEM 11: Quantitative and Qualitative
Disclosures About Market Risk

Market
risks relating to our operations result primarily from weak economic conditions
in the markets in which we sell our products and from changes in exchange rates
or in interest rates.

Inflation, Deflation and Fluctuation of
Currencies

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

Interest Rate

Our
exposure to market risk due to changes in interest rates relates primarily to
the interest rate variation of Ellomays loans. As of December 31, 2007, we had
a balance of $12.0 million of long-term bank loans and $9.0 million of
short-term bank loans, carrying annual interest rates of LIBOR + 0.25%-2.5%.
Changes in the LIBOR interest rate may affect our interest payments. As of June 15, 2008, we have fully repaid our long-term bank loans and short-term bank
loans.

Following
the consummation of the HP Transaction in February 29, 2008, most of our assets
are cash and cash equivalents invested mostly in short term U.S.
dollar-denominated deposits with a U.S. bank. Therefore, the major market risk
is currently the potential decline in the U.S. monetary interest rate that
would impact our results of operations.

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

ITEM 12: Description of Securities Other Than
Equity Securities

Not
Applicable.

96

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PART
II

ITEM 13: Defaults, Dividend Arrearages and
Delinquencies

Not
Applicable.

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

Not Applicable.

ITEM 15: Controls and Procedures

(a) Disclosure
Controls and Procedures

Our
principal executive officer and principal financial officer evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as
of the end of the period covered by this report. Such disclosure controls and
procedures are designed to ensure that information required to be disclosed by
Ellomay is accumulated and communicated to the appropriate management,
including the principal executive officer and principal financial officer, on a
basis that permits timely decisions regarding timely disclosure. Based on that
evaluation, such principal executive officer and principal financial officer
concluded that Ellomays disclosure controls and procedures were not effective
as of December 31, 2007 due to the existence of the material weaknesses in
internal control over financial reporting described below.

In order to
provide reasonable assurance that the information required to be disclosed by
the Company in reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms our chief executive officer and
chief financial officer preformed several actions intended to assure the
correctness of the information disclosed, including personal discussions with
the management of our subsidiaries and employees involved in the recording,
processing and summarizing of information required to be disclosed.

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

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

97

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During 2007
management carried out an evaluation of Ellomays internal control over
financial reporting using the criteria in Internal Control  Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). However, due to the diversion of managements attention
and resources to the pending sale of the business to HP in the HP Transaction,
management was unable to complete the documentation and testing of all internal
controls as of December 31, 2007.

Management
has identified the material weaknesses described below. These material
weaknesses were also identified as material weaknesses during the preparation
of the financial statements for the year ended December 31, 2007. A material
weakness is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a
material misstatement of the companys annual or interim financial statements
will not be prevented or detected on a timely basis.

These
material weaknesses relate to (1) monitoring provisions for slow-moving
inventory and (2) the closing process of the financial statements prior to the
initiation of the audit work. Management does not believe any of its financial
statements contain a material error as a result of any material weakness in
internal controls.

Because of
the material weaknesses described above, management believes that, as of
December 31, 2007, our internal control over financial reporting was not
effective.

While we
have not completed a process to remediate the material weaknesses described
above, we have commenced the process, in accordance with the COSO Internal
Control  Integrated Framework, of designing, evaluating and testing our
internal controls as they apply to our operations as constituted following the
consummation of the HP Transaction. We anticipate that this process will be
completed before the end of 2008. We believe that the material weaknesses
described above are less likely to result in a material misstatement of the
Companys annual or interim financial statements not being prevented or
detected on a timely basis following the consummation of the HP Transaction.

98

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

(c) Changes in
Internal Control over Financial Reporting

Other than
as set forth above, there were no changes in our internal control over
financial reporting that occurred during the year ended December 31, 2007 that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting. As described above, as a result of
the sale of our business to HP, during 2008 we will be required to create,
document and evaluate new processes in connection with internal control over financial
reporting that will be more suitable to our operations and financial reporting
needs following the closing of the HP Transaction.

ITEM 16: Reserved

ITEM 16A: Audit Committee Financial Expert

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

ITEM 16B: Code of Ethics

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

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

ITEM 16C: Principal Accountant Fees and
Services

Fees paid to the Independent Registered
Public Accounting Firm

Our
principal accountants for the years 2006 and 2007 were Kost Forer Gabbay &
Kasierer, a member of Ernst & Young Global.

99

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

|                     |  |                                |     |      |   |     | 
|-------------------- |  | ------------------------------ | --- | ---- | - | --- | 
|                     |  | 2006                           |     | 2007 |  
|                     |  | (in thousands of U.S. Dollars) |    
|                     |  |                                |     |      |   |     | 
|Audit
  Fees(1)      |  | $                              | 263 |      | $ | 242 | 
|Audit-Related
  Fees |  |                                |    |      |   |    | 
|Tax Fees(2)          |  | $                              | 74  |      | $ | 157 | 
|All Other
  Fees     |  |                                |    |      |   |    | 
|                     |  |                                |     |      |   |     | 
|                     |  |                                |     |      |   |     | 
|Total                |  | $                              | 337 |      | $ | 399 | 

---

|    |                                                                                                                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 expatriate individual tax
calculations.                         

Audit Committees pre-approval policies and
procedures

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

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

Not
Applicable.

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

Not
Applicable.

100

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PART
III

ITEM 17: Financial Statements

Not
Applicable.

ITEM 18: Financial Statements

See
Financial Statements included at the end of this report.

ITEM 19: Exhibits

|       |  |                                                                                                                            
|------ |  | ---------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                
|       |  |                                                                                                                            
|       |  |                                                                                                                            
|1.1    |  | Memorandum of Association
  of the Registrant (translated from Hebrew)                                                     
|       |  |                                                                                                                            
|1.2    |  | Amended and Restated
  Articles of Association of the Registrant                                                           
|       |  |                                                                                                                            
|2.1    |  | Specimen Certificate for
  ordinary shares(1)                                                                              
|       |  |                                                                                                                            
|2.2    |  | Form of Warrant Agreement,
  dated February 12, 2002, between the Registrant and Bank Leumi le-Israel
  B.M.(2)            
|       |  |                                                                                                                            
|2.3    |  | Form of Registration
  Rights Agreement, dated February 12, 2002, between the Registrant and Bank
  Leumi le-Israel B.M.(2)
|       |  |                                                                                                                            
|2.4    |  | Form of Warrant Agreement,
  dated March 11, 2003, between the Registrant and Bank Hapoalim B.M.(3)                        
|       |  |                                                                                                                            
|2.5    |  | Form of Registration
  Rights Agreement, dated March 11, 2003, between the Registrant and Bank
  Hapoalim B.M.(3)          
|       |  |                                                                                                                            
|2.6    |  | Form of Warrant Agreement,
  dated March 11, 2003, between the Registrant and Bank Leumi le-Israel B.M.(3)                 
|       |  |                                                                                                                            
|2.7    |  | Form of Registration
  Rights Agreement, dated March 11, 2003, between the Registrant and Bank Leumi
  le-Israel B.M.(3)   
|       |  |                                                                                                                            
|2.8    |  | Form of Convertible Loan
  and Warrant Agreement, dated July 2003, among the Registrant and certain
  investors(4)         
|       |  |                                                                                                                            
|2.9    |  | Form of Warrant Agreement,
  dated October 15, 2003, among the Registrant and certain investors(4)                         
|       |  |                                                                                                                            
|2.10   |  | Form of Registration
  Rights Agreement, dated July 2003, among the Registrant and certain
  investors(4)                  
|       |  |                                                                                                                            
|2.11   |  | Form of Warrant Agreement,
  dated October 15, 2003, between the Registrant and the Placement Agent(4)                     
|       |  |                                                                                                                            
|2.12   |  | Form of Warrant Agreement,
  dated August 1, 2003, between the Registrant and Bank Hapoalim B.M.(4)                        
|       |  |                                                                                                                            
|2.13   |  | Form of Registration
  Rights Agreement, dated August 1, 2003, between the Registrant and Bank
  Hapoalim B.M.(4)          
|       |  |                                                                                                                            
|2.14   |  | Form of Warrant Agreement,
  dated August 1, 2003, between the Registrant and Bank Leumi le-Israel B.M.(4)                 
|       |  |                                                                                                                            
|2.15   |  | Form of Registration
  Rights Agreement, dated August 1, 2003 between the Registrant and Bank Leumi
  le-Israel B.M.(4)    
|       |  |                                                                                                                            
|2.16   |  | Form of Warrant Agreement,
  dated June 27, 2003, between the Registrant and Israel Discount Bank Ltd.(4)                  

101

---

---

|       |  |                                                                                                                                                                                           
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                                                               
|       |  |                                                                                                                                                                                           
|       |  |                                                                                                                                                                                           
|2.17   |  | Form of Registration
  Rights Agreement, dated June 27, 2003, between the Registrant and Israel
  Discount Bank Ltd.(4)                                                                   
|       |  |                                                                                                                                                                                           
|2.18   |  | Form of Warrant Agreement,
  dated August 1, 2003, between the Registrant and Israel Discount Bank Ltd.(4)                                                                                
|       |  |                                                                                                                                                                                           
|2.19   |  | Form of Registration
  Rights Agreement, dated August 1, 2003, between the Registrant and Israel
  Discount Bank Ltd.(4)                                                                  
|       |  |                                                                                                                                                                                           
|2.20   |  | Form of Warrant Agreement,
  dated April 17, 2005 between the Registrant and Dan Purjes(5)                                                                                                
|       |  |                                                                                                                                                                                           
|2.21   |  | Form of Registration
  Rights Agreement, dated March 7, 2005, between the Registrant and Dan
  Purjes(6)                                                                                  
|       |  |                                                                                                                                                                                           
|2.22   |  | Form of Warrant Agreement,
  dated October 31, 2005, among the Registrant and certain investors(7)                                                                                        
|       |  |                                                                                                                                                                                           
|2.23   |  | Form of Registration
  Rights Agreement, dated September 12, 2005, among the Registrant, certain
  investors, Bank Hapoalim, Bank Leumi and Israel Discount Bank(7)                       
|       |  |                                                                                                                                                                                           
|2.24   |  | Form of Warrant Agreement,
  dated December 8, 2005, between the Registrant and Bank Hapoalim B.M.(7)                                                                                     
|       |  |                                                                                                                                                                                           
|2.25   |  | Form of Warrant Agreement,
  dated December 8, 2005, between the Registrant and Bank Leumi le-Israel
  B.M.(7)                                                                            
|       |  |                                                                                                                                                                                           
|2.26   |  | Form of Warrant Agreement,
  dated December 8, 2005, between the Registrant and Israel Discount Bank
  Ltd.(7)                                                                            
|       |  |                                                                                                                                                                                           
|2.27   |  | Form of Subscription
  Agreement, dated January 25, 2007, between the Registrant and certain
  investors(8)                                                                               
|       |  |                                                                                                                                                                                           
|2.28   |  | Form of Warrant Agreement,
  dated January 25, 2007, between the Registrant and certain investors(8)                                                                                      
|       |  |                                                                                                                                                                                           
|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(9)                                                                                                                                       
|       |  |                                                                                                                                                                                           
|4.3    |  | 1997 Stock Option Plan(10)                                                                                                                                                                
|       |  |                                                                                                                                                                                           
|4.4    |  | 1998 Non-Employee
  Directors Share Option Plan(8)                                                                                                                                        
|       |  |                                                                                                                                                                                           
|4.5    |  | 2000 Stock Option Plan(8)                                                                                                                                                                 
|       |  |                                                                                                                                                                                           
|4.6    |  | Lease Agreement for office
  space in Brussels, Belgium, dated November 26, 1996, between Nivellease, S.A.
  and the Registrant(9)                                                        
|       |  |                                                                                                                                                                                           
|4.7    |  | Agreement for
  Restructuring of Debt of Registrant, dated September 12, 2005, among the
  Registrant and Bank Hapoalim B.M., Bank Leumi Le-Israel B.M. and Israel
  Discount Bank Ltd.(7)
|       |  |                                                                                                                                                                                           
|4.8    |  | Form of Indemnification
  Agreement between the Registrant and its officers and directors(7)                                                                                              
|       |  |                                                                                                                                                                                           
|4.9    |  | Asset Purchase Agreement,
  dated December 9, 2007, between the Registrant and Hewlett-Packard
  Company(11)                                                                              
|       |  |                                                                                                                                                                                           
|4.10   |  | Form of Offer to
  Repurchase Employee Stock Options, dated April 2, 2008(12)                                                                                                             
|       |  |                                                                                                                                                                                           
|8      |  | List of Subsidiaries of
  the Registrant                                                                                                                                                  

102

---

---

|       |  |                                                                                                                                                           
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  | Description                                                                                                                                               
|       |  |                                                                                                                                                           
|       |  |                                                                                                                                                           
|11     |  | Code of Ethics(4)                                                                                                                                         
|       |  |                                                                                                                                                           
|12     |  | Certification of Principal
  Executive Officer and Principal Financial Officer required by Rule 13a-14(a)
  and Rule 15d-14(a) (Section 302 Certification)
|       |  |                                                                                                                                                           
|13     |  | Certification of Principal
  Executive Officer and Principal Financial Officer required by Rule 13a-14(b)
  and Rule 15d-14(b) (Section 906 Certification)
|       |  |                                                                                                                                                           
|14.1   |  | Consent of Kost Forer
  Gabbay & Kasierer                                                                                                                 
|       |  |                                                                                                                                                           
|14.2   |  | Consent of BDO McCabe Lo
  Limited                                                                                                                        

---

|     |                                                                                                                                
|---- | -------------------------------------------------------------------------------------------------------------------------------
|(1)  | Previously
  filed with the Registrants F-1 (File No. 33-93160) and incorporated by reference
  herein.                       
|(2)  | Previously
  filed with the Registrants Form 20-F for the year ended December 31, 2001
  and incorporated by reference herein.
|(3)  | Previously
  filed with the Registrants Form 20-F for the year ended December 31, 2002
  and incorporated by reference herein.
|(4)  | Previously
  filed with the Registrants Form 20-F for the year ended December 31, 2003
  and incorporated by reference herein.
|(5)  | Previously
  filed with the Registrants Form 6-K dated February 6, 2005 and incorporated
  by reference herein.               
|(6)  | Previously
  filed with the Registrants Form 20-F for the year ended December 31, 2004
  and incorporated by reference herein.
|(7)  | Previously
  filed with the Registrants Form 6-K dated October 14, 2005 and incorporated
  by reference herein.               
|(8)  | Previously
  filed with the Registrants Form 20-F for the year ended December 31, 2006
  and incorporated by reference herein.
|(9)  | Previously
  filed with the Registrants Form F-1 (File No. 333-66103) and incorporated by
  reference herein.                 
|(10) | Previously
  filed with the Registrants Form 6-K dated October 14, 1997 and incorporated
  by reference herein.               
|(11) | Previously
  filed with the Registrants Form 6-K dated January 3, 2008 and incorporated
  by reference herein.                
|(12) | Previously
  filed with the Registrants Form CB dated April 3, 2008 and incorporated
  by reference herein.                   

103

---

---

SIGNATURES

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

| |                      |                                                                                 
| | -------------------- | --------------------------------------------------------------------------------
| | Ellomay Capital Ltd.
|
| | By:                  | /s/ Yosef
  Zylberberg                                                          
| |                      |                                                                                 
| |                      | Yosef
  Zylberberg
  Interim Chief Executive Officer and Chief Financial Officer

Dated: June 30, 2008

104

---

---

ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2007

IN U. S. DOLLARS

INDEX

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

---

---



|                                  |                                                                                                                                
|--------------------------------- | -------------------------------------------------------------------------------------------------------------------------------
|(ERNST & YOUNG LOGO)              | Kost Forer
  Gabbay & Kasierer3 Aminadav St. 
  Tel-Aviv 67067, Israel Tel: 972 (3)6232525 
  Fax: 972 (3)5622555 www.ey.com/il
|                                 
|REPORT OF INDEPENDENT            
|REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders ofELLOMAY CAPITAL LTD.

We
have audited the accompanying consolidated balance sheets of Ellomay Capital
Ltd. (the Company) and its subsidiaries as of December 31, 2006 and 2007 and
the related consolidated statements of operations, changes in shareholders
deficiency and cash flows for each of the three years in the period ended
December 31, 2007. These financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of a consolidated subsidiary, whose assets constitute 4% and 7% of
total consolidated assets as of December 31, 2006 and 2007, respectively and
whose revenues constitute 14%, 8% and 8% of total consolidated revenues for
each of the three years in the period ended December 31, 2007, respectively.
Those financial statements were audited by another auditor, whose report has
been furnished to us, and our opinion, insofar as it relates to amounts
included for this subsidiary, is based solely on the report of the other
auditor.

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

In
our opinion, based on our audits and the report of the other auditor, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries at December 31, 2006 and 2007 and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2007, in conformity with U.S. generally accepted accounting
principles.

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

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

|                 |                                   
|---------------- | ----------------------------------
|                 | /s/KOST FORER GABBAY
  & KASIERER 
|                 |                                   
|Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER      
|June 27, 2008    | A Member of Ernst & Young
  Global

F  2

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                           
|---------------------------
|CONSOLIDATED BALANCE SHEETS
|                           
|U.S. dollars in thousands  

|                                                                                                                                  |  |              |        |      |   |        | 
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------ | ---- | - | ------ | 
|                                                                                                                                  |  | December 31, |       
|                                                                                                                                  |  |              |       
|                                                                                                                                  |  | 2006         |        | 2007 |  
|                                                                                                                                  |  |              |        |      |  
|                                                                                                                                 
|ASSETS                                                                                                                            |  |              |        |      |   |        | 
|                                                                                                                                 
|CURRENT
  ASSETS:                                                                                                                 |  |              |        |      |   |        | 
|Cash and cash equivalents                                                                                                         |  | $            | 4,868  |      | $ | 4,302  | 
|Restricted cash                                                                                                                   |  |              | 117    |      |   | 146    | 
|Trade receivables (net of allowance for
  doubtful accounts of $ 4,894 and $ 4,851
  at December 31, 2006 and 2007, respectively) |  |              | 10,223 |      |   | 15,670 | 
|Other accounts receivable and prepaid
  expenses (Note 3)                                                                         |  |              | 2,387  |      |   | 4,425  | 
|Inventories (Note 5)                                                                                                              |  |              | 16,400 |      |   | 20,091 | 
|                                                                                                                                  |  |              |        |      |   |        | 
|                                                                                                                                  |  |              |        |      |   |        | 
|Total current assets                                                                                                              |  |              | 33,995 |      |   | 44,634 | 
|                                                                                                                                  |  |              |        |      |   |        | 
|                                                                                                                                  |  |              |        |      |   |        | 
|LONG-TERM
  ASSETS:                                                                                                               |  |              |        |      |   |        | 
|Severance pay fund                                                                                                                |  |              | 1,060  |      |   | 1,275  | 
|Other assets                                                                                                                      |  |              | 348    |      |   | 474    | 
|                                                                                                                                  |  |              |        |      |   |        | 
|                                                                                                                                  |  |              |        |      |   |        | 
|Total long-term assets                                                                                                            |  |              | 1,408  |      |   | 1,749  | 
|                                                                                                                                  |  |              |        |      |   |        | 
|                                                                                                                                  |  |              |        |      |   |        | 
|PROPERTY,
  PLANT AND EQUIPMENT, NET (Note 6)                                                                                     |  |              | 5,758  |      |   | 5,944  | 
|                                                                                                                                  |  |              |        |      |   |        | 
|                                                                                                                                  |  |              |        |      |   |        | 
|OTHER
  INTANGIBLE ASSETS, NET (Note 7)                                                                                           |  |              | 42     |      |   | -      | 
|                                                                                                                                  |  |              |        |      |   |        | 
|                                                                                                                                  |  |              |        |      |   |        | 
|Total assets                                                                                                                      |  | $            | 41,203 |      | $ | 52,327 | 
|                                                                                                                                  |  |              |        |      |   |        | 

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

F  3

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                             
|-------------------------------------------------------------
|CONSOLIDATED
  BALANCE SHEETS                                
|                                                             
|U.S. dollars
  in thousands (except share and per share data)

|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | ---- | - | -------- | -
|                                                                                                                                                                                                                                                             |  | December 31, |        
|                                                                                                                                                                                                                                                             |  |              |        
|                                                                                                                                                                                                                                                             |  | 2006         |         | 2007 |  
|                                                                                                                                                                                                                                                             |  |              |         |      |  
|                                                                                                                                                                                                                                                            
|LIABILITIES AND SHAREHOLDERS
DEFICIENCY                                                                                                                                                                                                                     |  |              |         |      |   |          |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|CURRENT LIABILITIES:                                                                                                                                                                                                                                         |  |              |         |      |   |          |  
|Short-term bank credit and loans (including
  subordinated notes issued to related parties of $ 5,000 at December 31, 2007) (Note 8)                                                                                                                         |  | $            | 9,028   |      | $ | 13,962   |  
|Current maturities of long-term loans (Note
  9)                                                                                                                                                                                                             |  |              | 129     |      |   | 649      |  
|Trade payables                                                                                                                                                                                                                                               |  |              | 11,438  |      |   | 21,388   |  
|Deferred revenues                                                                                                                                                                                                                                            |  |              | 2,142   |      |   | 2,434    |  
|Other accounts payable and accrued expenses
  (Note 10)                                                                                                                                                                                                      |  |              | 10,902  |      |   | 11,173   |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|Total
  current liabilities                                                                                                                                                                                                                                  |  |              | 33,639  |      |   | 49,606   |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|LONG-TERM LIABILITIES:                                                                                                                                                                                                                                       |  |              |         |      |   |          |  
|Long-term loans, net of current maturities
  (including accrued interest on restructured debt of $ 9,037 and $ 7,567 at December 31, 2006 and 2007, respectively and
subordinated
  notes issued to related parties of $5,000 at December 31, 2006) (Note 9) |  |              | 26,755  |      |   | 19,835   |  
|Government authorities (Note 4)                                                                                                                                                                                                                              |  |              | 404     |      |   | -        |  
|Other long-term liabilities (Note 14c)                                                                                                                                                                                                                       |  |              | -       |      |   | 3,428    |  
|Accrued severance pay                                                                                                                                                                                                                                        |  |              | 1,408   |      |   | 1,637    |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|Total
  long-term liabilities                                                                                                                                                                                                                                |  |              | 28,567  |      |   | 24,900   |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|COMMITMENTS AND CONTINGENT LIABILITIES (Note
  11)                                                                                                                                                                                                           |  |              |         |      |   |          |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|SHAREHOLDERS DEFICIENCY (Note 13):                                                                                                                                                                                                                          |  |              |         |      |   |          |  
|Share capital -                                                                                                                                                                                                                                              |  |              |         |      |   |          |  
|Ordinary shares of NIS 1 par value:                                                                                                                                                                                                                          |  |              |         |      |   |          |  
|Authorized: 170,000,000 at December 31,
  2006 and 2007; Issued and outstanding: 60,523,886 and 72,710,505 shares at
  December 31, 2006 and 2007, respectively                                                                                              |  |              | 13,635  |      |   | 16,522   |  
|Additional paid-in capital                                                                                                                                                                                                                                   |  |              | 61,956  |      |   | 66,328   |  
|Accumulated other comprehensive income
  (loss)                                                                                                                                                                                                              |  |              | (475    | )    |   | 127      |  
|Accumulated deficit                                                                                                                                                                                                                                          |  |              | (96,119 | )    |   | (105,156 | )
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|Total
  shareholders deficiency                                                                                                                                                                                                                             |  |              | (21,003 | )    |   | (22,179  | )
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  
|Total
  liabilities and shareholders deficiency                                                                                                                                                                                                             |  | $            | 41,203  |      | $ | 52,327   |  
|                                                                                                                                                                                                                                                             |  |              |         |      |   |          |  

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

F  4

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                             
|-------------------------------------------------------------
|CONSOLIDATED
  STATEMENTS OF OPERATIONS                      
|                                                             
|U.S. dollars
  in thousands (except share and per share data)

|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | ---- | - | ---------- | - | - | ---------- | -
|                                                                                            |  | Year ended December 31, |           
|                                                                                            |  |                         |           
|                                                                                            |  | 2005                    |            | 2006 |   | 2007       |  
|                                                                                            |  |                         |            |      |   |            |  
|Revenues (Note 15):                                                                         |  |                         |            |      |   |            |   |   |            |  
|Products                                                                                    |  | $                       | 67,072     |      | $ | 72,576     |   | $ | 80,228     |  
|Services                                                                                    |  |                         | 4,306      |      |   | 5,392      |   |   | 5,379      |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Total revenues                                                                              |  |                         | 71,378     |      |   | 77,968     |   |   | 85,607     |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Cost of revenues:                                                                           |  |                         |            |      |   |            |   |   |            |  
|Products (a)                                                                                |  |                         | 43,505     |      |   | 43,060     |   |   | 46,549     |  
|Inventory write-off                                                                         |  |                         | 2,721      |      |   | 806        |   |   | 1,169      |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         | 46,226     |      |   | 43,866     |   |   | 47,718     |  
|Services                                                                                    |  |                         | 5,772      |      |   | 7,379      |   |   | 8,759      |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Total
  cost of revenues                                                                    |  |                         | 51,998     |      |   | 51,245     |   |   | 56,477     |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Gross profit                                                                                |  |                         | 19,380     |      |   | 26,723     |   |   | 29,130     |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Operating expenses:                                                                         |  |                         |            |      |   |            |   |   |            |  
|Research and development, net (Note 16a)                                                    |  |                         | 7,086      |      |   | 5,827      |   |   | 7,046      |  
|Selling and marketing                                                                       |  |                         | 10,865     |      |   | 11,747     |   |   | 13,815     |  
|Doubtful accounts expenses (income)                                                         |  |                         | (1,132     | )    |   | (314       | ) |   | 942        |  
|General and administrative                                                                  |  |                         | 12,171     |      |   | 9,803      |   |   | 11,129     |  
|Amortization of other intangible assets
  (Note 2i)                                         |  |                         | 169        |      |   | 167        |   |   | 42         |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Total
  operating expenses                                                                  |  |                         | 29,159     |      |   | 27,230     |   |   | 32,974     |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Operating loss                                                                              |  |                         | (9,779     | )    |   | (507       | ) |   | (3,844     | )
|Financial expenses, net (Note 16b)                                                          |  |                         | (3,448     | )    |   | (1,316     | ) |   | (1,738     | )
|Fair value of warrants issued to former
  director (Note 12a)                               |  |                         | (1,441     | )    |   | -          |   |   | -          |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Loss before taxes on income                                                                 |  |                         | (14,668    | )    |   | (1,823     | ) |   | (5,582     | )
|Taxes on income (Note 14d)                                                                  |  |                         | 38         |      |   | 98         |   |   | 838        |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Net loss                                                                                    |  | $                       | (14,706    | )    | $ | (1,921     | ) | $ | (6,420     | )
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Basic and diluted net loss per share                                                        |  | $                       | (0.46      | )    | $ | (0.03      | ) | $ | (0.09      | )
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  
|Weighted average number of shares used for
  computing basic and diluted net loss per share |  |                         | 31,932,345 |      |   | 60,506,854 |   |   | 71,537,501 |  
|                                                                                            |  |                         |            |      |   |            |   |   |            |  

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

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

F  5

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                   
|---------------------------------------------------
|STATEMENTS OF CHANGES IN SHAREHOLDERS
  DEFICIENCY
|                                                   
|U.S. dollars in thousands (except share
  data)    

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

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

F  6

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                  
|--------------------------------------------------
|STATEMENTS
 OF CHANGES IN SHAREHOLDERS DEFICIENCY
|                                                  
|U.S. dollars
 in thousands (except share data)    

|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ---------- | -------------- | - | ---------------------------- |  | ----------------------------------- | ------ | ------------------------------- | - | ------------------------------------------------ | - | -------------------- | --- | -------------------------- | - | -------------------------------- | - | - | -------- | - | - | ------ | - | - | ------- | -
|                                                                                                   |  | Number of
 Ordinary
 Shares
 outstanding |            | Share
 capital |   | Additional
 paid-in
 capital |  | Receivables
 on account 
 of shares |        | Deferred 
 stock 
 compensation |   | Accumulated
 other
 comprehensive
 income (loss) |   | Accumulated
 deficit |     | Total
 comprehensive
 loss |   | Total
 shareholders
 deficiency |  
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |  
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|Balance as of January 1, 2006                                                                      |  |                                          | 60,498,062 |                |   | 13,629                       |  |                                     | 60,582 |                                 |   | (7,000                                           | ) |                      | (77 | )                          |   | (490                             | ) |   | (94,198  | ) |   |        |   |   | (27,554 | )
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|Issuance of shares and warrants held by
 trustee                                                   |  |                                          | -          |                |   | -                            |  |                                     | -      |                                 |   | 7,000                                            |   |                      | -   |                            |   | -                                |   |   | -        |   |   |        |   |   | 7,000   |  
|Stock - based compensation                                                                         |  |                                          | -          |                |   | -                            |  |                                     | 1,426  |                                 |   | -                                                |   |                      | -   |                            |   | -                                |   |   | -        |   |   |        |   |   | 1,426   |  
|Reclassification of deferred compensation
 to additional paid in capital upon adoption of FAS 123R |  |                                          | -          |                |   | -                            |  |                                     | (77    | )                               |   | -                                                |   |                      | 77  |                            |   | -                                |   |   | -        |   |   |        |   |   | -       |  
|Compensation in connection with
 modifications of option                                           |  |                                          | -          |                |   | -                            |  |                                     | 23     |                                 |   | -                                                |   |                      | -   |                            |   | -                                |   |   | -        |   |   |        |   |   | 23      |  
|Exercise of employee stock options                                                                 |  |                                          | 25,824     |                |   | 6                            |  |                                     | 2      |                                 |   | -                                                |   |                      | -   |                            |   | -                                |   |   | -        |   |   |        |   |   | 8       |  
|Comprehensive loss:                                                                                |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   | -                                |   |   |          |   |   |        |   |   |         |  
|Net loss                                                                                           |  |                                          | -          |                |   | -                            |  |                                     | -      |                                 |   | -                                                |   |                      | -   |                            |   | -                                |   |   | (1,921   | ) | $ | (1,921 | ) |   | (1,921  | )
|Foreign currency translation adjustments                                                           |  |                                          | -          |                |   | -                            |  |                                     | -      |                                 |   | -                                                |   |                      | -   |                            |   | 15                               |   |   | -        |   |   | 15     |   |   | 15      |  
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|Total comprehensive loss                                                                           |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   | $ | (1,906 | ) |   |         |  
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|Balance as of December 31, 2006                                                                    |  |                                          | 60,523,886 |                |   | 13,635                       |  |                                     | 61,956 |                                 |   | -                                                |   |                      | -   |                            |   | (475                             | ) |   | (96,119  | ) |   | -      |   |   | (21,003 | )
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|Issuance of shares and warrants, net                                                               |  |                                          | 11,734,950 |                |   | 2,774                        |  |                                     | 3,303  |                                 |   | -                                                |   |                      | -   |                            |   | -                                |   |   | -        |   |   | -      |   |   | 6,077   |  
|Stock - based compensation                                                                         |  |                                          | -          |                |   | -                            |  |                                     | 1,003  |                                 |   | -                                                |   |                      | -   |                            |   | -                                |   |   | -        |   |   | -      |   |   | 1,003   |  
|Exercise of employee stock options                                                                 |  |                                          | 451,669    |                |   | 113                          |  |                                     | 66     |                                 |   | -                                                |   |                      | -   |                            |   | -                                |   |   | -        |   |   | -      |   |   | 179     |  
|Cumulative effect adjustment upon adoption of FIN 48                                               |  |                                          | -          |                |   | -                            |  |                                     | -      |                                 |   | -                                                |   |                      | -   |                            |   | -                                |   |   | (2,617   | ) |   | -      |   |   | (2,617  | )
|Comprehensive loss:                                                                                |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|Net loss                                                                                           |  |                                          | -          |                |   | -                            |  |                                     | -      |                                 |   | -                                                |   |                      | -   |                            |   | -                                |   |   | (6,420   | ) | $ | (6,420 | ) |   | (6,420  | )
|Foreign currency translation adjustments                                                           |  |                                          | -          |                |   | -                            |  |                                     | -      |                                 |   | -                                                |   |                      | -   |                            |   | 602                              |   |   | -        |   |   | 602    |   |   | 602     |  
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|Total comprehensive loss                                                                           |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   | $ | (5,818 | ) |   |         |  
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  
|Balance as of December 31, 2007                                                                    |  |                                          | 72,710,505 |                | $ | 16,522                       |  | $                                   | 66,328 |                                 | $ | -                                                |   | $                    | -   |                            | $ | 127                              |   | $ | (105,156 | ) |   |        |   | $ | (22,179 | )
|                                                                                                   |  |                                          |            |                |   |                              |  |                                     |        |                                 |   |                                                  |   |                      |     |                            |   |                                  |   |   |          |   |   |        |   |   |         |  

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

F  7

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                     
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|                                     
|U.S. dollars in thousands            

|                                                                                               |  |                         |         |      |   |        |   |   |        |  
|---------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- | - | ------ | - | - | ------ | -
|                                                                                               |  | Year ended December 31, |        
|                                                                                               |  |                         |        
|                                                                                               |  | 2005                    |         | 2006 |   | 2007   |  
|                                                                                               |  |                         |         |      |   |        |  
|Cash flows used in operating activities:                                                       |  |                         |         |      |   |        |   |   |        |  
|                                                                                               |  |                         |         |      |   |        |   |   |        |  
|Net loss                                                                                       |  | $                       | (14,706 | )    | $ | (1,921 | ) | $ | (6,420 | )
|Adjustments to reconcile net loss to net
 cash used in
 operating activities:                  |  |                         |         |      |   |        |   |   |        |  
|Depreciation and amortization                                                                  |  |                         | 2,027   |      |   | 1,341  |   |   | 1,387  |  
|Amortization of other intangible assets                                                        |  |                         | 169     |      |   | 167    |   |   | 42     |  
|Issuance of shares to the chairman of the
 board of directors
 for services rendered, net      |  |                         | 31      |      |   | -      |   |   | -      |  
|Compensation in connection with
 modifications of options                                      |  |                         | 48      |      |   | 23     |   |   | -      |  
|Stock  based compensation                                                                     |  |                         | -       |      |   | 1,426  |   |   | 1,003  |  
|Gain on sale of property and equipment                                                         |  |                         | (64     | )    |   | -      |   |   | -      |  
|Fair value of warrants issued to a former
 director                                            |  |                         | 1,441   |      |   | -      |   |   | -      |  
|Deferred income taxes, net                                                                     |  |                         | (106    | )    |   | -      |   |   | -      |  
|Foreign currency translation loss (gain) on
 inter company
 balances with foreign subsidiaries |  |                         | 1,406   |      |   | (499   | ) |   | (453   | )
|Currency fluctuation of long-term debt                                                         |  |                         | -       |      |   | 212    |   |   | 115    |  
|Accrued severance pay, net                                                                     |  |                         | 5       |      |   | 16     |   |   | 14     |  
|Decrease (increase) in trade receivables,
 net                                                 |  |                         | 2,217   |      |   | (2,442 | ) |   | (4,661 | )
|Decrease (increase) in other accounts
 receivable and
 prepaid expenses                        |  |                         | (841    | )    |   | 1,470  |   |   | (1,831 | )
|Decrease (increase) in inventories                                                             |  |                         | 3,585   |      |   | (4,347 | ) |   | (4,478 | )
|Write-off of inventories                                                                       |  |                         | 2,721   |      |   | 806    |   |   | 1,169  |  
|Decrease in long-term trade receivables                                                        |  |                         | 233     |      |   | -      |   |   | -      |  
|Increase in other assets                                                                       |  |                         | (73     | )    |   | (23    | ) |   | (111   | )
|Increase (decrease) in trade payables                                                          |  |                         | (5,732  | )    |   | 1,494  |   |   | 9,833  |  
|Increase (decrease) in deferred revenues                                                       |  |                         | 409     |      |   | (2,628 | ) |   | 170    |  
|Increase (decrease) in other accounts
 payable and accrued
 expenses                           |  |                         | 3,150   |      |   | (1,592 | ) |   | (726   | )
|Increase in other long-term liability                                                          |  |                         | -       |      |   | -      |   |   | 811    |  
|                                                                                               |  |                         |         |      |   |        |   |   |        |  
|                                                                                               |  |                         |         |      |   |        |   |   |        |  
|Net cash used in operating activities                                                          |  |                         | (4,080  | )    |   | (6,497 | ) |   | (4,136 | )
|                                                                                               |  |                         |         |      |   |        |   |   |        |  
|                                                                                               |  |                         |         |      |   |        |   |   |        |  
|Cash flows used in investing activities:                                                       |  |                         |         |      |   |        |   |   |        |  
|                                                                                               |  |                         |         |      |   |        |   |   |        |  
|Proceeds from (investment in) restricted
 cash                                                 |  |                         | 524     |      |   | 41     |   |   | (29    | )
|Proceeds from restricted long-term bank
 deposit                                               |  |                         | 65      |      |   | -      |   |   | -      |  
|Purchase of property and equipment                                                             |  |                         | (753    | )    |   | (1,648 | ) |   | (1,170 | )
|Proceeds from sale of property and
 equipment                                                  |  |                         | 100     |      |   | -      |   |   | -      |  
|                                                                                               |  |                         |         |      |   |        |   |   |        |  
|                                                                                               |  |                         |         |      |   |        |   |   |        |  
|Net cash used in investing activities                                                          |  |                         | (64     | )    |   | (1,607 | ) |   | (1,199 | )
|                                                                                               |  |                         |         |      |   |        |   |   |        |  

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

F  8

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                     
|-------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOWS
|                                     
|U.S. dollars in thousands            

|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |       | 
|------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------- | ------ | ----- | - | ------ | ----- | - | ------ | ----- | 
|                                                                    |                                                                       | Year ended December 31, |       
|                                                                    |                                                                       |                         |       
|                                                                    |                                                                       | 2005                    |        | 2006  |   | 2007   |      
|                                                                    |                                                                       |                         |        |       |   |        |      
|Cash flows from financing activities:                               |                                                                       |                         |        |       |   |        |       |   |        |      
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |      
|Proceeds from issuance of shares and warrants, net                  |                                                                       |                         | 4,932  |       |   | 7,000  |       |   | 6,077  |      
|Proceeds from exercise of options                                   |                                                                       |                         | 4      |       |   | 8      |       |   | 179    |      
|Short-term bank credit and short-term loans, net                    |                                                                       |                         | 1,545  |       |   | (1,810 | )     |   | (66    | )    
|Payment of long-term loans, including interest on restructured
debt |                                                                       |                         | (2,124 | )     |   | (1,561 | )     |   | (1,608 | )    
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |      
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |      
|Net cash provided by financing activities                           |                                                                       |                         | 4,357  |       |   | 3,637  |       |   | 4,582  |      
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |      
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |      
|Effect of exchange rate changes on cash and cash
equivalents        |                                                                       |                         | 338    |       |   | 39     |       |   | 187    |      
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |      
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |      
|Increase (decrease) in cash and cash equivalents                    |                                                                       |                         | 551    |       |   | (4,428 | )     |   | (566   | )    
|Cash and cash equivalents at the beginning of the year              |                                                                       |                         | 8,745  |       |   | 9,296  |       |   | 4,868  |      
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |      
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |      
|Cash and cash equivalents at the end of the year                    |                                                                       | $                       | 9,296  |       | $ | 4,868  |       | $ | 4,302  |      
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |      
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |       | 
|(1)                                                                 | Supplemental disclosure of cash flows activities:                     |                         |        |       |   |        |       |   |        |       | 
|                                                                    | Cash paid during the year for:                                        |                         |        |       |   |        |       |   |        |       | 
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |       | 
|                                                                    | Interest                                                              |                         | $      | 2,574 |   | $      | 1,407 |   | $      | 1,524 | 
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |       | 
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |       | 
|                                                                    | Taxes                                                                 |                         | $      | -     |   | $      | -     |   | $      | 96    | 
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |       | 
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |       | 
|(2)                                                                 | Supplemental disclosure of non-cash operating financing
activities:   |                         |        |       |   |        |       |   |        |       | 
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |       | 
|                                                                    | 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 |                         | $      | 1,382 |   | $      | 687   |   | $      | 227   | 
|                                                                    |                                                                       |                         |        |       |   |        |       |   |        |       | 

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

F  9

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                           |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------------ | ------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|U.S. dollars in thousands                 
|                                           |        
|NOTE 1:                                   | GENERAL
|                                           |        
|                                           | a.      | Ellomay
 Capital Ltd. (the Company) (formerly NUR Macroprinters Ltd.  See Note 1b),
 an Israeli company, and its subsidiaries (collectively, the Group) develop,
 manufacture, sell and provide services of digital printing systems for
 on-demand, short-run, wide format and super-wide format printing as well as
 related consumable products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                                           |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                           |         | The Company
 operates through wholly-owned subsidiaries for sales, support services and
 marketing of the Companys products in their country or region of domicile.
 Such entities include NUR Europe S.A. (NUR Europe) in Belgium, NUR America,
 Inc. (NUR America) in the U.S., NUR Asia Pacific Limited (NUR Asia
 Pacific) in Hong Kong and NUR Japan Ltd. (NUR Japan) in Japan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|                                           |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                           |         | The Company
 manufactures all its printers in a single plant located in Lod, Israel. The
 Company manufactures ink in a manufacturing plant located in Ashkelon,
 Israel.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                           |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                           |         | As to
 principal markets and customers, refer to Note 15.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                           |         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                           | b.      | On December
 9, 2007, the Company entered into an Asset Purchase Agreement (the
 Agreement) with Hewlett-Packard Company (HP) for the sale of its business
 to HP (the HP Transaction). The Agreement contemplated the sale of
 substantially all of the assets and liabilities relating to the business with
 the exception of specific assets and liabilities as defined in the Agreement.
 In connection with the Agreement, HP also agreed to acquire three of the
 Companys subsidiaries, NUR Europe S.A., a company organized pursuant to the
 laws of Belgium, NUR Japan Ltd., a company organized pursuant to the laws of
 Japan and NUR Do Brazil Ltda., a company organized pursuant to the laws of
 Brazil. In addition to the transfer of the assets, liabilities and
 aforementioned subsidiaries, one of the conditions to the consummation of the
 HP Transaction was the transfer of approximately 80% of the Companys
 employees to HP and HPs subsidiaries. The HP Transaction was completed and
 all included assets, liabilities and employees were transferred from the
 Company and its subsidiaries to HP and several of its subsidiaries on
 February 29, 2008 (closing date).

F  10

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                           |                
|------------------------------------------ | ---------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|U.S. dollars in thousands                 
|                                          
|NOTE 1:                                   | GENERAL (Cont.)

| |  |                                                                                                                      
| |  | ---------------------------------------------------------------------------------------------------------------------
| |  | As of
 December 31, 2007, the carrying value of assets and liabilities expected to
 be assumed by HP were as follows:

| |                                                 |  |                                |        | 
| | ----------------------------------------------- |  | ------------------------------ | ------ | 
| |                                                 |  | Year ended
 December 31,
 2007 |       
| |                                                 |  |                                |       
| | Trade
 receivables                              |  | $                              | 15,670 | 
| | Other
 accounts receivable and prepaid expenses |  |                                | 4,414  | 
| | Inventories                                     |  |                                | 20,091 | 
| | Severance
 pay fund                             |  |                                | 1,020  | 
| | Other assets                                    |  |                                | 416    | 
| | Property,
 plant and Equipment, net             |  |                                | 4,721  | 
| |                                                 |  |                                |        | 
| |                                                 |  |                                |        | 
| | Total assets                                    |  |                                | 46,332 | 
| |                                                 |  |                                |        | 
| |                                                 |  |                                |        | 
| | Trade
 payables                                 |  |                                | 21,388 | 
| | Deferred
 revenues                              |  |                                | 2,434  | 
| | Other
 accounts payable and accrued expenses    |  |                                | 6,777  | 
| | Accrued
 severance pay                          |  |                                | 1,310  | 
| |                                                 |  |                                |        | 
| |                                                 |  |                                |        | 
| | Total
 liabilities                              |  |                                | 31,909 | 
| |                                                 |  |                                |        | 
| |                                                 |  |                                |        | 
| | Net tangible
 assets sold                       |  | $                              | 14,423 | 
| |                                                 |  |                                |        | 

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The base
 purchase price pursuant to the agreement is $ 117,500. The purchase price was
 subject to upward or downward adjustment based on the net debt (bank debt
 less cash balances) of the Company and subsidiaries that were not purchased
 by HP as of the closing date. The adjustment on February 29, 2008 was
 approximately $ 4,000, for a total consideration under the Agreement of
 $ 121,500. Of the total consideration, $ 103,900 was transferred to the Company
 on February 29, 2008, the transaction closing date, $ 1,600 was withheld by HP
 until final calculation of the net debt at closing, $ 1,500 was withheld by HP
 until the assignment to the Company of NUR Europes obligations with respect
 to its capital lease and Government grants and the remaining $ 14,500 was
 deposited into an escrow account to secure the indemnity obligations of the
 Company and its remaining subsidiaries. The escrow funds, net of amounts
 distributed to HP in satisfaction of indemnity obligations, are to be
 distributed to the Company in two installments: $ 9,500 is to be distributed
 eighteen months after closing and $ 5,000 is to be distributed twenty-four
 months after closing. The carrying value of net tangible assets sold as of
 the closing date was $ 12,300. In 2008, the Company recorded a gain (before
 taxes) of $ 93,400 in respect to the HP Transaction.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Assets and
 liabilities excluded from the Agreement included, but were not limited to:
 cash balances held by the Company and subsidiaries that were not purchased by
 HP, short and long term bank credit and loans, all costs incurred in respect
 to the HP Transaction including severance liabilities, rights and obligations
 in respect to employees not transferred to HP; rights and obligations related
 to outstanding litigation, claims and disputes; intercompany balances, all
 tax benefits and obligations with the exception of such benefits and
 obligations relating to continuing operations from the closing date, assets
 and obligations in respect of certain government-supported research and
 development projects and obligations due to or from shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F  11

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                          
|------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                                          
|U.S. dollars in thousands                 

|           |                
|---------- | ---------------
|NOTE 1:   | GENERAL (Cont.)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As part of
  the agreement, the Company agreed to change its corporate name. The Companys
  name was changed to Ellomay Capital Ltd. in April 2008. In addition, the
  Company agreed not to solicit any former employees who were transferred to HP
  or to engage in any business engaged directly in the same business as
  conducted by the Company at closing, both for a period of three years
  following the closing date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In
  connection with the HP Transaction, the Board of Directors approved the
  acceleration of the vesting of all outstanding employee stock options
  following the closing date and the repurchase, subject to the fulfillment of
  regulatory requirements, of currently outstanding employee stock options to
  purchase approximately 9.9 million Ordinary shares of the Company. The
  aggregate consideration for such employee stock options, is expected to be up
  to $ 3,800. Of the total, $ 3,100 is expected to be paid shortly following the
  fulfillment of the aforementioned regulatory requirements and an additional
  payment, up to the aggregate amount, will be calculated after all HP
  transaction related issues and other financial aspects of the Company are
  known and verified and will be paid following the release to the Company of
  the funds deposited in escrow. In 2008, upon closing, the acceleration
  resulted in full recognition of the remaining unrecognized compensation costs.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Board
  also approved the payment of transaction bonuses to certain employees in the
  aggregate amount of approximately $ 700 and established that, subject to the
  aforementioned determination and verification of all transaction related
  issues and other financial aspects of the Company, additional bonuses may be
  paid to certain employees, based on criteria, amounts and percentages
  pre-determined by the Board. The Company recorded the liability for
  transaction bonuses in 2008, upon closing.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | As a result
  of the HP Transaction and the cessation of virtually all operations, a
  majority of the Companys employees not transferred to HP, including the
  majority of the Companys senior management, have been terminated by the
  Company. In connection with such terminations, the Company recorded as of the
  HP Transaction closing date severance-related expenses in the approximate
  amount of $ 2,800.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Upon
  consummation of the HP Transaction, in March 2008 the Company repaid
  short-term debt to its lender banks in the amount of $9,800. In April 2008,
  it fully repaid outstanding long-term debt to its lenders in the amount of
  $11,900. In May 2008, a $ 5,000 subordinated note due to a related party was
  cancelled effective as of March 30, 2008. In connection with the cancellation
  of the subordinated note and the repayment of the loans, the Company wrote
  off the subordinated note recognizing a capital contribution of $ 5,000 and
  wrote off the accrued interest on restructured debt recognizing financial
  income of approximately $ 7,300.                                                                                                                                                                                                                                                                                                                                                     

F  12

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                
|----------- | ---------------
|NOTE 1:    | GENERAL (Cont.)

|            |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | c.                                                                                                                                            | Capital
  investment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                                                                                                                               | During the
  first quarter of 2007, the Company secured funding in the amount of $ 6,100,
  net of expenses, through a private placement in which it issued 11,734,950
  Ordinary shares at $ 0.54 per share to various investors. The Company also
  issued to the investors warrants to purchase up to 3,520,485 Ordinary shares
  at an exercise price of $ 0.65 per share. The warrants are exercisable for
  five years from the closing date of the private placement.                                                                                                                                                                                                                                                                                                                    
|            |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | d.                                                                                                                                            | The
  Company purchases 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-jet printer-heads to operate their printers. Through the HP
  Transaction closing date, as the Companys business depended 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. As part of the terms of the HP Transaction
  (see Note 1b), the Company agreed not to engage in any business engaged
  directly in the same business as conducted by the Company at closing and the
  Companys relationship with the supplier has been terminated.
|            |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | e.                                                                                                                                            | The Company
  employs a limited number of unaffiliated subcontractors to manufacture
  components for its printers. Through the HP Transaction closing date, as the
  Company relied 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. As part
  of the terms of the HP Transaction (see Note 1b), the Company agreed not to
  engage in any business engaged directly in the same business as conducted by
  the Company at closing and the Companys relationships with the
  subcontractors have been terminated.                             
|            |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES                                                                                                              
|            |                                                                                                                                              
|            | The
  consolidated financial statements have been prepared according to United
  States generally accepted accounting principles, as follows:
|            |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            | a.                                                                                                                                            | Use of
  estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|            |                                                                                                                                               | The
  preparation of financial statements in conformity with U.S. generally
  accepted accounting principles requires management to make estimates, judgments
  and assumptions. The Companys management believes that the estimates,
  judgments and assumptions used are reasonable based upon information
  available at the time they are made. These estimates, judgments and
  assumptions can affect the reported amounts of assets and liabilities and
  disclosure of contingent assets and liabilities at the dates of the financial
  statements, and the reported amounts of revenues and expenses during the
  reporting period. Actual results could differ from these estimates.                                                                                                
|            |                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F  13

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|           |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---------- | --------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:   | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|           |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|           | 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.                                                                                                                                                                                                          
|           |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|           |                                         | For the
  Company and certain subsidiaries, for which the reporting and functional
  currency is the dollar, transactions and balances that are denominated in
  dollars are presented at their original amounts. Non-dollar transactions and
  balances have been remeasured to dollars in accordance with SFAS No. 52,
  Foreign Currency Translation. All foreign currency transaction gains and
  losses are reflected in the statements of operations as financial income or
  expenses, as appropriate.
|           |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|           |                                         | For those
  subsidiaries whose functional currency has been determined to be their local
  currency, assets and liabilities are translated at year-end exchange rates
  and statement of operations items are translated at average exchange rates
  prevailing during the year. Such translation adjustments are recorded as a
  separate component of accumulated other comprehensive loss in shareholders
  deficiency.                                                                                    
|           |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|           | 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.
  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.                                                                                                                                         

F  14

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

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

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 2005,
  2006 and 2007, as a result of the demand for printers of older models, the
  Company began utilizing related inventories that were written-off in prior
  years. In 2005, 2006 and 2007, inventory previously written-off with a cost
  of $205, $310 and $803, respectively, was used as components for products in
  the Companys regular line of production and was sold as finished goods. The
  sales of these related manufactured products were reflected in the Companys
  revenues without an associated additional cost to the cost of revenues in the
  period in which the inventory was utilized.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Cost 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, 2005   |  | $                                       | 8,134  |  
| | Charge to
  cost                  |  |                                         | 2,721  |  
| | Deduction                         |  |                                         | (7,117 | )
| |                                   |  |                                         |        |  
| |                                   |  |                                         |        |  
| | Balance as
  of December 31, 2005 |  |                                         | 3,738  |  
| | Charge to
  cost                  |  |                                         | 806    |  
| | Deduction                         |  |                                         | (1,570 | )
| |                                   |  |                                         |        |  
| |                                   |  |                                         |        |  
| | Balance as
  of December 31, 2006 |  |                                         | 2,974  |  
| | Charge to
  cost                  |  |                                         | 1,169  |  
| | Deduction                         |  |                                         | (803   | )
| |                                   |  |                                         |        |  
| |                                   |  |                                         |        |  
| | Balance as
  of December 31, 2007 |  | $                                       | 3,340  |  
| |                                   |  |                                         |        |  

| |    |                                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | g. | 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

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | h. | 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, 2006 and 2007, no impairment losses were identified.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | i. | Other
  intangible assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | Intangible
  assets are stated at cost and are amortized over their estimated useful lives
  using a method of amortization that reflects the pattern in which the
  economic benefits of the intangible assets are consumed or otherwise used up,
  in accordance with SFAS No. 142, Goodwill and Other Intangible Assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | Intangible
  assets as of December 31, 2006 and 2007 consisted of a production agreement,
  which was amortized over three years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | j. | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F  16

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | When a sale
  involves multiple elements, such as sales of printers that include a right to
  receive specified upgrades or an extended warranty agreement, the entire fee
  from the arrangement 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 is no
  objective and reliable evidence of the fair value of the undelivered element,
  the Company accounts for the total arrangement as one unit of accounting. As
  such, the Company recognizes revenue for the arrangement only when all
  revenue recognition criteria are met for the undelivered element.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company
  considers all arrangements with payment terms extending beyond the standard
  payment terms not to be fixed or determinable. If the fee is not fixed or
  determinable, revenue is recognized as payments become due from the customer,
  provided that all other revenue recognition criteria have been met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Revenues
  from ink and other consumable products are generally recognized upon shipment
  assuming all other revenue recognition criteria have been met.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Revenues
  from services are comprised of maintenance and support arrangements. Revenues
  from maintenance and support arrangements are recognized on a straight-line
  basis over the term of the arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In cases
  where the Company trades-in old printers as part of sales of new printers,
  the fair value of the old printer is recorded as revenue, provided that such
  value can be determined. If such value can not be determined the old printers
  are recorded at zero value. The amount of revenues recognized for the
  transaction equals the fair value of the old printer plus any monetary
  consideration received.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Deferred
  revenues includes amounts received from customers for which revenue has not
  yet been recognized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | k. | 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 installation of the product is completed. 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.                                                                                                                                                                                                                                                                                                                                                                                                

F  17

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                         |                                                                   
|----------- | --------------------------------------- | ------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                        
|            |                                         | Changes in
  the Groups liability during the year are as follows:

|                                                    |  |              |        |      |   |        |  
|--------------------------------------------------- |  | ------------ | ------ | ---- | - | ------ | -
|                                                    |  | December 31, |       
|                                                    |  |              |       
|                                                    |  | 2006         |        | 2007 |  
|                                                    |  |              |        |      |  
|                                                   
|Balance at the beginning of the year                |  | $            | 978    |      | $ | 1,505  |  
|Utilization of warranties                           |  |              | (2,232 | )    |   | (1,945 | )
|Changes in liability for warranty during
  the year |  |              | 2,759  |      |   | 2,033  |  
|                                                    |  |              |        |      |   |        |  
|                                                    |  |              |        |      |   |        |  
|Balance at the end of the year                      |  | $            | 1,505  |      | $ | 1,593  |  
|                                                    |  |              |        |      |   |        |  

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | l. | Research and
  development costs, net:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Research and
  development costs are charged to the statement of operations as incurred, net
  of grants received.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | m. | Government
  grants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Royalty-bearing
  grants from the local authorities in Belgium and Israel for funding approved
  research and development projects are recognized at the time the Group is
  entitled to such grants, and are included as a reduction of the research and
  development costs. Related royalty obligations are recognized on an accrual
  basis, as the Group becomes liable. Total royalty expenses accrued or paid
  amounted to $ 236, $ 0 and $ 0 in 2005, 2006 and 2007, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | n. | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | The Company
  accounts for income taxes in accordance with FASB Statement No. 109
  Accounting for Income Taxes (SFAS 109). SFAS 109 prescribes the use of
  the liability method whereby deferred tax assets and liability account
  balances are determined based on differences between the financial reporting
  and tax bases of assets and liabilities and are measured using the enacted
  tax rates and laws that will be in effect when the differences are expected
  to reverse. The Company provides a valuation allowance, if necessary, to
  reduce deferred tax assets to amounts more likely than not to be realized.
  Deferred tax liabilities and assets are classified as current or non current
  based on the classification of the related asset or liability for financial
  reporting, or according to the expected reversal dates of the specific
  temporary differences if not related to an asset or liability for financial
  reporting.

F  18

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------- | --------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                        
|            |                                         | On January
  1, 2007, the Company adopted FASB Interpretation No. 48, Accounting for
  Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109
  (FIN 48). FIN 48 contains a two-step approach to recognizing and measuring
  uncertain tax positions accounted for in accordance with SFAS 109. The first
  step is to evaluate the tax position taken or expected to be taken in a tax
  return by determining if the weight of available evidence indicates that it
  is more likely than not that, on an evaluation of the technical merits, the
  tax position will be sustained on audit, including resolution of any related
  appeals or litigation processes. The second step is to measure the tax
  benefit as the largest amount that is more than 50% likely to be realized
  upon ultimate settlement. The Company accrues interest and penalties related
  to unrecognized tax benefits in its provision for income tax.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         | As a result
  of the adoption of FIN 48, the Group recorded $ 2,617 to retained earnings for
  uncertain tax positions which, if recognized, would affect the effective tax
  rate. This amount includes accrued interest expenses and penalties related to
  the unrecognized tax benefit as of that date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            | o.                                      | Concentrations
  of credit risk:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         | Financial
  instruments that potentially subject the Group to concentrations of credit
  risk consist principally of cash and cash equivalents, restricted cash and
  trade receivables.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         | The majority
  of the Groups cash and cash equivalents and restricted cash are invested in
  dollar and Euro instruments with major banks in Israel, United States, Asia
  and Belgium. Such deposits in the United States may be in excess of insured
  limits and are not insured in other jurisdictions. However, management
  believes that such financial institutions are financially sound, and
  accordingly, minimal credit risk exists with respect to these investments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         | The trade
  receivables of the Group are derived mainly from sales to customers located
  primarily in Europe, America and Asia. Management believes that credit risks
  are moderated by the diversity of its end-customers and geographic sales
  areas. The Group performs ongoing credit evaluations of its customers
  financial condition. The Group does not require collateral from its
  customers. Management of the Company periodically performs an evaluation of
  its composition of accounts receivable and expected credit trends and establishes
  an allowance for doubtful accounts with respect to those amounts that has
  determined to be doubtful of collections and in accordance with aging key and
  charge off receivables where they deemed uncollectible. The past-due status
  of accounts receivable is determined primarily based upon contractual terms.                                                                  
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         | The Group
  has no off-balance-sheet concentration of credit risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F  19

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                         |                                                                         
|----------- | --------------------------------------- | ------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                        
|            |                                         | Changes in
  the Groups allowance for doubtful accounts are as follows:

|                                |  |                                      |        |  
|------------------------------- |  | ------------------------------------ | ------ | -
|                                |  | Allowance for 
  doubtful
  accounts |       
|                                |  |                                      |       
|                               
|Balance as of January 1, 2005   |  | $                                    | 11,010 |  
|Provision, net of recoveries    |  |                                      | (1,132 | )
|Write-off and other             |  |                                      | (4,368 | )
|                                |  |                                      |        |  
|                                |  |                                      |        |  
|Balance as of December 31, 2005 |  |                                      | 5,510  |  
|Provision, net of recoveries    |  |                                      | (314   | )
|Write-off and other             |  |                                      | (302   | )
|                                |  |                                      |        |  
|                                |  |                                      |        |  
|Balance as of December 31, 2006 |  |                                      | 4,894  |  
|Provision, net of recoveries    |  |                                      | 942    |  
|Write-off and other             |  |                                      | (985   | )
|                                |  |                                      |        |  
|                                |  |                                      |        |  
|Balance as of December 31, 2007 |  | $                                    | 4,851  |  
|                                |  |                                      |        |  

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | p. | Severance
  pay:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The
  Companys liability for severance pay is calculated pursuant to Israels
  Severance Pay Law based on the most recent salary of the employees multiplied
  by the number of years of employment, as of the balance sheet date. The
  Company records as expenses the increase in the severance liability, net of
  the earnings from the related investment fund. Employees are entitled to one
  months salary for each year of employment, or a portion thereof. The
  Companys liability for all of employees is fully provided by monthly
  deposits with severance pay funds and insurance policies and by an accrual. The
  value of these policies is recorded as an asset in the Companys consolidated
  balance sheet.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The
  deposited funds include profits 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, 2005, 2006 and 2007 amounted to
  $ 891, $ 907 and $ 905, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F  20

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- | --------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                        
|            | q.                                      | Employee
  benefit plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                         | The Company
  has a 401(K) defined contribution plan covering all employees in the U.S. All
  eligible employees may elect to contribute up to 15%, but generally not in
  excess of $ 15 per year, of their annual compensation through salary
  deferrals, subject to IRS limits. The Companys 401(K) contribution plan
  includes a fixed matching contribution program of 50% of employee
  contributions to the plan up to a limit of 3% of their eligible compensation.
  During 2005, 2006 and 2007, the Company matched contributions in the amount
  of $ 10, $ 23 and $ 19, respectively.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | r.                                      | Fair value
  of financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                         | The carrying
  amounts of cash and cash equivalents, restricted cash, trade receivables,
  other accounts receivable and prepaid expenses, 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 9) other than subordinated notes issued to related parties, approximates
  their fair value. Book values of long-term loans bearing variable interest
  approximate fair values due to the variable interest rates on these loans.
  Book values of long-term loans bearing fixed interest approximate fair values
  since it is not materially different than the market rate for similar loans.                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | s.                                      | Advertising
  expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            |                                         | Advertising
  expenses are expensed as incurred. Advertising expenses for the years ended
  December 31, 2005, 2006 and 2007 amounted to $ 189, $ 287 and $ 442,
  respectively.                                                                                                                                                                                                                                                                                                                                                                                                                    
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | t.                                      | 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 year
  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
  14,343,543, 50,163,084 and 54,749,478 for the years ended December 31, 2005,
  2006 and 2007, respectively.                                                                                                                                                          

F  21

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----------- | --------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2:    | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|            |                                        
|            | u.                                      | Accounting
  for stock-based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | On January
  1, 2006, the Company adopted SFAS No. 123 (revised 2004), Share-Based
  Payment (SFAS No. 123(R)), which requires the measurement and recognition
  of compensation expense based on estimated fair values for all stock-based
  payment awards made to employees and directors. SFAS No. 123(R) supersedes
  Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
  Employees(APB No. 25), for periods beginning in fiscal year 2006. In March
  2005, the Securities and Exchange Commission issued Staff Accounting Bulletin
  No. 107 (SAB 107) relating to SFAS No. 123(R). The Company has applied the
  provisions of SAB 107 in its adoption of SFAS No. 123(R). SFAS No. 123(R)
  requires companies to estimate the fair value of equity-based payment awards
  on the date of grant using an option-pricing model. The value of the portion
  of the award that is ultimately expected to vest is recognized as an expense
  over the requisite service periods in the Companys consolidated income
  statements.
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | The Company
  adopted SFAS No. 123(R) using the modified prospective transition method.
  Under that transition method, compensation cost includes: (a) compensation
  cost for all stock-based payments granted prior to, but not yet vested as of
  January 1, 2006, based on the grant date fair value estimated in accordance
  with the original provisions of SFAS No. 123, and (b) compensation cost for
  all stock-based payments granted subsequent to January 1, 2006, based on the
  grant-date fair value estimated in accordance with the provisions of SFAS No.
  123(R). Results for prior periods have not been restated.                                                                                                                                                                                                                                                                                                                                                                                                                                
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | The Company
  recognizes compensation expenses for the value of its awards granted
  subsequent to January 1, 2006 based on the straight-line method over the
  requisite service period of each of the awards, net of estimated forfeitures.
  SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and
  revised, if necessary, in subsequent periods if actual forfeitures differ
  from those estimates. Estimated forfeitures are based on actual historical
  pre-vesting forfeitures. For awards granted prior to January 1, 2006, the
  Company recognizes compensation expenses based on the accelerated attribution
  method over the requisite service period of each of the awards. Forfeitures
  were previously accounted for as they occurred, but have been estimated with
  the adoption of SFAS No. 123(R) for those awards not yet vested.                                                                                                                                                                                        
|            |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|            |                                         | Prior to the
  adoption of SFAS No. 123(R), the Company accounted for equity-based awards to
  employees and directors using the intrinsic value method in accordance with
  APB No. 25 as allowed under SFAS No. 123, Accounting for Stock-Based
  Compensation (SFAS No. 123). Pursuant to these accounting standards, the
  Company recorded deferred compensation for stock options granted to employees
  at the date of grant equal to the excess of the market value of the
  underlying shares at that date over the exercise price of the options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

F  22

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ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-------- | --------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 2: | SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|         |                                        
|         |                                         | The Company
  estimates the fair value of stock options granted using the
  Black-Scholes-Merton option pricing model. The option-pricing model requires
  a number of assumptions, of which the most significant are the expected stock
  price volatility and the expected option term. Expected volatility was
  calculated based upon actual historical stock price movements. The expected
  term of options granted is based upon historical experience and represents
  the period of time that options granted are expected to be outstanding. The
  risk-free interest rate is based on the yield from U.S. treasury bonds with
  an equivalent term. The Company has historically not paid dividends and has
  no foreseeable plans to pay dividends.
|         |                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|         |                                         | The fair
  value for options granted in 2005, 2006 and 2007 is estimated at the date of
  grant using the Black-Scholes option pricing model with the following
  weighted average assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|                         |  |                         |       |      |  |       |  |  |       | 
|------------------------ |  | ----------------------- | ----- | ---- |  | ----- |  |  | ----- | 
|                         |  | Year ended December 31, |      
|                         |  |                         |      
|                         |  | 2005                    |       | 2006 |  | 2007  | 
|                         |  |                         |       |      |  |       | 
|                        
|Dividend yield           |  |                         | 0%    |      |  | 0%    |  |  | 0%    | 
|Expected volatility      |  |                         | 1.19  |      |  | 1.12  |  |  | 1.07  | 
|Risk-free interest       |  |                         | 3.99% |      |  | 4.67% |  |  | 4.41% | 
|Expected life (in years) |  |                         | 3     |      |  | 3.5   |  |  | 3.5   | 
|                         |  |                         |       |      |  |       |  |  |       | 

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

|                                                                                             |  |                                  |         |  
|-------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | -
|                                                                                             |  | Year ended
  December 31,
  2005 |        
|                                                                                             |  |                                  |        
|                                                                                            
|Net loss as reported                                                                         |  | $                                | (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 |  |                                  | (528    | )
|                                                                                             |  |                                  |         |  
|                                                                                             |  |                                  |         |  
|Pro forma net loss                                                                           |  | $                                | (15,186 | )
|                                                                                             |  |                                  |         |  
|                                                                                             |  |                                  |         |  
|Net loss per share:                                                                          |  |                                  |         |  
|Basic and diluted net loss per share, as
  reported                                          |  | $                                | (0.46   | )
|                                                                                             |  |                                  |         |  
|                                                                                             |  |                                  |         |  
|Basic and diluted pro forma net loss per
  share                                             |  | $                                | (0.48   | )
|                                                                                             |  |                                  |         |  

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company
  applies SFAS No. 123 and EITF No. 96-18, Accounting for Equity Instruments
  That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
  Selling, Goods or Services, with respect to options and warrants issued to
  non-employees. SFAS No. 123 requires the use of option valuation models to
  measure the fair value of the options and warrants at the measurement date as
  defined in EITF No. 96-18.

F  23

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---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | v. | Comprehensive
  loss:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company
  accounts for comprehensive loss in accordance with SFAS No. 130, Reporting
  Comprehensive Income. This Statement establishes standards for the reporting
  and display of comprehensive loss and its components in a full set of general
  purpose financial statements. Comprehensive loss generally represents all
  changes in shareholders equity during the period except those resulting from
  investments by, or distributions to shareholders. The Company determined that
  its only item of other comprehensive loss relates to foreign currency
  translation adjustments.                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | w. | Impact of
  recently issued accounting standards:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In September
  2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157,
  Fair Value Measurements (SFAS No. 157). This Standard defines fair value,
  establishes a framework for measuring fair value in generally accepted
  accounting principles and expands disclosures about fair value measurements.
  The provisions of SFAS No. 157 are effective for the Company beginning January
  1, 2008. The FASB issues a FASB Staff Position (FSP) to defer the effective
  date of SFAS No. 157 for one year for all nonfinancial assets and
  nonfinancial liabilities, except for those items that are recognized or
  disclosed at fair value in the financial statements on a recurring basis. The
  Company does not expect the adoption will have material impact on its
  consolidated financial statements.                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In February
  2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
  Assets and Financial Liabilities (SFAS No. 159). SFAS No. 159 permits
  companies to choose to measure certain financial instruments and certain
  other items at fair value. The standard requires that unrealized gains and
  losses on items for which the fair value option has been elected be reported
  in earnings. The provisions of SFAS No. 159 are effective for the Company
  beginning January 1, 2008. The Company does not expect the adoption of SFAS
  No. 159 will have an impact on its consolidated financial statements.                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In December
  2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations
  (SFAS 141R). SFAS 141R establishes principles and requirements for how an
  acquirer recognizes and measures in its financial statements the identifiable
  assets acquired, the liabilities assumed, any non controlling interest in the
  acquiree and the goodwill acquired. SFAS 141R also establishes disclosure
  requirements to enable the evaluation of the nature and financial effects of
  the business combination. SFAS 141R is effective for fiscal years beginning
  after December 15, 2008. Earlier adoption is prohibited. The Company expects
  SFAS 141R will have an impact on its consolidated financial statements when
  adopted, but the nature and magnitude of the specific effects will depend upon
  the nature, terms and size of the acquisitions it consummates after the
  effective date.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | The Company
  is still assessing the impact of this standard on its future consolidated
  financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F  24

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---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

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

|                                             |  |              |       |      |   |       | 
|-------------------------------------------- |  | ------------ | ----- | ---- | - | ----- | 
|                                             |  | December 31, |      
|                                             |  |              |      
|                                             |  | 2006         |       | 2007 |  
|                                             |  |              |       |      |  
|                                             |  |              |       |      |   |       | 
|Government
  authorities                     |  | $            | 1,443 |      | $ | 2,752 | 
|Employees                                    |  |              | 137   |      |   | 317   | 
|Advances to
  suppliers                      |  |              | 112   |      |   | 629   | 
|Prepaid
  expenses                           |  |              | 554   |      |   | 595   | 
|Office of
  the Chief Scientist (See Note 4) |  |              | -     |      |   | 79    | 
|Other                                        |  |              | 141   |      |   | 53    | 
|                                             |  |              |       |      |   |       | 
|                                             |  |              |       |      |   |       | 
|                                             |  | $            | 2,387 |      | $ | 4,425 | 
|                                             |  |              |       |      |   |       | 

|            |                                  
|----------- | ---------------------------------
|NOTE 4:    | OFFICE OF CHIEF SCIENTIST (OCS)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | During
  1998-2003, the Company participated in a research and development consortium
  of industrial companies and academic institutions within the framework of the
  MAGNET program of the OCS. No royalties are payable to the OCS with respect
  to this funding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | During
  2005-2007, the Company participated in an ink technology project with the
  Technion  The Israel Institute of Technology, which received the approval of
  the Mini-MAGNET (or Magneton) committee of the Office of Chief Scientist of
  the Ministry of Industry, Trade and Labor (OCS). No royalties are payable
  to the OCS with respect to this funding; however, the terms of the agreement
  with the Technion require the Company to pay royalties to the Technion on the
  proceeds from sales of products resulting from this project when such sales
  commence. As of December 31, 2007 sales of products had not commenced and no
  royalties were due. Grants relating to the Magneton project in the amount of
  $ 379 were recorded during 2007.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | b. | The Company
  entered into several project plans with the OCS in prior years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Following
  the settlement as described in d, the full balance of commitments for amounts
  received in the past from the OCS was converted into and recorded as a
  settlement accrual. The outstanding balance as of December 31, 2006 and 2007
  was $ 357 and $ 79, respectively. As of December 31, 2007, the liability was
  fully offset with the grant received from the Magneton project in accordance
  with the terms of the settlement.                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | c. | Under the
  terms of grants awarded in prior years by the Fund for the Encouragement of
  Marketing Activities of the Ministry of Industry, Trade and Labor (the
  Marketing Fund) to the Company, the Company was obligated to pay royalties
  to the Marketing Fund at the rate of 3% - 4% of the increase in export sales
  of products for which the Company received grants for in support of its
  marketing activities, up to an amount equal to 100% - 150% of the grants
  received, linked to the U.S. dollar.                                                                                                                                                                                                                                                  

F  25

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---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                          
|----------- | -----------------------------------------
|NOTE 4:    | OFFICE OF CHIEF SCIENTIST (OCS) (Cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | Following
  the settlement described in d, all the contingent commitments for amounts
  received in the past from the Marketing Fund were converted into and recorded
  as a settlement accrual. The outstanding balance was $ 519 and $ 221 as of
  December 31, 2006 and 2007, respectively. As of December 31, 2007, the
  liability was fully offset with the grant received from the Magneton project
  in accordance with the terms of the settlement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | d. | In the first
  calendar quarter of 2006, the District Court in Jerusalem approved the
  settlement between the Company and the OCS and the Marketing Fund. The
  agreement settled the dispute between the Company, the OCS and the Marketing
  Fund regarding the Companys outstanding obligation to pay royalties and
  provided for the repayment of the outstanding debt in 36 equal monthly
  installments starting January 2006. The Company also agreed to accelerate the
  payment of the outstanding balance by advancing payments equal to 5% of
  operating income. It was further agreed that all future grants due to the
  Company from the OCS or the Marketing Fund would be applied to the settlement
  balance until the liability was paid in full.                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | e. | According to
  the Encouragement of Industrial Research and Development Law, 1984, the
  Companys technologies are subject to transfer of technology and
  manufacturing rights restrictions. The discretionary approval of the OCS
  committee is required for any transfer of technology developed with OCS
  funding (including Magnet and Magneton programs). OCS approval is not required
  for the export of any products resulting from the research or development, or
  for licensing of the technology in the ordinary course of business.                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    | Following
  the HP Transaction (see Note 1b), all of the Companys intellectual property
  that was used for its business was sold to HP, including intellectual
  property developed with the assistance of the OCS. The OCS approved the
  transfer of the technology developed with OCS funding prior to the closing of
  the HP transaction, subject to an exclusive and irrevocable manufacturing
  license provided by HP to its Israeli subsidiary. HP may decide to transfer
  the manufacturing of products developed with the assistance of the OCS
  outside of Israel. In this event, the Company may be required to reimburse HP
  for payments made to the OCS in connection with such transfer of
  manufacturing. It is too early to determine what amounts, if any, will be
  paid by HP to the OCS. In the event that any payments are required, amounts
  due are to be deducted from the escrow account (see Note 1b).

F  26

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ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                          
|----------- | -----------------------------------------
|NOTE 4:    | OFFICE OF CHIEF SCIENTIST (OCS) (Cont.)

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

| |                                            |  |              |      |      |   |      |  
| | ------------------------------------------ |  | ------------ | ---- | ---- | - | ---- | -
| |                                            |  | December 31, |     
| |                                            |  |              |     
| |                                            |  | 2006         |      | 2007 |  
| |                                            |  |              |      |      |  
| |                                            |  |              |      |      |   |      |  
| | OCS Magneton
  grant receivable            |  | $            | -    |      | $ | 379  |  
| |                                            |  |              |      |      |   |      |  
| |                                            |  |              |      |      |   |      |  
| | Debt to the
  OCS (i)                      |  | $            | (357 | )    | $ | (79  | )
| | Debt to the
  Marketing Fund (ii)          |  |              | (519 | )    |   | (221 | )
| |                                            |  |              |      |      |   |      |  
| |                                            |  |              |      |      |   |      |  
| |                                            |  | $            | (876 | )    | $ | (300 | )
| |                                            |  |              |      |      |   |      |  
| |                                            |  |              |      |      |   |      |  
| | First year
  (current maturity)            |  | $            | (472 | )    | $ | (300 | )
| | Second year                                |  |              | (404 | )    |   | -    |  
| |                                            |  |              |      |      |   |      |  
| |                                            |  |              |      |      |   |      |  
| | Net OCS
  grants receivable (loan payable) |  | $            | (876 | )    | $ | 79   |  
| |                                            |  |              |      |      |   |      |  

| |      |                                                                                                                                
| | ---- | -------------------------------------------------------------------------------------------------------------------------------
| | (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.                                    

|            |            
|----------- | -----------
|NOTE 5:    | INVENTORIES

| |                     |  |              |           |      |   |           | 
| | ------------------- |  | ------------ | --------- | ---- | - | --------- | 
| |                     |  | December 31, |          
| |                     |  |              |          
| |                     |  | 2006         |           | 2007 |  
| |                     |  |              |           |      |  
| |                     |  |              |           |      |   |           | 
| | Raw
  materials     |  | $            | 4,133     |      | $ | 4,651     | 
| | Work
  in-progress  |  |              | 2,213     |      |   | 2,020     | 
| | Finished
  products |  |              | *) 10,054 |      |   | *) 13,420 | 
| |                     |  |              |           |      |   |           | 
| |                     |  |              |           |      |   |           | 
| |                     |  | $            | 16,400    |      | $ | 20,091    | 
| |                     |  |              |           |      |   |           | 

| |    |                                                                                                                                                                       
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *) | Includes
  amounts of $ 1,981 and $ 2,329 for 2006 and 2007, respectively, with respect to
  inventory delivered to customers but for which no revenue was recognized.

F  27

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---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

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

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

| |                                      |  |              |        |      |   |        | 
| | ------------------------------------ |  | ------------ | ------ | ---- | - | ------ | 
| |                                      |  | December 31, |       
| |                                      |  |              |       
| |                                      |  | 2006         |        | 2007 |  
| |                                      |  |              |        |      |  
| |                                      |  |              |        |      |   |        | 
| | Cost:                                |  |              |        |      |   |        | 
| | Machinery and equipment              |  | $            | 3,715  |      | $ | 3,998  | 
| | Motor vehicles                       |  |              | 26     |      |   | 26     | 
| | Office furniture and equipment       |  |              | 8,498  |      |   | 9,507  | 
| | Buildings (c)                        |  |              | 1,441  |      |   | 1,626  | 
| | Leasehold improvements               |  |              | 5,592  |      |   | 5,717  | 
| |                                      |  |              |        |      |   |        | 
| |                                      |  |              |        |      |   |        | 
| |                                      |  |              | 19,272 |      |   | 20,874 | 
| | Accumulated
  depreciation           |  |              | 13,514 |      |   | 14,930 | 
| |                                      |  |              |        |      |   |        | 
| |                                      |  |              |        |      |   |        | 
| | Property,
  plant and equipment, net |  | $            | 5,758  |      | $ | 5,944  | 
| |                                      |  |              |        |      |   |        | 

| |    |                                                                                                                                                                                                                                                                                                                                                                      
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | In respect
  to a floating lien recorded on property, plant and equipment, refer to Note
  11c.                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                      
| | c. | Capital
  lease:                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                      
| |    | NUR Europe
  leases certain spaces under lease agreements which are recorded as capital
  leases. The related facilities are included in property, plant and equipment
  and depreciated accordingly. The cost and accumulated depreciation of
  facilities for the years ended December 31, 2006 and 2007 were $ 1,441 and
  $ 1,626, $ 397 and $ 499, respectively.

|            |                                          
|----------- | -----------------------------------------
|NOTE 7:    | OTHER INTANGIBLE ASSETS, NET             
|            |                                          
|            | Composition
  of other intangible assets:

| |                                |  |              |     |      |   |     | 
| | ------------------------------ |  | ------------ | --- | ---- | - | --- | 
| |                                |  | December 31, |    
| |                                |  |              |    
| |                                |  | 2006         |     | 2007 |  
| |                                |  |              |     |      |  
| |                                |  |              |     |      |   |     | 
| | Production
  agreement *):     |  |              |     |      |   |     | 
| | Original amounts               |  | $            | 504 |      | $ | 504 | 
| | Accumulated amortization       |  |              | 462 |      |   | 504 | 
| |                                |  |              |     |      |   |     | 
| |                                |  |              |     |      |   |     | 
| | Other
  intangible assets, net |  | $            | 42  |      | $ | -   | 
| |                                |  |              |     |      |   |     | 

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

F  28

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

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

| |                                                        |  |                 |      |                         |      |                         |      |   |       |   |   |        |  
| | ------------------------------------------------------ |  | --------------- | ---- | ----------------------- | ---- | ----------------------- | ---- | - | ----- | - | - | ------ | -
| |                                                        |  |                 |      | Interest rate           |      | December 31,            |     
| |                                                        |  | Linkage
  terms |      |                         |      |                         |      |   |       |   |   |        |  
| |                                                        |  |                 | 2006 |                         | 2007 |                         | 2006 |   | 2007  |  
| |                                                        |  |                 |      |                         |      |                         |      |   |       |   |   |        |  
| |                                                        |  |                 |      | %                       |      |                         |      |   |       |   |  
| |                                                        |  |                 |      |                         |      |                         |      |   |       |   |   |        |  
|
| | Short-term bank credit (a)                             |  | U.S.
  dollar   |      | LIBOR
  +
  0.25 - 0.75 |      | LIBOR
  +
  0.25 - 0.75 |      | $ | 7,526 |   | $ | 8,801  |  
| | Short-term bank credit (a)                             |  | Euro            |      | LIBOR
  +
  0.25 - 0.75 |      | LIBOR
  +
  0.25 - 0.75 |      |   | 113   |   |   | -      |  
| | Short-term bank credit (a)                             |  | GBP             |      | LIBOR
  +
  0.25 - 0.75 |      | LIBOR
+
  0.25 - 0.75   |      |   | 1,168 |   |   | -      |  
| | Short-term bank credit (a)                             |  | NIS             |      | Prime
  + 2%            |      | Prime
  + 2%            |      |   | 221   |   |   | 161    |  
| | Note from related parties (b)                          |  |                 |      |                         |      |                         |      |   | -     |   |   | 5,000  |  
| |                                                        |  |                 |      |                         |      |                         |      |   |       |   |   |        |  
|
| |                                                        |  |                 |      |                         |      |                         |      | $ | 9,028 |   | $ | 13,962 |  
| |                                                        |  |                 |      |                         |      |                         |      |   |       |   |   |        |  
| | Weighted average interest rates at the end of the year |  |                 |      |                         |      |                         |      |   | 5.88  | % |   | 5.66   | %
| |                                                        |  |                 |      |                         |      |                         |      |   |       |   |   |        |  

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Short-term
  bank credit:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | The Lender
  Banks provided a credit facility in the amount of $ 11,000 of which $ 1,150 is
  for guarantees only. The credit facility can be utilized in U.S. dollars,
  NIS, GBP or Euro. The credit facility is renewable, at the request of the
  Company, on a yearly basis through December 2011. The credit facility bears
  interest at a rate of LIBOR + 0.25% - 0.75% or Prime + 2% for borrowings
  denominated in NIS and is payable on a quarterly basis. As of December 31,
  2006 and 2007, $ 9,028 and $ 8,962 was utilized in the form of a short-term
  loan, respectively $ 860 and $ 944 was utilized in guarantees, respectively and
  an $ 932 and $ 1,040 was utilized in the form of long-term loans, respectively.
  The total utilization of a $ 10,002 credit line exceeded the approved line of
  $ 9,850 (excluding guarantees) by $ 152 due to the increase in the Euro
  exchange rate in respect to the Euro-denominated long-term loan. The Lender
  Banks did not request an immediate reduction in the short-term bank credit or
  the long-term loan balance. The credit facility is subject to immediate
  repayment upon the occurrence of certain events as defined in the agreement
  with the Lender Banks.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | In March
  2008, in connection with the HP transaction, the credit facility was
  cancelled and all open balances were paid-in-full (see Note 1b).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | b. | The note
  from related parties of $ 5,000 bears no interest and expires on December 8,
  2008. Prior to that date, the note is repayable only in the event of either
  bankruptcy, insolvency or reorganization proceeding under any bankruptcy,
  whether voluntary or involuntary, which proceedings are not lifted or stayed
  within 90 days. The note was assigned to Fortissimo by the Lender Banks as
  part of the Debt Restructuring Agreement (see Note 9).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | In May 2008,
  in connection with the sale of the Company shares by Fortissimo, the note was
  cancelled and recognized as a capital contribution (see Note 1b).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F  29

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                      
|----------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------
|NOTE 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, called for the
 conversion and refinancing of the then outstanding bank debt in the amount of
 $ 41,018 to the Lender Banks. Out of the amount of $ 41,018, an amount equal
 to $ 14,513 was converted into warrants to purchase up to 8,000,000 Ordinary
 shares, $ 5,000 was converted into subordinated notes, which were assigned by
 the Lender Banks to Fortissimo (Note from related parties) and the
 remaining $ 21,505 was refinanced under new short and long term loan
 agreements. Following the HP transaction, the Company used its right for
 early termination of the long-term loans, and in April 2008 fully repaid the
 long-term loans.
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | As part of
 the bank restructuring agreement, and in conjunction with Fortissimos
 investment, the Company also agreed to extend the expiration period of
 warrants that were previously issued to its lender banks. The value of
 8,000,000 warrants issued to the Companys lender banks under the Debt
 Restructuring Agreement together with the value of the extension of
 expiration of the previously issued warrants aggregate to $ 4,047, which was
 recorded as an increase in the Companys additional paid-in capital. The fair
 value for these warrants was estimated using a Black-Scholes option pricing
 model with the following assumptions: risk-free interest rate of 4.36%;
 dividend yields of 0%; volatility factors of the expected market price of the
 Ordinary shares of 1.04; and an expected average life of five years.                              
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|            | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Composed as
 follows:

| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| | ------------------------------------------------------ |  | -------------- | ------------ | ------------- | ---- | -------------- | ---- |  | -------------- |  | - | ------ | - | - | ------ | -
| |                                                        |  | Linkage
 terms |              | Interest rate |      | December 31,   |     
| |                                                        |  |                |              |               |      |               
| |                                                        |  |                | 2006         |               | 2007 |                | 2006 |  | 2007           | 
| |                                                        |  |                |              |               |      |                |      |  |                |  |  
| |                                                        |  |                |              |               |      |                | %    |  |                |  |   |        |   |   |        |  
| |                                                        |  |                |              |               |      |                |      |  |               
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| | From banks (b)                                         |  |                | U.S.
 dollar |               |      | LIBOR
 +
 2.50 |      |  | LIBOR
 +
 2.50 |  | $ | 11,000 |   | $ | 11,000 |  
| | From banks                                             |  |                | Euro         |               |      | LIBOR
 +0.75   |      |  | LIBOR
 +0.75   |  |   | 932    |   |   | 1,040  |  
| | Capital leases                                         |  |                | Euro         |               |      | 4.95-6.30      |      |  | 4.95-6.30      |  |   | 915    |   |   | 877    |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   | 12,847 |   |   | 12,917 |  
| | Less - current maturities                              |  |                |              |               |      |                |      |  |                |  |   | 129    |   |   | 649    |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   | 12,718 |   |   | 12,268 |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| | Note from related parties (Note 8(b))                  |  |                |              |               |      |                |      |  |                |  |   | 5,000  |   |   | -      |  
| | Accrued interest on restructureddebt (c)               |  |                |              |               |      |                |      |  |                |  |   | 9,037  |   |   | 7,567  |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| |                                                        |  |                |              |               |      |                |      |  |                |  | $ | 26,755 |   | $ | 19,835 |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  
| | Weighted average interest rates at the end of the year |  |                |              |               |      |                |      |  |                |  |   | 7.47   | % |   | 7.115  | %
| |                                                        |  |                |              |               |      |                |      |  |                |  |   |        |   |   |        |  

F  30

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----------- | ----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 9:    | LONG-TERM LOANS (Cont.)
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | b.                      | The
 long-term loans of $11,000 are repayable by the end of 2015. The Company was
 granted a 28-month grace period on the quarterly payments on account of
 principal. The revolving loan of $1,040 is renewable on an annual basis as
 long as the Company continues to meet the covenants mentioned in Note 9.f.
 The long-term loans bear interest at a rate of LIBOR+2.5% and LIBOR +0.75%
 per annum, payable on a quarterly basis. The long-term loans are subject to
 immediate repayment upon the occurrence of certain events as defined in the
 agreement with the Lender Banks.                                                                                                                                                                                  
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | c.                      | The
 restructuring of the outstanding bank debt has been accounted for in
 accordance with the provisions of SFAS 15. According to the guidance of SFAS
 No. 15, as a result of variable interest rate on the restructured debt, no
 gain was recognized on the restructuring date and the carrying amount of the
 debt remained unchanged. Future interest on the restructured debt is recorded
 as a reduction of the carrying amount of the debt instead of interest
 expenses. The remaining balance, if any, will be recorded as a gain upon full
 payment of the debt. In March 2008, in connection with the HP transaction,
 the entire outstanding balance of accrued interest on restructured debt was
 cancelled and recognized as financial income (see Note 1b).
|            |                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|            | d.                      | The
 aggregate annual maturities of long-term loans are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| |                                  |  |               |        |      |   |        | 
| | -------------------------------- |  | ------------- | ------ | ---- | - | ------ | 
| |                                  |  | December
 31, |       
| |                                  |  |               |       
| |                                  |  | 2006          |        | 2007 |  
| |                                  |  |               |        |      |  
| |                                  |  |               |        |      |   |        | 
| | First year
 (current maturities) |  | $             | 129    |      | $ | 649    | 
| |                                  |  |               |        |      |   |        | 
| |                                  |  |               |        |      |   |        | 
| | Second year                      |  |               | 634    |      |   | 658    | 
| | Third year                       |  |               | 640    |      |   | 1,167  | 
| | Fourth year                      |  |               | 1,148  |      |   | 2,217  | 
| | Fifth year                       |  |               | 2,089  |      |   | 1,726  | 
| | Sixth year
 and thereafter       |  |               | 8,207  |      |   | 6,500  | 
| |                                  |  |               |        |      |   |        | 
| |                                  |  |               |        |      |   |        | 
| |                                  |  |               | 12,718 |      |   | 12,268 | 
| |                                  |  |               |        |      |   |        | 
| |                                  |  |               |        |      |   |        | 
| |                                  |  | $             | 12,847 |      | $ | 12,917 | 
| |                                  |  |               |        |      |   |        | 

| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | In April
 2008, in connection with the HP transaction, all long-term loan balances were
 paid-in-full (see Note 1b).

F  31

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                         |                                                                                                                                                                                                                                                                                                                                                      
|----------- | ----------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 9:    | LONG-TERM LOANS (Cont.)
|            |                         |                                                                                                                                                                                                                                                                                                                                                      
|            | e.                      | Covenants:                                                                                                                                                                                                                                                                                                                                           
|            |                         |                                                                                                                                                                                                                                                                                                                                                      
|            |                         | Under the
 Debt Restructuring Agreement, the Company 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, 2008                |  | 13:1                    
| | Fiscal year
 ended December 31, 2009                |  | 10:1                    
| | Fiscal year
 ended December 31, 2010                |  | 8:1                     
| | Fiscal year
 ended December 31, 2011 and thereafter |  | 6:1                     

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

|            |                                            
|----------- | -------------------------------------------
|NOTE 10:   | OTHER ACCOUNTS PAYABLE AND ACCRUED EXPENSES

| |                                 |  |               |        |      |   |        | 
| | ------------------------------- |  | ------------- | ------ | ---- | - | ------ | 
| |                                 |  | December
 31, |       
| |                                 |  |               |       
| |                                 |  | 2006          |        | 2007 |  
| |                                 |  |               |        |      |  
| |                                 |  |               |        |      |  
| | Employees
 and payroll accruals |  | $             | 2,660  |      | $ | 3,690  | 
| | Government
 authorities         |  |               | 987    |      |   | 530    | 
| | Royalties
 payable              |  |               | 203    |      |   | 152    | 
| | Office of
 the Chief Scientist  |  |               | 472    |      |   | -      | 
| | Warranty
 provision             |  |               | 1,505  |      |   | 1,593  | 
| | Professional
 services          |  |               | 420    |      |   | 588    | 
| | Advance from
 customers         |  |               | 949    |      |   | 964    | 
| | Provision
 for legal claims     |  |               | 2,284  |      |   | 2,103  | 
| | Accrued
 expenses               |  |               | 1,422  |      |   | 1,553  | 
| |                                 |  |               |        |      |   |        | 
| |                                 |  |               |        |      |   |        | 
| |                                 |  | $             | 10,902 |      | $ | 11,173 | 
| |                                 |  |               |        |      |   |        | 

F  32

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                       
|----------- | --------------------------------------
|NOTE 11:   | COMMITMENTS AND CONTINGENT LIABILITIES

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Operating
 and capital lease commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    | The Company
 and most of its subsidiaries rent their facilities under various operating
 lease agreements, which expire on various dates, ranging from 2008 to 2011.
 In respect to several of the leases the Company has the option to extend the
 lease until 2010-2016. The Company also leases various motor vehicles under
 operating lease agreements, which expire on various dates, ranging from 2008
 to 2011. 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,
 2007:

| |                                                         |  |   |                |     |                  |       |           |   |        |     |   |       |     | 
| | ------------------------------------------------------- |  | - | -------------- | --- | ---------------- | ----- | --------- | - | ------ | --- | - | ----- | --- | 
| | Year ended
 December 31,                                |  |   | Capital
 lease |     | Operating
 lease |       | Sub-lease |   | Total  |    
| |                                                         |  |   |                |     |                  |       |           |   |        |    
| |                                                         |  |   |                |     |                  |       |           |   |        |     |   |       |    
| | 2008                                                    |  | $ | 197            |     | $                | 2,408 |           | $ | (353   | )   | $ | 2,252 |    
| | 2009                                                    |  |   | 197            |     |                  | 1,621 |           |   | (340   | )   |   | 1,478 |    
| | 2010                                                    |  |   | 197            |     |                  | 1,077 |           |   | (340   | )   |   | 934   |    
| | 2011                                                    |  |   |                | 197 |                  |       | 200       |   |        | (28 | ) |       | 369 | 
| | 2012 and thereafter                                     |  |   | 235            |     |                  | -     |           |   | -      |     |   | 235   |    
| |                                                         |  |   |                |     |                  |       |           |   |        |     |   |       |    
| |                                                         |  |   |                |     |                  |       |           |   |        |     |   |       |    
| | Total minimum lease payments                            |  |   | 1,023          |     |                  | 5,306 |           |   | (1,061 | )   |   | 5,268 |    
| | Less - amounts representing interest                    |  |   | (146           | )   |                  | -     |           |   | -      |     |   | (146  | )  
| |                                                         |  |   |                |     |                  |       |           |   |        |     |   |       |    
| |                                                         |  |   |                |     |                  |       |           |   |        |     |   |       |    
| | Present value of future minimum capital
 lease payments |  | $ | 877            |     | $                | 5,306 |           | $ | (1,061 | )   | $ | 5,122 |    
| |                                                         |  |   |                |     |                  |       |           |   |        |     |   |       |    

| |                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------
| | Total rental
 lease expenses for the years ended December 31, 2005, 2006 and 2007, were
 $ 1,739,$ 1,501 and $ 1,691, respectively.
| |                                                                                                                                    
| | Total
 sub-lease income for the years ended December 31, 2005, 2006 and 2007 was
 $ 343, $ 361 and$ 378, respectively.             
| |                                                                                                                                    
| | Total vehicle
 lease expenses for the years ended December 31, 2005, 2006 and 2007 were
 $ 1,151,$ 1,359 and $ 1,524, respectively.

F  33

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                               
|----------- | ----------------------------------------------
|NOTE 11:   | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. | Royalty
 commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | During the
 period 1998-2003, the Companys European subsidiary received research and
 development grants totaling  2,435 ($ 3,583 at December 31, 2007) from the
 local authorities in Belgium. Under the terms of the grants, the Companys
 European subsidiary has an obligation to pay royalties at the higher of a
 certain minimum annual amount or at a rate of 4% of the sales derived from
 the applicable products developed within the framework of such research and
 development projects, up to an amount equal to the research and development
 grants received in connection with such products, linked to the Euro. The
 commencement of the royalty payments to the local authorities in Belgium is
 contingent upon the Companys European subsidiary generating sales from
 products developed under these grants. The grants are not repayable in the
 event that the Companys European subsidiary decides to cease the research
 and development activities, or the exploitation of the products developed
 under these grants and all know-how and results of the research and
 development are transferred to the local authorities. In the event that the
 Companys European subsidiary decides to cease exploitation of the products
 developed under these grants, a notification thereof should be given to the
 local authorities in Belgium.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | The
 Companys European subsidiary ceased the research and development activities
 and the exploitation of certain products for which grants were received. The
 Company did not submit notification to the local authorities and, instead,
 continued to pay royalties with a total of  659 ($ 970 at December 31, 2007)
 remitted through 2005. As of December 31, 2006 and 2007, the aggregate amount
 of grants received from the Belgium authorities, which had not yet been
 repaid amounted to $ 2,339 and $ 2,613, respectively ( 1,776 as of December
 31, 2006 and 2007).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | In respect
 to 2006 and 2007, the European subsidiary received notice from the Belgian
 authorities requesting the annual minimum royalty payments of $ 285 and $ 368,
 respectively. The European subsidiary did not pay the amounts requested as it
 believes that the royalty payment for 2006 and 2007 should have been only
 $ 184 and $ 250, respectively and that it has overpaid its royalty obligations
 for prior years. During discussions held with the Belgian authorities in
 February 2008, the authorities confirmed the Companys position with respect
 to the amounts owed for 2006 and 2007. It was also agreed that the Companys
 European subsidiary will submit a proposal to the authorities with respect to
 the overall open balance as described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    | The grant
 agreements with the local Belgian authorities require the European subsidiary
 to meet certain conditions. The European subsidiary started discussions with
 the Belgian local authorities regarding certain grants already received and
 its meeting the conditions of such grant. The Companys European subsidiary intends
 to offer the Belgian authorities a settlement proposal by which the
 authorities will waive the repayment of a portion of the grants representing
 failed development projects and, in return, the Company will pay back in full
 the remaining balance for the other projects. At this stage, the Company is
 unable to determine the outcome of such discussions and the negative
 implications, if any.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

F  34

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---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                               
|----------- | ----------------------------------------------
|NOTE 11:   | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

| |    |                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. | Charges and
 guarantees:                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                   
| |    | As security
 for its liabilities to the banks, the Company placed fixed charges on its
 share capital, as well as a floating lien on all of its assets. The Company
 also placed a second ranking floating lien in connection with the Note from
 related parties.
| |    |                                                                                                                                                                                                                                                                   
| |    | As of
 December 31, 2006 and 2007, the Company obtained bank guarantees in the total
 amount of$ 860 and $ 944, respectively, in favor of vendors and lessors.                                                                                                    
| |    |                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | d. | Litigation:                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | 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
 $ 216 in respect of unpaid invoices. In October 2007, the court ruled that the
 client is not entitled for any damages and the subsidiary should credit the
 client for the unpaid balance. The client was ordered to return the product
 to the Companys subsidiary. The ruling was deemed final in April 2008 when
 the official time for appeal passed.                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | 2.                                                                                                                                                                                                                                                                 | In March
 2002, a former employee filed a lawsuit against a subsidiary in the amount of
  250 thousand ($ 330) plus certain indemnities and interest. In September
 2003, a judgment was given instructing the subsidiary to pay the former
 employee  250 thousand ($ 330) plus interest accruing thereon. In January
 2004, the subsidiary filed an appeal. In October 2005, the court of appeals
 rendered a judgment instructing the subsidiary to indemnify the former
 employee in the amount of  120 thousand ($ 159) plus the interest accrued
 thereon. During 2006, the court of appeals ruled in favor of the former
 employee. The Company paid all its obligations under the judgment during
 2007.                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    | 3.                                                                                                                                                                                                                                                                 | During 2002,
 an end-user filed a lawsuit in China against a subsidiary alleging bad
 quality of products. The court ruled that the subsidiary should reimburse the
 client with the amount of$ 186. Following an appeal filed by the subsidiary,
 the court ruled in September 2003 in favor of the end-user. The subsidiary is
 in the process of liquidation and has no assets; therefore the plaintiff has
 no remedy against the subsidiary. The customer may elect to start new
 proceedings against another subsidiary operating in Hong Kong. However, to
 date, the customer has not filed any claim in Hong Kong. Based on
 managements estimation and the opinion of its legal counsel, it is less than
 likely that the second subsidiary will be required to pay the amount ruled
 against the subsidiary in China. Therefore, no provision was recorded with
 respect to this claim.

F  35

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                               
|----------- | ----------------------------------------------
|NOTE 11:   | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4. | During 2002,
 a client filed a lawsuit in China against a subsidiary seeking reimbursement
 in the amount of $ 400 alleging bad quality of products. In July 2005, the
 court ruled that the subsidiary is to reimburse the client an amount of $ 286.
 The subsidiary no longer operates in China and under current law the ruling
 in China is not enforceable in Hong Kong. The subsidiary notified the
 customer in March 2006 that it intends to vigorously defend its claims if
 submitted to court in Hong Kong. To date, the customer has not filed any claim
 in Hong Kong. Based on managements estimation and the opinion of its legal
 counsel, it is less than likely that the subsidiary will be required to pay
 the amount ruled against it in China. Therefore, no provision was recorded
 with respect to this claim.                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 5. | During 2003,
 a former supplier filed a lawsuit against a subsidiary, in the amount of 
 943 thousand ($ 1,245) in connection with a disputed supply agreement. In
 February 2006, the court determined that the subsidiary is to pay the
 supplier an aggregate amount of  1,246thousand ($ 1,640) representing
 penalties and accrued interest. The subsidiary filed an appeal, which was
 rejected by the court of appeals. During 2007, the Company reached an
 agreement with the supplier to pay the amount due plus interest on the
 principal amount over a period of 40 months. Pursuant to the terms of the
 payment arrangement, the Company provided a guarantee for the debt of the
 subsidiary to the supplier. The first installment of  100 was paid in
 October 2007. Based on the payment agreement, a full provision of $ 1,818,
 representing the original judgment amount plus accrued interest through the
 settlement date, less payments remitted through December 31, 2007, was
 recorded with respect to this claim.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 6. | In September
 2003, the Company filed a lawsuit against a former distributor of the
 Company, for the collection of unpaid invoices in the amount of $ 420. In
 February 2004, the former distributor filed a statement of defense denying
 the Companys claims and it also filed a counter-claim for alleged damages
 caused to it by the Company in the amount of $ 210. Based on the opinion of
 its legal counsel, management believes that the counter-claim that was filed
 by the former distributor is without merit and that a loss is not probable.
 Therefore, a provision was not recorded with respect to this claim.                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 7. | In December
 2003, a client of a subsidiary filed a lawsuit alleging that a machine
 purchased by it failed to perform. The customer is seeking reimbursement of
 the purchase price paid by it in the amount of $ 290. Based on managements
 estimation and the opinion of its legal counsel, a provision of $ 145 was
 recorded with respect to this claim.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 8. | In August
 2001, a client of a subsidiary filed a lawsuit claiming that the contract
 with the subsidiary for the sale of two machines is null and void, and it
 further seeks damages amounting to  1,569 thousand ($ 2,071). The subsidiary
 filed a counter claim for the collection of outstanding amounts. In April
 2004, the court dismissed the clients claims and ordered it to pay the
 subsidiary an amount of  150 thousand ($ 197). The client appealed that
 judgment. During 2007, the client paid the subsidiary  100 thousand and the
 case was closed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F  36

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                               
|----------- | ----------------------------------------------
|NOTE 11:   | COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 9.  | In July
 2005, the tribunal of the first instance of Nivelles in Belgium confirmed a
 motion filed against a subsidiary by a former employee for the seizure of
 that subsidiary s tangible assets in the amount of  500 thousand ($ 660). In
 January 2006, the tribunal of the first instance of Nivelles reduced the
 seizure for an amount of  120 thousand ($ 159). The subsidiary filed an
 appeal on that decision. In October 2005, the former employee filed a lawsuit
 against the subsidiary in the amount of  484 thousand ($ 639) plus certain
 indemnities and interest thereon. In May 2007, the court ruled in favor of
 the subsidiary and dismissed the claim.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 10. | In May 2007,
 a former managing director of a subsidiary filed a lawsuit against the
 Company and two of its subsidiaries claiming his resignation was for just
 cause due to demotion and therefore should be deemed as a termination of his
 employment by the subsidiary. The Company denies all the claims made by the
 former employee. Based on management estimation and the opinion of its legal
 counsel, no provision was recorded with respect to this claim.                                                                                                                                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 11. | In February
 2007, a claim was filed against the Company and one of its former officers by
 a person claiming to have been an agent of the Company in West Africa for
 commissions on sales of printers. The claim is for NIS 3,000 thousand ($ 780).
 The Company filed a statement of defense denying all claims, both with
 respect to the causes of action and with respect to the factual allegations
 in the claim. Based on managements estimation and the opinion of its legal
 counsel, no provision was recorded with respect to this claim.                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 12. | From time to
 time, the Company is party to other various legal proceedings, claims and
 litigation that arise in the normal course of business. It is the opinion of
 management that the ultimate outcome of these matters will not have a
 material adverse effect on the Companys financial position, results of
 operations or cash flows.                                                                                                                                                                                                                                                                                                                                    

|            |                                               
|----------- | ----------------------------------------------
|NOTE 12:   | TRANSACTIONS AND BALANCES WITH RELATED PARTIES

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | On April 17,
 2005, the Companys shareholders approved the grant to a former director and
 chairman of the Board (former director), and the then largest shareholder,
 of a five-year warrant to purchase up to 3,000,000 Ordinary shares at $ 0.75
 per share. The warrant was granted to the former director in consideration
 for his agreement to enter into the voting agreement dated January 23, 2005
 (the Voting Agreement), coupled with an irrevocable proxy, and the Voting
 Trust Agreement dated March 7, 2005 (the Voting Trust Agreement) under
 which voting control of all shares owned by the former director and his
 family and affiliates were controlled by an independent trustee. As a result
 of the delisting of the Companys 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 Ordinary shares
 held by the former director and his family and affiliates are to be voted
 with the majority of the shareholders votes.

F  37

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                                       
|----------- | ------------------------------------------------------
|NOTE 12:   | TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | 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, the former chairman and controlling shareholder filed a complaint
 against the Company in the Supreme Court, New York County seeking to recover
 the right to vote his Ordinary shares. The right to vote such Ordinary shares
 had been transferred to the Company pursuant to the Voting Agreement between
 the former director and the Company. The complaint filed by the former
 director seeks to have the Voting Agreement declared unenforceable.                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | In 2006, the
 Court dismissed part of the case with prejudice and the rest of the case was
 dismissed with leave to re-file. In February 2008, all of the former
 chairmans shares and warrants were sold by him to another investor and the
 Company and the former chairman filed a stipulation of discontinuance with
 prejudice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 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, provides management services,
 advice and assistance to the Companys management concerning the Companys affairs
 and business. The Management Agreement also gave Fortissimo the right to
 elect a majority of the Companys board of directors, including the chairman
 of the board of directors. In consideration of the performance of the
 management services and the board services pursuant to the Management
 Agreement, the Company agreed to pay Fortissimo an aggregate annual
 management services fee in the amount $ 250.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    | Pursuant to
 the management agreement, its terms are to remain in effect for so long as
 the position of chairman of the board of directors and another position of
 the board of directors are filled by Fortissimo directors. In March 2008, all
 of the shares and a majority of the warrants held by Fortissimo were sold,
 all of the Fortissimo directors resigned from the Companys board of
 directors and the Management Agreement was terminated                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | c. | 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 Companys former CEO.
 Under the agreement, the law firm represented a subsidiary and the Company in
 litigations against third parties and provided legal services as needed in
 Israel and in Belgium. The aggregate consideration for the services provided
 to the Company and its subsidiaries by the law firm amounted to $ 75, $ 0 and
 $ 0 in 2005, 2006 and 2007, 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.                                                                                                                                                                                                            

F  38

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---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

|            |                                                       
|----------- | ------------------------------------------------------
|NOTE 12:   | TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | d. | During 2005,
 in connection with a termination agreement of one of the Companys former
 executives, the Company granted a warrant to purchase up to 300,000 Ordinary
 shares at an exercise price of $ 0.51 and expiring in December 2007 in
 consideration for a two-year non-competition agreement. The fair value of
 these warrants was estimated at $ 88 using a Black-Scholes option pricing
 model with the following assumptions: average risk-free interest rate of
 4.35%; dividend yields of 0%; average volatility factors of the expected
 market price of the Ordinary shares of 1.3; and an expected life of two
 years. The Company recorded the expense over the term of the agreement.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | e. | On January
 24, 2006 the Company entered into a lease agreement with Telrad Networks Ltd.
 the owner of an industrial park in Lod, Israel. The lease is for industrial
 space starting May 7, 2006 for a period of five years, with a renewal option
 to continue the lease for another five years. A monthly fee of $ 31 is to be
 paid in advance every three months. Notwithstanding, the first year of rent
 was to be paid in three equal installments of $ 124, amounting to a sum of
 $ 372. In 2006 and 2007 the Company paid a total of $ 287 and $ 372,
 respectively, to Telrad for the use of the production area in the facility.                                                           

|            |                         
|----------- | ------------------------
|NOTE 13:   | SHAREHOLDERS DEFICIENCY

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | The Ordinary
 shares of the Company were traded until May 2005 on the Nasdaq Capital
 Market. From May 19, 2005, the Companys Ordinary shares have been quoted
 over-the-counter in the pink sheets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | On April 17,
 2005, the Companys shareholders approved an increase of the Companys
 authorized Ordinary shares to 120,000,000 and an additional increase to
 170,000,000 was approved on October 27, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | b. | Shareholders
 rights:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | Ordinary
 shares confer upon their holders voting rights, the right to receive
 dividends and the right to share in excess assets upon liquidation of the
 Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | c. | On January
 30, 2007 and February 12, 2007, the Company issued 7,105,320 and 4,629,630,
 respectively of its Ordinary shares at $ 0.54 per share to various investors.
 The Company received from these investments proceeds in the amount of $ 6,100,
 net of issuance expenses in the amount of $ 250. The Company also issued to
 the investors warrants to purchase up to 2,131,596 and 1,388,889,
 respectively, of NIS 1 par value Ordinary shares at an exercise price of
 $ 0.65 per share. The warrants are exercisable for five years from the closing
 date of the private placement. In accordance with EITF 00-19, the warrants
 are classified as permanent equity.

F  39

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

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

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | The securities
 offered in the private placement may not be offered or sold in the United
 States absent registration, or an applicable exemption from registration. The
 Company agreed to use its best efforts to register all the private placement
 related shares (both those purchased and those issuable upon exercise of the
 warrants) prior to July 1, 2007. In the event that the Company either failed
 to file a registration statement prior to July 1, 2007, or ceased the
 effectiveness of such the filing after the registration, the Company
 committed to the payment of partial damages in cash equal to 1% of the
 aggregate purchase price paid by the investors for each month of default,
 subject to an overall limit of up to 24 months of partial liquidated damages.
 On June 29, 2007, the Company filed a registration statement for the resale
 of certain Ordinary shares and Ordinary shares underlying warrants held by
 several of its shareholders, including the shares and shares underlying
 warrants issued in January and February 2007. The registration statement
 became effective on August 3, 2007 and temporarily lost its effectiveness on
 October 1, 2007.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | d. | On August
 21, 2005, the Company effected a private offering (Investment Agreement) of
 its securities with several investors led by Fortissimo in which the Company
 issued 34,285,714 Ordinary shares of NIS 1 par value each in consideration of
 $ 12,000 (excluding issuance expenses in the amount of $ 68) and 25,714,286
 warrants exercisable into 25,714,286 Ordinary shares of NIS 1 par value each
 for an exercise price of $ 0.40 per Ordinary share. The warrants will expire
 at the end of five years from the closing date of the Investment Agreement in
 2005. The total consideration in respect to the Investment Agreement was
 payable in installments as follows: (i) $ 5,000 was paid at the closing date
 of the Investment Agreement, (ii) $ 7,000 was paid over the course of 2006.                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | e. | Under the
 terms of the 2005 Debt Restructuring Agreement, the Company extended the
 expiration period on 1,340,000 previously issued warrants by 18 months. In
 addition, the Company issued to the Lender Banks warrants to purchase
 8,000,000 Ordinary shares of NIS 1 par value each for an exercise price of
 $ 0.35 per Ordinary share. 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. In August 2007, the Company further extended the
 expiration period on previously issued warrants to purchase 50,000 Ordinary
 shares of NIS 1 par value each for an exercise price of $ 5 per Ordinary
 share, by an additional 24 months. The extension was granted due to the delay
 in filing a registration statement with respect to the shares underlying the
 warrants issued to the banks in connection with the 2005 debt restructuring.
 The fair value of the extension, as calculated in accordance with FAS 123(R),
 was not significant.                                                                                                                                          

F  40

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---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                           
|-----------------------------------------------------------
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                           
|U.S. dollars in thousands (except share and per share data)

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

| |    |                     
| | -- | --------------------
| | f. | Stock Option
 Plans:

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | In December
 1998, the Companys shareholders approved the non-employee director stock
 option plan (1998 plan) according to which 250,000 options are available
 for grant with an exercise price of the average of the closing bid and sale
 price at the issuance date. Each option is vested immediately and will expire
 after 10 years. Generally, the Company grants options under the plan with an
 exercise price equal to the market price of the underlying shares on the date
 of grant.                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In October
 2005, the Companys shareholders approved to increase the number of options
 available for grant under the 1998 plan by 500,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In August
 2000, the Companys board of directors adopted the 2000 Stock Option Plan
 (the 2000 Plan). According to the 2000 Plan, 2,000,000 options may be
 granted to officers, directors, employees and consultants of the Company and
 its subsidiaries. The Options usually vest over a three or four-year period.
 The exercise price of the options under the 2000 Plan is determined to be not
 less than 80% of the fair market value of the Companys Ordinary shares at
 the time of grant, and they usually expire after 10 years from the date of
 grant. The 2000 Plan expires on August 31, 2008, unless previously terminated
 or extended by the Companys board of directors. Generally, the Company
 granted options under the plan with an exercise price equal to the market
 price of the underlying shares on the date of grant.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In November
 2003, the Companys shareholders approved the increase of the number of
 Ordinary shares authorized for issuance under the 2000 Plan by the number of
 Ordinary shares available for grant under the Companys 1995 and 1997 option
 plans (representing an increase of 497,590 Ordinary shares).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In October
 2004 and October 2005, the Companys shareholders approved the increase of
 the number of options available for grant under the 2000 Plan by 500,000 and
 14,500,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | In October
 2005, the Companys shareholders also approved the increase of the available
 number of Ordinary shares authorized for issuance under the 2000 Plan by the
 number of Ordinary shares underlying options cancelled (except in the case of
 surrender for the exercise into shares) or which cease to be exercisable
 under the Companys previously terminated option plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | During 2005,
 2006 and 2007, the Company granted to directors (including the Chairman of
 the board of directors) 58,544, 36,667 and 30,000 options, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

F  41

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

|                                            |    |                                                                                                                                                                                                                                                                                                                                                                   
|------------------------------------------- | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 13:  SHAREHOLDERS DEFICIENCY (Cont.)
|                                            |    |                                                                                                                                                                                                                                                                                                                                                                   
|                                            |    | Under the
 Companys 1998 and 2000 Plans, the Company reserved for issuance 750,000 and
 17,724,590 Ordinary shares, respectively. As of December 31, 2007, 555,832,
 and 7,057,378 options, respectively, are still available for future grants
 under these plans. Options that are cancelled or forfeited before expiration
 become available for future grant.
|                                            |    |                                                                                                                                                                                                                                                                                                                                                                   
|                                            | 2. | A summary of
 the Companys employee and director share option activity through
 December 31, 2007 for the Plans is as follows:                                                                                                                                                                                                                                   

|                                |  |                     |            |                                 |   |      | 
|------------------------------- |  | ------------------- | ---------- | ------------------------------- | - | ---- | 
|                                |  | Options outstanding |           
|                                |  |                     |           
|                                |  | Number
 of options  |            | Weighted average exercise price |  
|                                |  |                     |            |                                 |  
|                                |  |                     |            |                                 |   |      | 
|Balance as of January 1, 2005   |  |                     | 3,237,034  |                                 | $ | 1.11 | 
|Options granted                 |  |                     | 4,643,544  |                                 | $ | 0.42 | 
|Options exercised               |  |                     | (10,834    | )                               | $ | 0.38 | 
|Options forfeited or expired    |  |                     | (1,172,463 | )                               | $ | 0.81 | 
|                                |  |                     |            |                                 |   |      | 
|                                |  |                     |            |                                 |   |      | 
|Balance as of December 31, 2005 |  |                     | 6,697,281  |                                 | $ | 0.65 | 
|Options granted                 |  |                     | 5,821,667  |                                 | $ | 0.61 | 
|Options exercised               |  |                     | (25,824    | )                               | $ | 0.32 | 
|Options forfeited or expired    |  |                     | (641,060   | )                               | $ | 1.16 | 
|                                |  |                     |            |                                 |   |      | 
|                                |  |                     |            |                                 |   |      | 
|Balance as of December 31, 2006 |  |                     | 11,852,064 |                                 | $ | 0.60 | 
|Options granted                 |  |                     | 1,490,000  |                                 | $ | 0.59 | 
|Options exercised               |  |                     | (451,669   | )                               | $ | 0.40 | 
|Options forfeited or expired    |  |                     | (2,662,194 | )                               | $ | 0.81 | 
|                                |  |                     |            |                                 |   |      | 
|                                |  |                     |            |                                 |   |      | 
|Balance as of December 31, 2007 |  |                     | 10,228,201 |                                 | $ | 0.54 | 
|                                |  |                     |            |                                 |   |      | 

|                                    |  |                                |                |                                             |   |          |  
|----------------------------------- |  | ------------------------------ | -------------- | ------------------------------------------- | - | -------- | -
|                                    |  | Year ended 
 December 31, 2007 |               
|                                    |  |                                |               
|                                    |  | Options                        |                | Aggregate
 intrinsic value 
 (in thousands) |  
|                                    |  |                                |                |                                             |  
|Outstanding as of January 1, 2007   |  |                                | 11,852,064     |                                             | $ | ***) 695 |  
|Granted                             |  |                                | 1,490,000      |                                             | $ | 182      |  
|Exercised                           |  |                                | (451,669       | )                                           | $ | (140     | )
|Forfeiture or expired               |  |                                | (2,662,194     | )                                           | $ | (158     | )
|                                    |  |                                |                |                                             |   |          |  
|                                    |  |                                |                |                                             |   |          |  
|Outstanding as of December 31, 2007 |  |                                | 10,228,201     |                                             | $ | *) 1,864 |  
|                                    |  |                                |                |                                             |   |          |  
|                                    |  |                                |                |                                             |   |          |  
|Exercisable as of December 31, 2007 |  |                                | ****)3,817,120 |                                             | $ | **) 735  |  
|                                    |  |                                |                |                                             |   |          |  

F  42

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

|                                            |    |                                                                                                                  |                                                                                                                                                                                                                                                          
|------------------------------------------- | -- | ---------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 13:  SHAREHOLDERS DEFICIENCY (Cont.)
|                                            |    |                                                                                                                  |                                                                                                                                                                                                                                                          
|                                            |    | *)                                                                                                               | Represents
 intrinsic value of 9,947,167 outstanding options that are in-the-money as of
 December 31, 2007. The remaining 281,034 outstanding options are out of the
 money as of December 31, 2007 and their intrinsic value was considered as
 zero.  
|                                            |    |                                                                                                                  |                                                                                                                                                                                                                                                          
|                                            |    | **)                                                                                                              | Represents
 intrinsic value of 3,536,086 exercisable options that are in-the-money as of
 December 31, 2007. The remaining 281,034 exercisable options are out of the
 money as of December 31, 2007 and their intrinsic value was considered as
 zero.  
|                                            |    |                                                                                                                  |                                                                                                                                                                                                                                                          
|                                            |    | ***)                                                                                                             | Represents
 intrinsic value of 4,767,000 outstanding options that are in-the-money as of
 December 31, 2006. The remaining 7,085,064 outstanding options are out of the
 money as of December 31, 2006 and their intrinsic value was considered as
 zero.
|                                            |    |                                                                                                                  |                                                                                                                                                                                                                                                          
|                                            |    | ****)                                                                                                            | The number
 of options exercisable as of December 2007 was 3,817,120 with a weighted average
 exercise price of $ 0.61.                                                                                                                                  
|                                            |    |                                                                                                                  |                                                                                                                                                                                                                                                          
|                                            |    |                                                                                                                  | Total
 intrinsic Value of options exercised during 2005 and 2006 was $ 1 and $ 6,
 respectively.                                                                                                                                                         
|                                            |    |                                                                                                                  |                                                                                                                                                                                                                                                          
|                                            | 3. | The options outstanding as
 of December 31, 2007 have been separated into ranges of exercise price, as
 follows:

|                         |           |                      |  |                                                 |  |                                    |      |                      |   |                                   |  |                                               |             |  |   |      |  |  |      | 
|------------------------ | --------- | -------------------- |  | ----------------------------------------------- |  | ---------------------------------- | ---- | -------------------- | - | --------------------------------- |  | --------------------------------------------- | ----------- |  | - | ---- |  |  | ---- | 
|Outstanding              |           | Exercisable          | 
|                         |           |                      | 
|                         |           |                      |  |                                                 |  |                                    |      |                      |   |                                   |  |                                               |            
|Range of
 exercise price |           | Options
 outstanding |  | Weighted
 average
 remaining
 contractual
 life |  | Weighted
 average
 exercise
 price |      | Options
 exercisable |   | Weighted average
 exercise
 price |  | Weighted
 averageremaining
 contractual
 life |            
|                         |           |                      |  |                                                 |  |                                    |      |                      |   |                                   |  |                                               |            
|                         |           |                      |  | Years                                           |  |                                    |      |                      |   |                                   |  | Years                                         |            
|                         |           |                      |  |                                                 |  |                                    |      |                      |   |                                   |  |                                               |            
|                        
|$                        | 0.31-0.40 |                      |  | 3,880,000                                       |  |                                    | 7.92 |                      | $ | 0.40                              |  |                                               | 1,714,375   |  | $ | 0.40 |  |  | 7.91 | 
|$                        | 0.48-0.80 |                      |  | 6,125,434                                       |  |                                    | 8.61 |                      | $ | 0.60                              |  |                                               | 1,879,978   |  | $ | 0.60 |  |  | 8.25 | 
|$                        | 0.92-1.17 |                      |  | 168,150                                         |  |                                    | 6.65 |                      | $ | 1.00                              |  |                                               | 168,150     |  | $ | 1.00 |  |  | 6.65 | 
|$                        | 1.63-1.88 |                      |  | 38,667                                          |  |                                    | 5.95 |                      | $ | 1.67                              |  |                                               | 38,667      |  | $ | 1.67 |  |  | 5.95 | 
|                         |           |                      |  |                                                 |  |                                    |      |                      |   |                                   |  |                                               |             |  |   |      |  |  |      | 
|$                        | 5.50-7.5  |                      |  | 15,950                                          |  |                                    | 2.64 |                      | $ | 7.02                              |  |                                               | 15,950      |  | $ | 7.02 |  |  | 2.64 | 
|                         |           |                      |  |                                                 |  |                                    |      |                      |   |                                   |  |                                               |             |  |   |      |  |  |      | 
|                         |           |                      |  |                                                 |  |                                    |      |                      |   |                                   |  |                                               |             |  |   |      |  |  |      | 
|                         |           |                      |  | 10,228,201                                      |  |                                    | 8.30 |                      | $ | 0.55                              |  |                                               | *)3,817,120 |  | $ | 0.57 |  |  | 7.98 | 
|                         |           |                      |  |                                                 |  |                                    |      |                      |   |                                   |  |                                               |             |  |   |      |  |  |      | 

| |    |                                                                                                                                                                                                                                                                                   
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *) | As of
 December 31, 2007, approximately 10,228,201 options were vested and expected
 to be vest. Option expected to be vest reflect an estimated forfeiture rate
 with a weighted average exercise price of $ 0.54 and weighted average
 remaining contractual life of 8.49 years.
| |    |                                                                                                                                                                                                                                                                                   
| |    | As of
 December 31, 2007, the Company had approximately $ 2,187 of unrecognized
 compensation expenses related to non-vested stock options, expected to be
 recognized over four years.                                                                                           

F  43

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

|                                            |    |                                                                                               
|------------------------------------------- | -- | ----------------------------------------------------------------------------------------------
|NOTE 13:  SHAREHOLDERS DEFICIENCY (Cont.)
|                                            |    |                                                                                               
|                                            | 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 | 
|                                          |  |                    |      |                     |   |                            | 
|                                          |  | 2005               |      | 2006                |   | 2007                       |  | 2005 |      | 2006 |   | 2007 |  | 2005 |   | 2006 |   | 2007 | 
|                                          |  |                    |      |                     |   |                            |  |      |      |      |   |      |  |      |   |      |   |      | 
|                                          |  |                    |      |                     |   |                            |  |      |      |      |   |      |  |      |   |      |   |      |  |   |      |  |   |   |  |   |   | 
|Weighted average exercise prices          |  | $                  | 0.47 |                     | $ | 0.61                       |  | $    | 0.59 |      | $ | 0.41 |  | $    | - |      | $ | -    |  | $ | 0.40 |  | $ | - |  | $ | - | 
|                                          |  |                    |      |                     |   |                            |  |      |      |      |   |      |  |      |   |      |   |      |  |   |      |  |   |   |  |   |   | 
|Weighted average fair value on grant date |  | $                  | 0.28 |                     | $ | 0.45                       |  | $    | 0.41 |      | $ | 0.23 |  | $    | - |      | $ | -    |  | $ | 0.29 |  | $ | - |  | $ | - | 
|                                          |  |                    |      |                     |   |                            |  |      |      |      |   |      |  |      |   |      |   |      |  |   |      |  |   |   |  |   |   | 

| |    |                                                                             
| | -- | ----------------------------------------------------------------------------
| | g. | The
 Companys outstanding warrants as of December 31, 2007, are as follows:

|              |  |                             |            |                            |   |                       |  |                 |            |  |  |                | 
|------------- |  | --------------------------- | ---------- | -------------------------- | - | --------------------- |  | --------------- | ---------- |  |  | -------------- | 
|Issuance date |  | Number of
 warrants
 issued |            | Exercise
 price
 per share |   | Warrants
 exercisable |  | Expiration date |           
|              |  |                             |            |                            |   |                       |  |                 |           
|              |  |                             |            |                            |   |                       |  |                 |            |  |  |                | 
|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     | 
|February 2002 |  |                             | 50,000     |                            | $ | 5.00                  |  |                 | 50,000     |  |  | August 2009    | 
|April 2005    |  |                             | 3,000,000  |                            | $ | 0.75                  |  |                 | 3,000,000  |  |  | April 2010     | 
|October 2005  |  |                             | 25,714,286 |                            | $ | 0.40                  |  |                 | 25,714,286 |  |  | October 2010   | 
|December 2005 |  |                             | 8,000,000  |                            | $ | 0.35                  |  |                 | 8,000,000  |  |  | December 2010  | 
|January 2007  |  |                             | 2,131,596  |                            | $ | 0.65                  |  |                 | 2,131,596  |  |  | January 2012   | 
|February 2007 |  |                             | 1,388,889  |                            | $ | 0.65                  |  |                 | 1,388,889  |  |  | February 2012  | 
|              |  |                             |            |                            |   |                       |  |                 |            |  |  |                | 
|             
|              |  |                             | 43,412,756 |                            |   |                       |  |                 | 43,412,756 |  |  |                | 
|              |  |                             |            |                            |   |                       |  |                 |            |  |  |                | 

| |    |                                                                                                                                                                                                                                                                                                                                      
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | h. | Dividends:                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                      
| |    | In the event
 that cash dividends are declared in the future, such dividends will be paid
 in NIS. A dividend paid to shareholders outside Israel will be converted into
 dollars, on the basis of the exchange rate prevailing at the date of payment.
 The Company does not intend to pay cash dividends in the foreseeable future.

F  44

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

|            |                
|----------- | ---------------
|NOTE 14:   | TAXES ON INCOME

| |    |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | -- | ------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Israeli
 taxation:
| |    |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | 1.                 | Corporate
 tax structure:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                    | Taxable
 income of Israeli companies is subject to tax at the rate of 29% in 2007, 27%
 in 2008, 26% in 2009, 25% in 2010 and thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    | 2.                 | Tax benefits
 under the Israeli Law for the Encouragement of Capital Investments, 1959
 (the law):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                    | Certain of
 the Companys production facilities have been granted the status of Approved
 Enterprise under the law, for three separate investment plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                    | 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 hereunder
 and the letters of approval for the specific investments in Approved
 Enterprises. In the event of failure to comply with these conditions, the
 benefits may be canceled and the Company may be required to refund the amount
 of the benefits, in whole or in part, including interest.                                                                                                                                                     
| |    |                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                    | 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.                                                                                                                          

F  45

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

|            |                        
|----------- | -----------------------
|NOTE 14:   | TAXES ON INCOME (Cont.)

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, 2007, the Company has no such
 retained tax exempt profits.                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The law also
 entitles the Company to claim accelerated rates of depreciation on equipment
 used by the Approved Enterprise during five tax years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Income from
 sources other than the Approved Enterprise during the benefit period will
 be subject to tax at the regular corporate tax rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | On April 1,
 2005, an amendment to the Investment Law came into effect (the Amendment)
 and has significantly changed the provisions of the Investment Law. The
 Amendment limits the scope of enterprises which may be approved by the
 Investment Center by setting criteria for the approval of a facility as a
 Beneficiary Enterprise, such as provisions generally requiring that at least
 25% of the Beneficiary Enterprises income will be derived from export.
 Additionally, the Amendment enacted major changes in the manner in which tax
 benefits are awarded under the Investment Law so that companies no longer
 require Investment Center approval in order to qualify for tax benefits.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | In addition,
 the Investment Law provides that terms and benefits included in any letter 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.                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | In light of
 the HP transaction and losses incurred for tax purposes for the years 2005,
 2006 and 2007 the Company will not be able to enjoy the Approved Enterprise
 tax status.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 3.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | Measurement
 of results for tax purposes under the Income Tax (Inflationary Adjustments)
 Law, 1985:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | Results for
 tax purposes are measured in terms of earnings in NIS after certain
 adjustments for increases in Israels Consumer Price Index (CPI). As
 explained in Note 2b, the financial statements are measured in U.S. dollars.
 The difference between the annual change in Israels CPI and in the
 NIS/dollar exchange rate causes a difference between taxable income and the
 income before taxes shown in the financial statements. In accordance with
 paragraph 9(f) of SFAS No. 109, the Company has not provided deferred income
 taxes in respect of the difference between the functional currency and the
 tax bases of assets and liabilities. Subsequent to balance sheet date, in
 February 2008, the inflation adjustment law was cancelled.

F  46

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

|            |                        
|----------- | -----------------------
|NOTE 14:   | TAXES ON INCOME (Cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4. | Tax benefits
 under the Law for the Encouragement of Industry (Taxation), 1969:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | The Company
 is an industrial company, as defined by this law and, as such, is entitled
 to certain tax benefits, including accelerated rates of depreciation, in
 accordance with regulations published under the inflationary adjustments law.
 The Company is also entitled to claim public issuance expenses and patent
 amortization costs from its taxable income in three and eight equal annual
 installments, respectively.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | b. | Income taxes
 on non-Israeli subsidiaries:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Non-Israeli
 subsidiaries are taxed according to the tax laws in their respective country
 of residence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | Israeli
 income taxes and foreign withholding taxes were not provided for
 undistributed earnings of the Companys foreign subsidiaries. The Companys
 board of directors has determined that the Company will not distribute any
 amounts of its undistributed earnings as dividend. The Company intends to
 reinvest these earnings indefinitely in its foreign subsidiaries.
 Accordingly, no deferred income taxes have been provided. If these earnings
 were distributed to Israel in the form of dividends or otherwise, the Company
 would be subject to additional Israeli income taxes (subject to an adjustment
 for foreign tax credits) and foreign withholding taxes. The determination of
 the deferred tax liability is not practicable.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | c. | Uncertain
 tax positions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    | As of
 December 31, 2007, the total amount of unrecognized tax benefits was
 $ 3,428, which, if recognized, would affect the effective tax rates in
 future periods. Included in that amount are cumulative accrued interest and
 penalties in respect to uncertain tax positions of $ 556 at December 31,
 2007, of which $ 164 for interest and penalties expenses were recorded
 during 2007. A reconciliation of the beginning and ending amounts of
 unrecognized tax benefits as of December 31, 2007 was as follows:                                                                                                                                                                                                                              

|                                                |  |   |       | 
|----------------------------------------------- |  | - | ----- | 
|Balance as
 of January 1, 2007                  |  | $ | 2,617 | 
|Current year
 tax positions                     |  |   | 647   | 
|Increases
 related to prior years tax positions |  |   | 164   | 
|                                                |  |   |       | 
|                                                |  |   |       | 
|Balance as
 of December 31, 2007                |  | $ | 3,428 | 
|                                                |  |   |       | 

F  47

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

|            |                        
|----------- | -----------------------
|NOTE 14:   | TAXES ON INCOME (Cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    | The amount
 of income taxes paid by the Group is subject to ongoing audit by federal,
 state and foreign tax authorities, which often results in proposed
 assessments. Management performs a comprehensive review of its global tax
 positions on an annual basis and accrues amounts for contingent tax
 liabilities. Based on these reviews, the result of discussions and
 resolutions of matters with certain tax authorities and the closure of tax
 years subject to tax audit, reserves are adjusted as necessary. However,
 future results may include favorable or unfavorable adjustments to estimated
 tax liabilities in the period the assessments are determined or resolved.
 Additionally, the jurisdictions in which earnings and/or deductions are
 realized may differ from current expectations used as a basis for the above
 estimates. The Company does not expect that any tax audit would be completed
 within the next twelve months; therefore, the Company does not anticipate any
 significant impact on its unrecognized tax benefit balance in 2008.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | d. | Theoretical
 tax expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |    | Statutory
 rate applied to corporations in Israel and the actual tax expense, is as
 follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|----------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- | - | ------ | - | - | ------ | -
|                                                                                                            |  | Year ended December 31, |        
|                                                                                                            |  |                         |        
|                                                                                                            |  | 2005                    |         | 2006 |   | 2007   |  
|                                                                                                            |  |                         |         |      |   |        |  
|                                                                                                           
|Loss before taxes on income                                                                                 |  | $                       | (14,668 | )    | $ | (1,823 | ) | $ | (5,582 | )
|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|Statutory tax rate                                                                                          |  |                         | 34      | %    |   | 31     | % |   | 29     | %
|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|Theoretical tax benefit                                                                                     |  | $                       | (4,987  | )    | $ | (565   | ) | $ | (1,619 | )
|Increase (decrease) in taxes:                                                                               |  |                         |         |      |   |        |   |   |        |  
|Approved enterprise                                                                                         |  |                         | 2,190   |      |   | 734    |   |   | 1,225  |  
|Reduced statutory tax rate of
 a subsidiary                                                                 |  |                         | 111     |      |   | (27    | ) |   | 226    |  
|Non-deductible expenses                                                                                     |  |                         | 590     |      |   | 105    |   |   | 1,168  |  
|Foreign exchange differences
 (see a3 above)                                                                |  |                         | 395     |      |   | 478    |   |   | 180    |  
|Utilization of carryforward
 losses for which valuation allowance was provided                              |  |                         | (1,050  | )    |   | (175   | ) |   | (1,327 | )
|Deferred taxes on losses,
 reserves and allowances for which a valuation allowance was provided             |  |                         | 2,789   |      |   | (452   | ) |   | 985    |  
|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|Actual tax expense                                                                                          |  | $                       | 38      |      | $ | 98     |   | $ | 838    |  
|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|Basic and diluted net loss per share amount of the tax benefit
 resulting from Approved Enterprise status |  | $                       | 0.07    |      |   | *)     |   |   | *)     |  
|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|                                                                                                            |  |                         |         |      |   |        |   |   |        |  
|*)      Less than $ 0.01                                                                                    |  |                         |         |      |   |        |   |   |        |  

F  48

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

|            |                        
|----------- | -----------------------
|NOTE 14:   | TAXES ON INCOME (Cont.)

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

| |           |  |                         |      |      |   |      |  |   |     | 
| | --------- |  | ----------------------- | ---- | ---- | - | ---- |  | - | --- | 
| |           |  | Year ended December 31, |     
| |           |  |                         |     
| |           |  | 2005                    |      | 2006 |   | 2007 | 
| |           |  |                         |      |      |   |      | 
| | Current:  |  |                         |      |      |   |      |  |   |     | 
| | Domestic  |  | $                       | -    |      | $ | -    |  | $ | 434 | 
| | Foreign   |  |                         | 144  |      |   | 98   |  |   | 404 | 
| |           |  |                         |      |      |   |      |  |   |     | 
| | Deferred: |  |                         |      |      |   |      |  |   |     | 
| | Foreign   |  |                         | (106 | )    |   | -    |  |   | -   | 
| |           |  |                         |      |      |   |      |  |   |     | 
| |           |  |                         |      |      |   |      |  |   |     | 
| |           |  | $                       | 38   |      | $ | 98   |  | $ | 838 | 
| |           |  |                         |      |      |   |      |  |   |     | 

| |    |                                                                                                                                                                                                                                                                                               
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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, |        
| |                                                   |  |              |        
| |                                                   |  | 2006         |         | 2007 |  
| |                                                   |  |              |         |      |  
| | Deferred tax asset:                               |  |              |         |      |   |         |  
| | Net operating losses and
 deductions carryforward |  | $            | 27,169  |      | $ | 30,068  |  
| | Stock-based compensation                          |  |              | 358     |      |   | 649     |  
| | Others                                            |  |              | 80      |      |   | 1,247   |  
| |                                                   |  |              |         |      |   |         |  
| |                                                   |  |              |         |      |   |         |  
| | Deferred tax assets before valuation allowance    |  |              | 27,607  |      |   | 31,964  |  
| | Valuation allowance (1)                           |  |              | (27,368 | )    |   | (31,725 | )
| |                                                   |  |              |         |      |   |         |  
| |                                                   |  |              |         |      |   |         |  
| | Net deferred tax assets (2)                       |  | $            | 239     |      | $ | 239     |  
| |                                                   |  |              |         |      |   |         |  

| |     |                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The Group
 has provided valuation allowances in respect of deferred tax assets resulting
 from tax losses carryforward and other temporary differences. Management
 currently believes that since the Company has a history of losses it is more
 likely than not that the deferred tax regarding all loss carryforwards
 (except in NUR Japan) will not be utilized in the foreseeable future.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                
| | (2) | As of
 December 31, 2007 and 2006, deferred taxes are recorded in current other
 accounts receivable and other assets.                                                                                                                                                                                                                                                                         

F  49

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

|            |                        
|----------- | -----------------------
|NOTE 14:   | TAXES ON INCOME (Cont.)

| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | g. | Carryforward
 tax losses and deductions:                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | As of
 December 31, 2007, Ellomay Capital Ltd. had available carryforward tax losses
 and deductions aggregating to approximately $ 35,000, which have no
 expiration date.                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | Additional
 carryforward losses of NUR America and NUR Salsa, in the amount of
 approximately $ 33,000, which are located in the U.S., will expire in
 2021- 2026. Utilization of U.S. net operating losses may be subject to
 substantial annual limitation due to the change in ownership provision of
 the Internal Revenue Code of 1986 and similar state provisions. The annual
 limitation may result in the expiration of net operating losses before
 utilization.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | NUR Asia
 Pacific and NUR Shanghai had available carryforward losses as of December 31,
 2007 aggregating to approximately $19,000, which have no
expiration date.                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | NUR Japan
 had available carryforward losses as of December 31, 2007 aggregating to approximately $ 800,
expiring in 2012.                                                                                                                                                                                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |    | NUR Europe
 and NUR Media Solutions had available carryforward losses as of
 December 31, 2007
 aggregating to approximately $ 17,000 which have no expiration date.                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | h. | Loss before
 taxes on income consists of the following:                                                                                                                                                                                                                                                                                                                                                                                                                     

| |          |  |                         |         |      |   |        |   |   |        |  
| | -------- |  | ----------------------- | ------- | ---- | - | ------ | - | - | ------ | -
| |          |  | Year ended December 31, |        
| |          |  |                         |        
| |          |  | 2005                    |         | 2006 |   | 2007   |  
| |          |  |                         |         |      |   |        |  
| |          |  |                         |         |      |   |        |   |   |        |  
| | Domestic |  | $                       | (11,296 | )    | $ | (4,588 | ) | $ | (8,747 | )
| | Foreign  |  |                         | (3,372  | )    |   | 2,765  |   |   | 3,165  |  
| |          |  |                         |         |      |   |        |   |   |        |  
| |          |  |                         |         |      |   |        |   |   |        |  
| |          |  | $                       | (14,668 | )    | $ | (1,823 | ) | $ | (5,582 | )
| |          |  |                         |         |      |   |        |   |   |        |  

F  50

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

|            |                                           
|----------- | ------------------------------------------
|NOTE 15:   | MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION

| |    |                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. | Summary
 information about geographic areas:                                                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                            
| |    | The Company
 manages its business on the basis of one reportable segment. Refer to Note 1a
 for a description of the Companys business. The following data is presented
 in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise
 and Related Information. Total revenues are attributed to geographical areas
 based on location of end customers.
| |    |                                                                                                                                                                                                                                                                                                                                                                            
| |    | The
 following table presents total revenues for the years ended December 31,
 2005, 2006 and 2007 and long-lived assets as of December 31, 2006 and 2007:                                                                                                                                                                                                                 

| |                         |  |                 |        |                 |   |                    |  |                 |       |                    |   |        |  |   |       | 
| | ----------------------- |  | --------------- | ------ | --------------- | - | ------------------ |  | --------------- | ----- | ------------------ | - | ------ |  | - | ----- | 
| |                         |  | 2005            |        | 2006            |   | 2007               | 
| |                         |  |                 |        |                 |   |                    | 
| |                         |  | Total
 revenues |        | Total
 revenues |   | Long-lived
 assets |  | Total
 revenues |       | Long-lived
 assets |  
| |                         |  |                 |        |                 |   |                    |  |                 |       |                    |  
| |                         |  |                 |        |                 |   |                    |  |                 |       |                    |   |        |  |   |       | 
| | Asia                    |  | $               | 12,401 |                 | $ | 8,740              |  | $               | 359   |                    | $ | 10,811 |  | $ | 327   | 
| | Europe
 and Middle East |  |                 | 37,731 |                 |   | 42,391             |  |                 | 5,063 |                    |   | 48,344 |  |   | 5,398 | 
| | America                 |  |                 | 21,246 |                 |   | 26,837             |  |                 | 378   |                    |   | 26,452 |  |   | 219   | 
| |                         |  |                 |        |                 |   |                    |  |                 |       |                    |   |        |  |   |       | 
| |                         |  |                 |        |                 |   |                    |  |                 |       |                    |   |        |  |   |       | 
| |                         |  | $               | 71,378 |                 | $ | 77,968             |  | $               | 5,800 |                    | $ | 85,607 |  | $ | 5,944 | 
| |                         |  |                 |        |                 |   |                    |  |                 |       |                    |   |        |  |   |       | 

| |    |                                                                                                                 
| | -- | ----------------------------------------------------------------------------------------------------------------
| | 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, |       
| |                          |  |                         |       
| |                          |  | 2005                    |        | 2006 |   | 2007   | 
| |                          |  |                         |        |      |   |        | 
| |                          |  |                         |        |      |   |        |  |   |        | 
| | Printers and spare parts |  | $                       | 46,783 |      | $ | 50,120 |  | $ | 53,592 | 
| | Ink                      |  |                         | 19,226 |      |   | 22,456 |  |   | 26,636 | 
| | Others                   |  |                         | 1,063  |      |   | -      |  |   | -      | 
| | Services                 |  |                         | 4,306  |      |   | 5,392  |  |   | 5,379  | 
| |                          |  |                         |        |      |   |        |  |   |        | 
| |                          |  |                         |        |      |   |        |  |   |        | 
| |                          |  | $                       | 71,378 |      | $ | 77,968 |  | $ | 85,607 | 
| |                          |  |                         |        |      |   |        |  |   |        | 

| |    |                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------
| | c. | Major
 customer data as a percentage of total revenues:                                                                        
| |    |                                                                                                                                
| |    | The Group
 did not have any major customers that represented 10% or more of the
 consolidated revenues for 2005, 2006 and 2007.

F  51

---

---



ELLOMAY CAPITAL LTD. AND ITS SUBSIDIARIES

|                                                            
|------------------------------------------------------------
|NOTES TO
 CONSOLIDATED FINANCIAL STATEMENTS                 
|                                                            
|U.S. dollars
 in thousands (except share and per share data)

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

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

| |                                                                              |  |                         |       |      |   |       |  |   |       | 
| | ---------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | ----- | 
| |                                                                              |  | Year ended December 31, |      
| |                                                                              |  |                         |      
| |                                                                              |  | 2005                    |       | 2006 |   | 2007  | 
| |                                                                              |  |                         |       |      |   |       | 
| |                                                                              |  |                         |       |      |   |       |  |   |       | 
| | Research and development
expenses                                            |  | $                       | 7,086 |      | $ | 5,827 |  | $ | 7,425 | 
| | Less  participation of the
 government in research and development projects |  |                         | -     |      |   | -     |  |   | 379   | 
| |                                                                              |  |                         |       |      |   |       |  |   |       | 
| |                                                                              |  |                         |       |      |   |       |  |   |       | 
| |                                                                              |  | $                       | 7,086 |      | $ | 5,827 |  | $ | 7,046 | 
| |                                                                              |  |                         |       |      |   |       |  |   |       | 

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

| |                                                       |  |                         |        |      |   |        |   |   |        |  
| | ----------------------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ | - | - | ------ | -
| |                                                       |  | Year ended December 31, |       
| |                                                       |  |                         |       
| |                                                       |  | 2005                    |        | 2006 |   | 2007   |  
| |                                                       |  |                         |        |      |   |        |  
| | Expenses:                                             |  |                         |        |      |   |        |   |   |        |  
| | Interest on short-term bank
 credit and other charges |  | $                       | (1,244 | )    | $ | (385   | ) | $ | (512   | )
| | Interest on long-term loans                           |  |                         | (1,630 | )    |   | (80    | ) |   | (54    | )
| | Foreign currency loss                                 |  |                         | (4,350 | )    |   | (6,423 | ) |   | (9,329 | )
| |                                                       |  |                         |        |      |   |        |   |   |        |  
| |                                                       |  |                         |        |      |   |        |   |   |        |  
| |                                                       |  |                         | (7,224 | )    |   | (6,888 | ) |   | (9,895 | )
| |                                                       |  |                         |        |      |   |        |   |   |        |  
| | Income:                                               |  |                         |        |      |   |        |   |   |        |  
| | Interest on bank deposits and
 other                  |  |                         | 132    |      |   | 193    |   |   | 36     |  
| | Foreign currency gain                                 |  |                         | 3,644  |      |   | 5,379  |   |   | 8,121  |  
| |                                                       |  |                         |        |      |   |        |   |   |        |  
| |                                                       |  |                         |        |      |   |        |   |   |        |  
| |                                                       |  |                         | 3,776  |      |   | 5,572  |   |   | 8,157  |  
| |                                                       |  |                         |        |      |   |        |   |   |        |  
| |                                                       |  |                         |        |      |   |        |   |   |        |  
| |                                                       |  | $                       | (3,448 | )    | $ | (1,316 | ) | $ | (1,738 | )
| |                                                       |  |                         |        |      |   |        |   |   |        |  

|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|----------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|NOTE 17:   | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                   
|            |                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|            | In January
 2008, a former distributor of one of the Companys subsidiaries filed a
 lawsuit against the subsidiary claiming his distribution agreement was
 terminated in violation of its terms and seeking damages in the amount of
 $AUD 5,562 ($ 4,887). The Companys subsidiary filed a statement of defense
 denying the claims and a counterclaim against the former distributor for
 non-payment and other damages in the amount of $ 882.

F  52

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[BDO McCabe Lo Limited Letterhead]

Report of IndependentRegistered
Public Accounting Firm

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

We have audited the accompanying balance sheets of NUR Asia Pacific
Limited (the Company) as of December 31, 2007 and 2006 and the related
statements of operations, stockholders deficit and cash flows for each of the
three years in the period ended December 31, 2007. These financial statements are the responsibility of the
Companys
management. Our responsibility is to express an opinion
on these financial statements based on our audits.

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

In our
opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of NUR Asia Pacific Limited
as of December
31, 2007 and 2006, and
the results
of its operations and cash
flows for each of the three years in the period ended December 31, 2007,
in conformity with accounting principles generally accepted in the United
States of America.

/s/BDO McCabe Lo Limited

BDO McCabe Lo LimitedCertified
Public Accountants

Hong Kong, 26 June 2008

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