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<SEC-DOCUMENT>0001178913-05-001746.txt : 20060913
<SEC-HEADER>0001178913-05-001746.hdr.sgml : 20060913
<ACCEPTANCE-DATETIME>20051201165107
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001178913-05-001746
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		2
FILED AS OF DATE:		20051201

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NUR MACROPRINTERS LTD
		CENTRAL INDEX KEY:			0000946394
		STANDARD INDUSTRIAL CLASSIFICATION:	PRINTING TRADES MACHINERY & EQUIPMENT [3555]
		IRS NUMBER:				000000000
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		5 DAVID NAVON STREET
		STREET 2:		MOSHAV MAGSHIMIM
		CITY:			PETAH-TIKVA ISRAEL
		STATE:			L3
		ZIP:			00000
		BUSINESS PHONE:		01197239087676

	MAIL ADDRESS:	
		STREET 1:		P O BOX 8440
		STREET 2:		MOSHAV MAGSHIMIM
		CITY:			ISRAEL
		STATE:			L3
		ZIP:			00000

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	NUR ADVANCED TECHNOLOGIES LTD
		DATE OF NAME CHANGE:	19950607
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.htm
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     <!-- Control Number: 52042                                                            -->
     <!-- Rev Number:     1                                                                -->
     <!-- Client Name:    Nur Macroprinters Ltd                                            -->
     <!-- Project Name:   CORRESP                                                          -->
     <!-- Firm Name:      Zadok-Keinan Ltd                                                 -->
     <TITLE>CORRESP</TITLE>
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     <TD WIDTH="60%"><IMG SRC="top.jpg"></TD>
     <TD WIDTH="20%"><FONT FACE="Times New Roman, Times, Serif" SIZE="1">1290 AVENUE OF THE AMERICAS<BR>
NEW YORK<BR>
NEW YORK  10104-0050<BR><BR>
TELEPHONE: 212.468.8000<BR>
FACSIMILE: 212.468.7900<BR><BR>
WWW.MOFO.COM
</FONT></TD>
     <TD WIDTH="20%"><FONT FACE="Times New Roman, Times, Serif" SIZE="1">morrison &amp; foerster llp<BR><BR>
new york, san francisco,<BR>
los angeles, palo alto,<BR>
san diego, washington, d.c.<BR><BR>
denver, northern virginia,<BR>
orange county, sacramento,<BR>
walnut creek, century city<BR><BR>
tokyo, london, beijing,<BR>
shanghai, hong kong,<BR>
singapore, brussels
</FONT></TD></TR>
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<TD WIDTH=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005 </FONT></TD>
<TD WIDTH=20%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Writer&#146;s
Direct Contact   <BR>
212/468-8163   <BR>
JTanenbaum@mofo.com </FONT></TD>
</TR>
</TABLE>
<BR>





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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Martin F. James <BR>
Senior Assistant Chief Accountant <BR>
Division of Corporation Finance <BR>
Securities and Exchange Commission <BR>
100 F Street, N.E. <BR>
Mail Stop 6010 <BR>
Washington, D.C. 20549 </FONT></P>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Re:</B> </FONT> </TD>
<TD WIDTH=95%><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>NUR Macroprinters Ltd. <BR>
Form 20-F for the fiscal year ended December 31, 2004 <BR>
<U>File Number 000-26498</U></B> </FONT> </TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Dear Mr. James: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This
letter is submitted on behalf of NUR Macroprinters Ltd. (the &#147;Company&#148;) in
response to the comments of the staff of the Division of Corporate Finance (the
&#147;Staff&#148;) of the Securities and Exchange Commission (the &#147;Commission&#148;)
with respect to the Company&#146;s Form 20-F for the fiscal year ended December 31, 2004
filed on July 15, 2005 (the &#147;Form 20-F&#148;), as set forth in your letter dated
August 4, 2005 to David Seligman (the &#147;Comment Letter&#148;). The Company plans to
file Amendment No. 1 to the Form 20-F (&#147;Amendment No. 1&#148;), which includes
changes that principally reflect responses to the Staff&#146;s comments as set forth in
this letter below. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For
reference purposes, the text of the Comment Letter has been reproduced herein with our
responses below each numbered comment. For your convenience, we have bolded and italicized
the reproduced Staff comments from the Comment Letter. Capitalized terms not otherwise
defined herein shall have the meaning ascribed to such terms in Amendment No. 1. </FONT></P>

<p align=center>
<font size=2></font></p>
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<page>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005<BR>
Page Two
</FONT></P>


<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>Item 5 &#150; Operating
and Financial Review and Prospects, page 31</I></B></U> </FONT> </P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>Year
ended December 31,2004 compared with Year ended December 31,2003, page 39</I></B></U> </FONT> </P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>We
note the bad debt write-offs of $6.3 and $6.7 million you recorded for the years ended
December 31, 2004 and 2003, respectively. Please revise future filings to include a
discussion of the circumstances surrounding the material bad debt write-offs recorded
during the periods.</I></B></FONT></TD>
</TR>
</TABLE>
<BR>

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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
future filings, the Company will include a discussion of the circumstances surrounding
material bad debt write-offs recorded during the applicable periods. </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>In
addition, in future filings, please revise your allowance for doubtful accounts critical
accounting estimate discussion on page 35 to describe the risks inherent in your trade
receivable             portfolio which resulted in an allowance of more than 50% of the
gross outstanding balance at             December 31, 2004.</I></B></FONT></TD>
</TR>
</TABLE>
<BR>



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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
future filings, the Company will revise its discussion of allowance for doubtful accounts
critical accounting estimates to describe the risks inherent in the Company&#146;s trade
receivable portfolio which resulted in an allowance of more than 50% of the gross
outstanding balance at December 31, 2004. </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>Item
15 &#150; Controls and Procedures, page 97</I></B></U> </FONT> </P>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3.</FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>We
note your disclosure that your &#147;disclosure controls were effective                as
of such date to ensure </I></B><I></I><B><I>that information required to be
               disclosed in NUR&#146;s reports filed under the Securities Exchange </I></B><I></I><B><I>Act
of 1934 is recorded, processed, summarized and                reported within the time
periods specified in </I></B><I></I><B><I>Securities                and Exchange
Commission rules and forms.&#148; Please revise future filings to                clarify,
if </I></B><I></I><B><I>true, that your officers concluded that your
               disclosure controls and procedures are also </I></B><I></I><B><I>effective
to                ensure that information required to be disclosed in the reports that
you file or </I></B><I></I><B><I>submit under the Exchange Act is accumulated and
               communicated to your management, including your </I></B><I></I><B><I>chief
               executive officer and chief financial officer, to allow timely decisions
               regarding required </I></B><I></I><B><I>disclosure. See Exchange Act Rule
               13a-15(e).</I></B></FONT></TD>
</TR>
</TABLE>
<BR>

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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
future filings, the Company will confirm, if correct, that its officers have concluded
that its disclosure controls and procedures are also effective to ensure that information
required to be disclosed in the reports that the Company files or submits under the
Exchange Act is accumulated and communicated to its management, including its chief
executive officer and chief financial officer, to allow timely decisions regarding
required disclosure. </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>Consolidated
Financial Statements, page F-2</I></B></U> </FONT> </P>

<p align=center>
<font size=2></font></p>
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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005<BR>
Page Three
</FONT></P>

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          <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
          <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>4.</FONT></TD>
          <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
          <B><I>We note that Kost Forer Gabbay and Kasierer&#146;s opinion as it relates
          to certain consolidated </I></B><I></I> <B><I>subsidiaries is based solely on
          the report of another auditor. Since your auditors, Kost Forer Gabbay
          </I></B><I></I> <B><I>and Kasierer, have referred to another accountant&#146;s
          report in their opinion, please amend the filing </I></B><I></I> <B><I>to
          include the audit report of the other auditors. Refer to Rule 2-05 of Regulation
          S-X</I></B><I></I>. </FONT></TD>
          </TR>
          </TABLE>
          <BR>

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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company&#146;s auditors, Kost Forer Gabbay and Kasierer, have referred to other
accountants in their opinion with regard to the financial statements of NUR Japan Limited
(&#147;NUR Japan&#148;) and NUR Asia Pacific Limited (&#145;NUR Asia Pacific&#148;). </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company will comply with Rule 2-05 of Regulation S-X, and amend its Form 20-F to include
(1) BDO McCabe Lo &amp; Company Hong Kong&#146;s audit report on the financial statements
of NUR Asia Pacific for the year ended December 31, 2004 (2) Grant Thornton Japan&#146;s
audit report on the financial statements of NUR Japan for the year ended December 31, 2003
(3) a revised auditors&#146; report on the Company&#146;s financial statements according
to which the principal auditor, Kost Forer Gabbay and Kasierer, will not refer in 2003 to
other auditors with regard to NUR Asia Pacific in the aforementioned year. </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>Consolidated Statements
of Operations, page F-5</I></B></U> </FONT> </P>

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<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE="2">5.</FONT> </TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>We
note from your disclosure on page 38 that service and other revenues approximated
11%, 14% and 15% of your total revenues for the years ended 2002, 2003 and 2004,
</I></B><I></I> <B><I>respectively. In future filings, please revise this statement to
separately present revenues from </I></B><I></I> <B><I>services as well as the related
costs of service revenues on its face. See Rule 5-O3(b) of </I></B><I></I>
<B><I>Regulation S-X</I></B><I></I>.</FONT></TD>
</TR>
</TABLE>
<BR>

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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
future filings, the Company will separately present revenues from services as well as the
related costs of service revenues. </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>Note 2 &#150; Significant
Accounting Policies, page F-15 <BR><BR>
Inventories, page F-16</I></B></U> </FONT> </P>

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               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>6. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               <B><I>We note from the statements of cash flows that you transferred property,
               plant and equipment to </I></B><I></I> <B><I>inventory during 2003 and 2004.
               Please tell us the nature of these costs, how you account for </I></B><I></I>
               <B><I>them and explain why classification as inventory is
               appropriate</I></B><I></I>. </FONT></TD>
               </TR>
               </TABLE>
               <BR>

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<font size=2></font></p>
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<page>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005<BR>
Page Four
</FONT></P>



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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has recorded certain printers (&#147;Test Printers&#148;) as property, plant and
equipment because they are used for Training and Demonstration purposes and/or testing in
the Company&#146;s research and development laboratory (the &#147;R&amp;D
Laboratory&#148;). The Company&#146;s R&amp;D Laboratory uses Test Printers to test new
features under development. The costs associated with Test Printers used by the
Company&#146;s R&amp;D Laboratory are capitalized as property, plant and equipment due to
the fact that they have alternative future use. The Company&#146;s sales offices also use
Test Printers in order to demonstrate certain features as well as to train customers and
service engineers. As new printer models become available, current Test Printers are no
longer needed and are offered (after a minimal refurbishment) for sale. These Test
Printers are rerecorded from property, plant and equipment to inventory and eventually as
cost of goods sold (when they are sold). The recorded cost of Test Printers are the
regular cost of such printers less any amount that has been depreciated while under the
property, plant and equipment account. Pursuant to ARB 43, when the Company records Test
Printers as inventory, it records the lower of cost or market value. </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>Note 11- Long Term Loans</I></B></U> </FONT> </P>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>C
&#150; Convertible Loan Agreement, page F-31</I></B></U> </FONT> </P>

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               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
               <TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>7. </FONT></TD>
               <TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
               <B><I>To help us better understand your accounting for the July 2003 Loan and
               Warrant transactions with </I></B><I></I> <B><I>certain existing shareholders,
               please provide us with sample journal entries showing how you </I></B><I></I>
               <B><I>accounted for the debt at issuance, including the warrants granted to the
               placement agent and the </I></B><I></I> <B><I>beneficial conversion feature.
               Clearly explain how you determined the value of the warrants and </I></B><I></I>
               <B><I>the beneficial conversion feature</I></B><I></I>. </FONT></TD>
               </TR>
               </TABLE>
               <BR>

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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has reviewed the agreements signed, and the related accounting treatment
associated with, the 2003 Loan and Warrant transactions and has concluded that the
accounting treatment should be revised. As further detailed below, because no monies were
drawn under the credit line (which monies would have been evidenced by a convertible
loan), the agreement signed with the investors should have been recorded as an agreement
to provide a credit line rather than as the issuance of a convertible loan with detachable
warrants. </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><B>Background</B> </FONT></P>

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<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
July 30, 2003 the Company signed a convertible loan and warrant agreement (the
&#147;Agreement&#148;) with several investors and existing controlling shareholders (the
&#147;Investors&#148;) according to which the Investors undertook to lend to the Company
up to $ 3.5 million (the &#147;Credit Line&#148;) in consideration for (i) the issuance by
the Company to the Investors of an aggregate of 1,009,615 warrants to purchase Ordinary
Shares (the &#147;Warrants&#148;) (equal to 15% of the Credit Line divided by $0.52)
exercisable at $0.52 per share for a period of five years from the closing (as defined in
the Agreement) and (ii) an aggregate cash commitment fee of $70,000 (the &#147;Fee&#148;)
equal to 2% of the Credit Line. </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company was entitled to draw funds under the Credit Line at any time within one year from
the date of the Agreement (the &#147;Availability Period&#148;) which monies, when drawn,
would be evidenced by a convertible loan note. Any convertible notes issued would (1) be
due 42 months after issuance, (2) be convertible at $0.62 per share and (3) bear interest
at a rate of 12%. During the Availability Period the Company was entitled, on a ten days
prior notice and assuming no monies had been drawn under the Credit Line, to cancel the
Credit Line in which case the Investors would have been entitled to retain the Warrants
and the Fee. Under the terms of the Agreement, the Investors were entitled to replace any
undrawn portion of the Credit Line at any time during the Availability Period in exchange
for the purchase of up to 5,645,161 Ordinary Shares at a purchase price of $ 0.62 per
share (calculated based on $3.5 million divided by $0.62 per share). </FONT>
</TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005<BR>
Page Five
</FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According
to the terms of the Agreement, the placement agents were granted warrants equal to the
following: (a) 1% of the Credit Line divided by $0.52 on the closing of the Agreement and,
upon issuance of Ordinary Shares (the&#148; Placement Warrants&#148;) and (b) 2% of the
aggregate amount received by the Company for the issued Ordinary Shares divided by $0.62
(the &#147;Conversion Warrants&#148; and together with the Placement Warrants, the
&#147;Agent Warrants&#148;). These warrants are exercisable at a price of $0.52 and $0.62
per share, respectively, for a period of five years from the date of grant. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
October 2003 the Company actually issued the Warrants and paid the Fee to the Investors
(recorded as G&amp;A expenses). </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
December 22, 2003 the Investors exercised their right to replace $2 million of the undrawn
Credit Line by purchasing 3,225,806 Ordinary Shares for $2 million. Issuance expenses
associated with this purchase totaled $133,000. These Ordinary Shares were issued to the
Investors in January 2004. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On
March 31, 2004 the Investors exercised their right to replace the remaining $ 1.5 million
available under the Credit Line through the purchase of 2,419,355 Ordinary Shares for $1.5
million. Issuance expenses associated with this purchase totaled $43,000. These Ordinary
Shares, along with the Agent Warrants, were issued on March 31, 2004. </FONT></P>

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<H1 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accounting Discussion </FONT></H1>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>The
accounting treatment in the 2003 &amp; 2004 financial statements, as           reported</U></FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
the reported financial statements the Agreement was characterized as issuance of a
convertible loan with detachable warrants. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Based
on the guidance in APB 14, both the Warrants and convertible loan were measured at fair
value and initially recorded at their relative fair values; out of the $2 million,
$466,000 were ascribed to the Warrants and $1.534 million (net of $133,000 of issuance
expenses) were recorded as receipts on account of shares (due to the fact that the Credit
Line was immediately replaced through the sale of Ordinary Shares). Furthermore, the
Company measured a beneficial conversion feature (&#147;BCF&#148;) according to EITF 98-5
and EITF 00-27, assuming that a convertible loan was issued and converted to shares.
According to the effective conversion price and share price at the commitment date the
BCF amounted to $676,000. The BCF was fully recorded to financial expenses in 2003 since
it was assumed that the debt was converted in December 2003. In 2004 the amount of
$1,500,000 contributed by the Investors was treated as issuance of shares. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005<BR>
Page Six
</FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
In
addition, the Company included an amortization of the fair value of the Warrants issued;
$75,000 in 2003 and $548,000 in 2004. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
fair value of the Agent Warrants was not recorded in the financial statements.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Fee was paid during October 2003 and was recorded as a general and administrative
expense.  </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><U>The
revised accounting treatment</U></FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
As
indicated above, during the one year period from July 30, 2003, the Credit Line could
have been canceled by the Company or, alternatively, replaced by the Investors through
the purchase of Ordinary Shares. A convertible loan would have been issued only if the
Company had drawn monies under the Credit Line. Therefore, the Company believes that no
commitment to issue the convertible debt (as defined in EITF 98-5 and EITF 00-27) was
established and accordingly this transaction should not have been treated as the issuance
of convertible debt and no value should have been ascribed to the conversion option of
convertible debt upon the closing of the Agreement. The Company believes that only if and
when it had drawn monies under the Credit Line and corresponding convertible debt had
actually been issued, should it have calculated the BCF. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Based
on the analysis described above, the Company has concluded that the Credit Line was in
essence a loan commitment given by the Investors to the Company in consideration for: (a)
1,009,615 Warrants issued to the Investors, (b) a cash commitment fee of $70,000, and (c)
a call option for the issuance of approximately 5,645,000 Ordinary Shares that was &#147;embedded&#148; in
the Agreement. The embedded call option resulted from the fact that the Investors had the
right to convert the undrawn amount available under Credit Line through the purchase of
Ordinary Shares at a fixed price per share. In evaluating the accounting for the Credit
Line, it was determined that it could be viewed as either a loan commitment or an equity
instrument. The Agreement was a loan commitment for convertible loans and contained an
embedded written call option. Based on this analysis, the Company has concluded that the
most accurate presentation would be to bifurcate and separately value and account for the
written call option at issuance, and provide no specific accounting for the loan
commitment other than the deferred expense reflected as a debit balance (essentially a
gross up of the transaction in which the consideration given was part of the commitment
received). The Company notes that a loan commitment does not require derivative
accounting by the holder under FAS 133 (as confirmed in the FAS 149 amendment to FAS
133). The Company believes that, although this call option is indexed to the Company&#146;s
own stock and is exempt from FAS 133 requirements for subsequent derivative accounting
(as it complied with EITF 00-19 for equity treatment and thus the exception in paragraph
11(a) of FAS 133), this written call option should initially be bifurcated at fair value
from the Credit Line (that is, the gross presentation discussed above) and included as
part of the consideration given to the Investors for the Credit Line. </FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005<BR>
Page Seven
</FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Because
the Agreement constitutes a loan commitment, the full consideration paid to the Investors
(which includes the fair value of the Investors&#146; Warrants, the fair value of the
embedded call option, and the Fee) should have been recorded, by analogy to FAS 91, as
deferred expenses on account of receiving a loan commitment.<B></B>The fair value of the
Warrants and embedded call option should have been recorded against a corresponding
increase to Additional Paid-In-Capital. These deferred expenses should have been
subsequently accounted for according to the final outcome. As such, upon issuance of the
Ordinary Shares to the Investors, the deferred expenses should have been reclassified to
equity. In contrast, the deferred expenses would have been amortized over the term of the
convertible loan when and if the Company had drawn monies under the Credit Line and
issued a corresponding convertible debt. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Upon
exercise of the Investors&#146; right to replace the outstanding Credit Line through the
purchase of Ordinary Shares, this transaction should have been treated as issuance of
shares though the exercise of the call option under the Agreement. Therefore, the
consideration received by the Company, net of the balance of the deferred expenses (which
was comprised of the Fee, the fair value of the Warrants issued to the Investors, the
fair value of the embedded call option and the Placement Warrants, should have been
classified to<B></B>shareholders&#146; equity. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
The
Conversion Warrants should have been recorded as additional issuance expenses and
deducted from the proceeds of the issuance of Ordinary Shares to the Investors, which
would result in no net effect on Additional Paid-In-Capital (debit and credit to
Additional Paid-In-Capital in the same amount). </FONT></TD>
</TR>
</TABLE>
<BR>

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<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U>Measurement</U> </FONT> </P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As discussed above, the Company has
measured at fair value the following instruments: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
Warrants granted to the Investors in connection with the establishment of
               the Credit Line. The fair value calculations resulted in a fair value of $
               811,000. </FONT></TD>
</TR>
</TABLE>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Warrants
granted to the placement agents. The fair value calculations resulted                in a
fair value of $ 29,000. </FONT></TD>
</TR>
</TABLE>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The
embedded call option granted to the Investors. The fair value calculations
               resulted in a fair value of $ 3,086,000. </FONT></TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The warrants and embedded call option
were measured based on the Black-Scholes option pricing model. The fair value of the
embedded call option was adjusted to reflect the fact that it was cancelable by the
Company at any time on a 10 days notice. </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Because certain of the Investors were
considered to be &#147;Controlling Shareholders&#148;, the participation of such Investors
under the Israeli Companies Law, 1999, as amended (the &#147;Companies Law&#148;),
required that in addition to the affirmative vote of the majority of the shares voted at
the shareholders meeting, that either (a) the votes in favor include at least one third of
the votes of participating shareholders, not counting abstaining votes, who do not have a
&#147;personal interest&#148; (as such term is defined in the Companies Law) approval of
the resolution to permit such participation or (b) the aggregate votes of the opposing
shareholders who do not have such &#147;personal interest,&#148; represent less than 1% of
the Company&#146;s outstanding share capital.. Such approval was obtained on November 18,
2003. Therefore, the Warrants and the portion of the embedded call option relating to
those shareholders were measured on November 18, 2003 rather than on July 30, 2003 (the
date the Agreement was executed). </FONT></P>


<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005<BR>
Page Eight
</FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The impact of the corrected<B>
</B>accounting treatment on the financial statements is summarized below: </FONT></P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Consolidated
statement of operations data:  </FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31, 2003</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As<BR>
previously<BR>
reported</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Adjustment</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As to be restated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>&nbsp;</FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="44%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>General and administrative expenses</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(11,121</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>70</FONT></TD>
        <TD WIDTH="8%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="8%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(11,051</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial expenses, net</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,157</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>751</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,406</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(27,191</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>821</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(26,370</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net loss per share</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1.57</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.05</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1.52</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated balance sheet:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31, 2003</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As<BR>
previously<BR>
reported</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Adjustment</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As to be restated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Long-term deferred expenses</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,713</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(*)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,713</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total assets</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>59,768</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,713</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>61,481</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Additional paid-in capital</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47,095</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>426</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>47,521</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Receipts on account of shares</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,401</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>466</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,867</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accumulated deficit</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(58,346</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>821</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(57,525</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total shareholders' deficiency</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(6,726</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,713</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(5,013</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
</TABLE>
<BR>









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<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(*) </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Represents
the remaining deferred expenses relating to the remaining available                credit
line of $1.5 million that was not replaced for Ordinary Shares as at
               December 31, 2003. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TR VALIGN=TOP>
<TD WIDTH=10%>&nbsp;</TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>
Consolidated
statement of operations data:  </FONT></TD>
</TR>
</TABLE>
<BR>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Year ended December 31, 2004</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As<BR>
previously<BR>
reported</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Adjustment</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As to be restated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD WIDTH="10%"> </TD>
     <TD WIDTH="44%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Financial expenses, net</FONT></TD>
     <TD WIDTH="1%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="3%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3,187</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>548</FONT></TD>
        <TD WIDTH="5%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD WIDTH="1%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD WIDTH="9%" ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2,639</FONT></TD>
        <TD WIDTH="2%" ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Net loss</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(22,515</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>548</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(21,967</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Basic and diluted net loss per share</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(0.93</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>0.02</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(0.91</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consolidated balance sheet data:</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
</TABLE>
<BR>



<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005<BR>
Page Nine
</FONT></P>


<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=9><FONT FACE="Times New Roman, Times, Serif" SIZE=1>December 31, 2004</FONT><HR WIDTH=98% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TH> </TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As<BR>
previously<BR>
reported</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>Adjustment</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH>
     <TH COLSPAN=3><FONT FACE="Times New Roman, Times, Serif" SIZE=1>As to be restated</FONT><HR WIDTH=95% SIZE=1 COLOR=BLACK NOSHADE></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=10%> </TD>
     <TD WIDTH=44% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=1% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=3% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD WIDTH=1% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD><TD WIDTH=9% ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
        <TD WIDTH=2% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Additional paid-in capital</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>51,802</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1,369</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>50,433</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD> </TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Accumulated deficit</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(80,861</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1,369</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN=RIGHT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(79,492</FONT></TD>
        <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
<TR VALIGN="BOTTOM" BGCOLOR="#cceeff">
     <TD> </TD>
     <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Total shareholders' deficiency</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(23,642</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>-</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
     <TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD><TD ALIGN="RIGHT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(23,642</FONT></TD>
        <TD ALIGN="LEFT"><FONT FACE="Times New Roman, Times, Serif" SIZE=2>)</FONT></TD></TR>
</TABLE>
<BR>












<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>Note 13 &#150;
Commitments and Contingencies, page F-35</I></B></U> </FONT> </P>

<!-- MARKER FORMAT-SHEET="Head Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>B &#150; Royalty
Commitments, page F-35</I></B></U> </FONT> </P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>8. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>We
note that you are required to repay the OCS, Government of Belgium and                the
Fund for the </I></B><I></I><B><I>Encouragement of Marketing Activity for
               past grants received based on sales derived from products </I></B><I></I><B><I>developed
with those grants. Please revise your future filings to disclose                your
maximum potential </I></B><I></I><B><I>liability under these                agreements</I></B><I></I>. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
disclosed in the financial statements (page 35) the Company has no potential royalty
commitment as of December 31, 2004 under these agreements. The liability for royalty
payments is fully provided for (see also the response to Comment No. 9). If such a
liability will exist in the future, the company will provide an appropriate disclosure in
its future filings. </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>9. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>Your
disclosure in this note that you have no contingent obligation to pay royalties
to the OCS and the Government of Belgium appears to contradict the disclosure on page
</I></B><I></I> <B><I>27 that you have a contingent liability of $800,000 for future
royalties to the OCS. Please tell </I></B><I></I> <B><I>us how your contingent liabilities
are calculated and how you account for these liabilities. </I></B><I></I> <B><I>Please
revise future filings to remove this inconsistency or advise us</I></B><I></I>.</FONT></TD>
</TR>
</TABLE>
<BR>

<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005<BR>
Page Ten
</FONT></P>


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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company will revise its future filings to remove the reference to the contingent liability
and to make the disclosure consistent with the disclosure currently included on F-36.<B>
</B>As noted on page 27, the Company has filed a law suit in the District Court in
Jerusalem seeking a declaratory judgment denying the OCS&#146;s claim that the Company
owes royalties for sales that occurred in the past of $ 785,000 related to the sale of its
Fresco printers. In the event the District Court finds in favor of OCS, the $785,000 would
be due and payable rather than contingent. The Company&#146;s management and its external
Israeli legal counsel have determined that the probability of this contingency is high. As
a result, and in compliance with SFAS 5, the Company has accrued the full $785,000 to
reflect this possibility and disclosed it in its financial statements. The Company has no
additional contingent obligations. </FONT>
</TD>
</TR>
</TABLE>
<BR>

<!-- MARKER FORMAT-SHEET="Head Sub 2 Left-TNR" FSL="Workstation" -->
<P ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE="2"><U><B><I>D
&#150; Litigations, page F-36</I></B></U> </FONT> </P>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;</FONT></TD>
<TD WIDTH=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>10. </FONT></TD>
<TD WIDTH=90%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B><I>We
note your discussion of litigation with Screen + in your legal                proceedings
but we note no </I></B><I></I><B><I>additional discussion in the                notes to
the financial statement. Please tell us and revise </I></B><I></I><B><I>future filings to
indicate the damages sought by the plaintiff and the                range of possible </I></B><I></I><B><I>loss.
Refer to paragraph 10 of SFAS                5</I></B><I></I>. </FONT></TD>
</TR>
</TABLE>
<BR>

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<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR VALIGN=TOP>
<TD><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company has been advised by its subsidiary&#146;s Belgium legal counsel that the
anticipated risk of an unfavorable verdict in favor of Screen + is remote and therefore,
the Company believes that according to the provisions of SFAS 5, the Company is not
required to record a loss contingency provision or include a disclosure in the financial
statements. The Company will revise its future filings to remove the reference to the
litigation in order to be consistent with its financial statements. </FONT>
</TD>
</TR>
</TABLE>
<BR>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In
connection with this response letter, the Company acknowledges that: </FONT></P>

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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1)
               the Company is responsible for the adequacy and accuracy of the disclosure
in                its filings;  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2)
               Staff comments or changes to disclosure in response to Staff comments do
not                foreclose the Commission from taking any action with respect to the
filing; and  </FONT></P>


<!-- MARKER FORMAT-SHEET="Para Indent Lv 0-TNR" FSL="Workstation" -->
<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3)
               the Company may not assert Staff comments as a defense in any proceeding
               initiated by the Commission or any person under the federal securities
laws of                the United States.  </FONT></P>


<p align=center>
<font size=2></font></p>
<HR SIZE="1" NOSHADE  STYLE="margin-top: -2px"><HR SIZE="4" NOSHADE  STYLE="margin-top: -10px">
<page>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>December 1, 2005<BR>
Page Eleven
</FONT></P>


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<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
appreciate in advance your time and attention to our response. Should you have any
additional questions or concerns, please call me at 212-468-8163 or my colleague Michael
Kalish at (212) 336-8458. </FONT></P>















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<TABLE WIDTH=100% CELLSPACING=0 CELLPADDING=0 BORDER=0>
<TR VALIGN=TOP>
<TD WIDTH=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
<TD WIDTH=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Sincerely,<BR><BR>
<BR>/s/ James R. Tanenbaum<BR>
<BR>James R. Tanenbaum</FONT></TD>
</TR>
</TABLE>
<BR>



<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0 WIDTH=100%>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH>
     <TH><FONT FACE="Times New Roman, Times, Serif" SIZE=1></FONT></TH></TR>
<TR VALIGN=Bottom>
     <TD WIDTH=5% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>cc:</FONT></TD>
     <TD WIDTH=95% ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Doron Faibish, Adv.</FONT></TD></TR>
<TR VALIGN=Bottom>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2></FONT></TD>
     <TD ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Michael G. Kalish, Esq.</FONT></TD></TR>
</TABLE>






<p align=center>
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