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SECURITIES AND EXCHANGE
COMMISSIONWASHINGTON, DC 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, 2002

or

oTransition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

For the transition period from ________ to ________

Commission file number 000-30664

Camtek Ltd.(Exact
name of Registrant as specified in its charter)

Israel(Jurisdiction of incorporation or organization)

Ramat Gavriel Industrial
Zone, P.O. BOX 544, Migdal Haemek, Israel(Address of principal executive offices)

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

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

Ordinary Shares, par value NIS 0.01

Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:
Ordinary Shares, par value NIS 0.01

Indicate the number of outstanding shares of each
of the issuers classes of capital or common stock as of the close of the
period covered by the annual report:

[27,053,419] Ordinary Shares, par value NIS
0.01

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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 Company was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes XNo

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

Item
17Item 18 X

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TABLE OF CONTENTS

|         |           | PAGE                                                                           
|-------- | --------- | -------------------------------------------------------------------------------
|         |           |                                                                                
|PART I   |           | 2                                                                              
|         |           |                                                                                
|         | Item 1.   | Identity of Directors,
  Senior Management and Advisers.                       
|         |           |                                                                                
|         | Item 2.   | Offer Statistics and
  Expected Timetable.                                     
|         |           |                                                                                
|         | Item 3.   | Key Information.                                                               
|         |           |                                                                                
|         | Item 4.   | Information on the
  Company.                                                  
|         |           |                                                                                
|         | Item 5.   | Operating and Financial
  Review and Prospects.                                
|         |           |                                                                                
|         | Item 6.   | Directors, Senior
  Management and Employees.                                  
|         |           |                                                                                
|         | Item 7.   | Major Shareholders and
  Related Party Transactions.                           
|         |           |                                                                                
|         | Item 8.   | Financial Information.                                                         
|         |           |                                                                                
|         | Item 9.   | The Offer and Listing.                                                         
|         |           |                                                                                
|         | Item 10.  | Additional Information.                                                        
|         |           |                                                                                
|         | Item 11.  | Quantitative and
  Qualitative Disclosures About Market Risk.                  
|         |           |                                                                                
|         | Item 12.  | Description of Securities
  Other than Equity Securities.                      
|         |           |                                                                                
|PART II  |           | 50                                                                             
|         |           |                                                                                
|         | Item 13.  | Defaults, Dividend
  Arrearages and Delinquencies.                             
|         |           |                                                                                
|         | Item 14.  | Material Modifications to
  the Rights of Security Holders and Use of Proceeds.
|         |           |                                                                                
|         | Item 15.  | Controls and Procedures                                                        
|         |           |                                                                                
|         | Item 16A. | Audit Committee Financial
  Expert                                             
|         |           |                                                                                
|         | Item 16B. | Code of Ethics                                                                 
|         |           |                                                                                
|         | Item 16C. | Principal Accounting Fees
  and Services                                       
|         |           |                                                                                
|PART III |           | 52                                                                             
|         |           |                                                                                
|         | Item 17.  | Financial Statements.                                                          
|         |           |                                                                                
|         | Item 18.  | Financial Statements.                                                          
|         |           |                                                                                
|         | Item 19.  | Exhibits.                                                                      

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Forward-Looking Statements

Statements
in this annual report about our future results, levels of activity,
performance, goals or achievements or other future events constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or events to
differ materially from those anticipated in our forward-looking statements.
These factors include, among others, those listed under Risk Factors or
described elsewhere in this annual report.

In
some cases, one can identify forward-looking statements by our use of words
such as may, will, should, could, expects, plans, intends,
anticipates, believes, estimates, predicts, seeks, strategy,
potential or continue or the negative or other variations of these words,
or other comparable words or phrases.

Although
we believe that the expectations reflected in our forward-looking statements
are reasonable, we cannot guarantee future results, levels of activity,
performance or achievements or other future events. We are under no duty to
update any of our forward-looking statements after the date of this annual
report, other than as required by law. One should not place undue reliance on
forward-looking statements.

1

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PART I

Item
1.                  Identity
of Directors, Senior Management and Advisers.

Not
applicable.

Item
2.                  Offer
Statistics and Expected Timetable.

Not
Applicable.

Item
3.                  Key
Information.

A.          Selected Consolidated Financial Data.

We
derived the statement of operations data for the years ended December 31, 2000,
2001 and 2002, and balance sheet data as of December 31, 2001 and 2002 from the
audited consolidated financial statements in this annual report. These
statements were jointly audited by Goldstein Sabo Tevet and Eisner, LLP,
independent auditors, whose report with respect to these financial statements
is included  elsewhere in the annual
report. We derived the statement of operations data for the years ended
December 31, 1998 and 1999
 and the balance sheet data as of December 31, 1998 and 1999 and
2000 from audited financial statements that are not included in the annual
report.  Historical results are not
necessarily indicative of results to be expected in the future or for the full
year.

For
all fiscal periods for which consolidated financial data are set forth below,
our audited consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States.

|                                               |                                                                        | Year Ended December 31,                
|---------------------------------------------- | ---------------------------------------------------------------------- | ---------------------------------------
|                                               |                                                                        |                                        
|                                               |                                                                        | 1998                                   
|                                               |                                                                        |                                        
|                                               |                                                                        | (In
  thousands, except per share data)
|Statement
  of Operations Data:                |                                                                        |                                        
|Revenues                                       |                                                                        | $                                      
|Cost of revenues                               |                                                                        |                                        
|Write off - inventory                          |                                                                        |                                        
|                                               |                                                                        |                                        
|Gross profit                                   |                                                                        |                                        
|Research and development
  cost:               |                                                                        |                                        
|                                               | Expenses                                                               |                                        
|                                               | Acquired in process
  researchand development                          |                                        
|                                               | Less
  royalty-bearing participations from
   the Government of Israel |                                        
|                                               |                                                                        |                                        
|Research and
  development costs, net          |                                                                        |                                        
|Selling, general and
  administrative expenses |                                                                        |                                        
|Restructuring expenses                         |                                                                        |                                        
|                                               |                                                                        |                                        
|Operating income (loss)                        |                                                                        |                                        
|Financial and other
  (expenses) income, net   |                                                                        |                                        
|                                               |                                                                        |                                        
|Income (loss) before
  income taxes            |                                                                        |                                        
|Provision for income
  taxes                   |                                                                        |                                        
|                                               |                                                                        |                                        
|Net income (loss)                              |                                                                        | $                                      
|                                               |                                                                        |                                        
|Earnings (loss) per
  ordinary shares          |                                                                        |                                        
|                                               | outstanding                                                            |                                        
|                                               | Basic                                                                  |                                        
|                                               |                                                                        |                                        
|                                               | Diluted                                                                |                                        
|                                               |                                                                        |                                        

2

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|Weighted average number
  of shares |              |                                        
|----------------------------------- | ------------ | ---------------------------------------
|                                    | outstanding: |                                        
|                                    |              | Year Ended December 31,                
|                                    |              |                                        
|                                    |              | 1998                                   
|                                    |              |                                        
|                                    |              | (In
  Thousands, except per share data)
|                                    | Basic        |                                        
|                                    | Diluted      |                                        

|                             |  | December 31,    
|---------------------------- |  | ----------------
|                             |  |                 
|                             |  | 1998            
|                             |  |                 
|                             |  | (in
  thousands)
|Balance Sheet Data:          |  |                 
|Cash and cash equivalents    |  | $               
|Working capital (deficiency) |  |                 
|Total assets                 |  |                 
|Total debt                   |  |                 
|Shareholders equity         |  |                 

B.          Capitalization and Indebtedness.

Not applicable.

C.          
Reasons for the Offer and Use of Proceeds.

Not applicable.

D.          
Risk Factors.

There
is a high degree of risk associated with our company and business. If any of
the following risks occur, our business, operating results and financial
condition could be materially adversely affected and the trading price of our
ordinary shares could decline.

Risk Factors Related to Our Business.

The main market we serve, the printed circuit board industry,
is currently experiencing a prolonged and severe downturn, and it is difficult
to predict the length of the downturn or the timing or strength of a
recovery.

Historically,
we derived most of our revenues, and we expect to continue to derive a majority
of our revenues from sales of our Automated Optical Inspection, or AOI, systems
and related services for the printed circuit board industry. Our business
depends in large part upon capital expenditures by printed circuit board
manufacturers, which in turn depend upon the current and anticipated demand for
products using printed circuit boards. The printed circuit board industry is
experiencing a prolonged and severe downturn. As a result, the overall rate of
capital spending by printed circuit board manufacturers has been sharply cut,
and sales of our products to these manufacturers have declined.  As a result of the general economic decline,
we have provided some of our customers with extended payment cycles.
Consequently, we have experienced longer accounts receivable payment
cycles.  If any of our customers becomes
insolvent or has difficulties meeting its financial obligations to us, we may
suffer additional losses.

Furthermore,
many of our customers are currently experiencing a period of excess capacity
and are not purchasing new AOI systems, and it is not clear how long after a
recovery in sales of printed circuit boards begins, demand for our AOI systems
will start to grow.  We cannot predict
the length of the downturn or the timing or strength of a recovery. If this
downturn continues, our sales will continue to be low and may decrease further.
In addition, we have only a limited ability to reduce expenses during any
period of a downturn in demand because of the need for significant ongoing
expenditures related to engineering, research and development and worldwide
customer service and support operations. 
Accordingly, we may incur further losses.

3

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In 2002,
we entered two new markets: the semiconductor packaging industry and the
microelectronics industry.  If these
markets fail to grow or if our products are not accepted in these markets, our
results of operations will be adversely affected.

In
the beginning of 2002, we began sales of products for the inspection of high
density interconnect substrates, or HDI-S, to serve the semiconductor packaging
industry and for the inspection of wafers, which are silicon disks from which
individual chips are diced, to serve the microelectronics industry. The rate of
our future success in these markets depends on the development and rate of
growth of the market for intelligent optical inspection technology in these
industries and on the acceptance of our products. The markets for intelligent
optical inspection systems in the semiconductor packaging and the
microelectronics industries are new and may not develop at the rate we expect,
whether as a result of the continuing economic downturn, competition,
alternative technologies, changes in technology, changes in product standards
or otherwise. If widespread acceptance of intelligent optical inspection
technology does not develop in these industries, our success will be adversely
affected. Furthermore, our sales depend upon the adoption of our products by
manufacturers in these industries. The adoption of our new products often
involves long evaluation periods in which the manufacturers and we jointly
define the manufacturers needs and customize our products accordingly. This
process increases our costs and may affect the profitability of our new
products. Ultimately, if these markets do not develop or grow or if
manufacturers do not find our products to be appropriate for their use, our
future sales could suffer.

We operate an international sales organization. Recently, the
majority of our sales have been to manufacturers in East Asia. The
concentration of sales within a particular geographical region involves
specific risks.

In
2002, our total sales declined on an absolute basis in all geographic markets;
however, the relative significance of the geographic markets as a percentage of
our total sales has continued to shift from Europe and the United States to
East Asia, principally China and Taiwan. 
In 2002, our sales to customers in East Asia accounted for approximately
80% of our total revenues, including approximately 40% from sales in China and
26% from sales in Taiwan. Changes in local legislation or in governmental
controls and regulations, changes in tariffs and taxes, political instability,
trade restrictions, a downturn in economic or financial conditions, as well as
any extraordinary events having an adverse effect on the economy or business
environment in this region, such as the spread of the SARS epidemic, may cause
a significant decline in our future revenues and have an adverse affect on our
results of operations.

Technology in the markets in which we operate is rapidly
evolving, and we may not be able to keep pace with these changes or with
emerging industry standards.  This could
result in a loss of revenues.

The
markets for our products are characterized by changing technology, evolving
industry standards, changes in end-user requirements and new product
introductions. Potential new technologies and improvements to existing
production equipment and methods could improve production yields, thereby
lowering the cost-benefit equation currently justifying the use of our products
in these industries. In addition, new technologies could emerge as alternatives
to using our products.

Our
future success will depend on our ability to enhance our existing products and
to develop and introduce new technologies for intelligent optical inspection of
printed circuit boards, HDI-S and wafers. These products and features must keep
pace with technological developments and address the increasingly sophisticated
needs of our customers. Our failure to keep pace with technological changes,
with products offered by our competitors and with emerging industry standards
could damage our reputation and adversely affect our ability to attract new
business and generate revenues.

The markets we serve are highly competitive, there is a
dominant market participant for AOI systems for the printed circuit boards
industry and some of our competitors have greater resources, which may make it
difficult for us to maintain profitability.

4

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Competition
in the markets we serve is intense. Competition has increased further due to
the continuing low demand for the type of products that we manufacture,
resulting from the general economic downturn. If this trend continues, it could
mean lower prices for our products, reduced demand for our products and a
corresponding reduction in our ability to recover development, engineering and
manufacturing costs. In addition, there is a 
growing market of  used AOI
systems for sale, and this, in turn, may reduce the demand for our products and
force us to lower our prices in certain cases. If we have to lower prices to
remain competitive and are unable to reduce our costs to offset price
reductions or are unable to introduce new higher performance products with
higher prices, our operating results may be seriously harmed.

Competitors
currently sell products that provide similar benefits to those that we sell.
Our principal direct competitor in the sale of AOI systems for the printed circuit
board industry is Orbotech Ltd., an Israeli company, which currently commands a
substantial majority of the market for AOI systems and services for printed
circuit board manufacturers.  We also
compete against other companies in the semiconductor packaging and the
microelectronics industries. Some of our primary competitors in the
semiconductor packaging industry are Orbotech Ltd., Robotic Vision Systems,
Inc., and Utechzone Co. Ltd. Some of our primary competitors in the
microelectronics industry are August Technology Corporation and Robotic Vision
Systems, Inc.

Some
of our competitors, most notably Orbotech, have greater financial, personnel
and other resources, offer a broader range of products and services than we do
and may be able to respond more quickly to new or emerging technologies or
changes in customer requirements, develop additional or superior products,
benefit from greater purchasing economies, offer more aggressive pricing or
devote greater resources to the promotion of their products.

If we are not able to protect our proprietary technology, we
may not be able to compete effectively.

We
differentiate our products and technologies through the use of our proprietary
software, our image processing algorithms and the integration of our advanced
hardware components. We rely on a combination of copyrights, trade secrets,
patents, trademarks, confidentiality and non-disclosure agreements to protect
our proprietary know-how and intellectual property, including both hardware and
software components of our products. These measures may not be adequate to
protect our proprietary technology, and it may be possible for a third party,
including a competitor, to copy or otherwise obtain and use our products or
technology without authorization or to develop similar technology
independently. Additionally, our products may be sold in foreign countries that
provide less protection to intellectual property than that provided under U.S.
or Israeli laws.

Our products may infringe on the intellectual property rights
of others, which could result in claims against us.

Third
parties may assert claims that we have violated patents or that we have
infringed upon their intellectual property rights. Intellectual property claims
have been asserted against us in the past and may be asserted against us in the
future.  Any intellectual property
claims against us, even if without merit, could cost us a significant amount of
money to defend and divert managements attention away from our business.

If one or more of our third-party suppliers or subcontractors
do not provide us with key components or subsystems, then we may not be able to
deliver our products to our customers in a timely manner and we may incur
substantial costs to obtain these components from alternate sources.

Currently,
we rely on single source and limited source suppliers and subcontractors for a
number of essential components and subsystems of our products.  We have not signed agreements with all of
these suppliers and subcontractors for the continued supply of the components
or subsystems they provide.  An
interruption in supply from these sources or an unexpected termination of the
manufacture of key components or subsystems would, therefore, disrupt
production and adversely affect our ability to deliver products to our
customers. An unexpected termination of supply would require an investment in
capital and manpower resources in order to shift to other suppliers and might
cause a significant delay in introducing replacement products since we do not
develop and supply these components and subsystems in-house.

5

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We depend
on a few large orders, and the inability to generate those orders in any given
period could have a disproportionate impact on our revenue.

Historically,
a substantial portion of our revenue has come from large purchases by a small
number of customers. For example, in 2000, three customers accounted for about
12.4% of our total revenues, in 2001, two customers accounted for about 10.0%
of our total revenues and in 2002 two customers accounted for about 14.1% of
our total revenues. Based on our experience, we expect that the identity of our
customers may change from period to period. 
We have not entered into long-term agreements with any of our large customers
nor have we secured commitments to purchase any specific quantities of our
products from any of our customers. If we do not receive large orders from
customers in any given period, we may not be able to meet our sales
expectations for that period.

Due to fluctuations in foreign exchange rates, the prices of
our products may become less competitive or we may incur additional expenses.

Foreign
currency fluctuations may affect the prices of our products. Our prices in most
countries outside of Europe are denominated in dollars. In those countries, if
there is a significant devaluation in the local currency as compared to the
dollar, the prices of our products will increase relative to that local
currency and may be less competitive. In 2002, we derived approximately 10% of
our revenues from customers in Europe where our prices are mainly denominated
in euros. A devaluation of the Euro as compared to the dollar can cause our
revenues to decrease in dollar terms. If a larger number of our sales were to
be denominated in currencies other than dollars, our reported revenue and
earnings would be subject to a greater degree of foreign exchange fluctuations.

We may experience fluctuations in our future operating
results which make it difficult to predict future results.

Our
revenues and net income, if any, in any particular period may be lower than
revenues and net income, if any, in a preceding or comparable period. This
complicates our planning processes and reduces the predictability of our
earnings. Period-to-period comparisons of our results of operations may not be
meaningful, and you should not rely upon them as indications of our future
performance.

Our
quarterly results of operations may be subject to significant fluctuations due
to the following factors:

| |  | the cyclical nature of
  the electronics industry;                   
| | - | ---------------------------------------------------------------------
| |   |                                                                      
| |  | the size, timing and
  shipment of orders;                           
| |   |                                                                      
| |  | customer budget cycles
  and installation schedules;                 
| |   |                                                                      
| |  | product introductions;                                               
| |   |                                                                      
| |  | the timing of new product
  upgrade or enhancement announcements; and
| |   |                                                                      
| |  | interest and exchange
  rates.                                       

For
example, the introduction of new products or new versions of existing products
for the same market segment in the past often resulted in a decline in the
sales of our older products and product versions.

We depend on a limited number of key personnel with
particular knowledge of the industries in which we operate and technologies we
develop who would be difficult to replace.

Our
continued growth and success largely depends on the managerial and technical
skills of the members of our senior management and on our ability to recruit
and retain highly skilled technical, manufacturing, managerial, financial and
marketing personnel. The labor market in which we operate is competitive during
periods of economic growth, and, as a result, we may not be able to retain and
recruit key personnel during such periods. 
In particular, we may find it difficult to hire key personnel with the
requisite knowledge of our business, products and technologies.  Our failure to hire, retain, or adequately
train key personnel could have a negative impact on our performance.

6

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In the
event of an economic recovery, we may encounter difficulties in expanding our
operations and purchasing key components and subsystems to meet increased
customer demand.

In
the event of an economic recovery, our operations will have to expand in order
to meet increasing customer demands. 
Our growth will depend in large part on our ability to manage our
expanding operations and may place a significant strain on our engineering,
technical, administrative, operational, financial and marketing resources, as
well as increased demands on our systems and controls. If we expand our
operations, we believe that we will need to promote and hire qualified
engineering, administrative, operational, financial and marketing personnel.
During periods of economic growth, competition for qualified engineering and
technical personnel is intense. There are a limited number of persons with the
requisite knowledge and experience in our business, products and other
necessary technology areas. The process of locating, training and successfully
integrating qualified personnel into our operations can be lengthy and
expensive. We may not be successful in attracting, integrating and retaining
those new employees.  Also, in the event
of an economic recovery, our suppliers and subcontractors may be unable to meet
our increased demand for key components and subsystems.

Our
inability to satisfy any increase in customer orders could result in the loss
of customers or could cause customers to seek alternative sources for products.
Our inability to expand our operating and financial control systems, recruit
and hire necessary personnel, successfully integrate new personnel into our
operations, or purchase key components could adversely affect our ability to
grow and to respond to any economic recovery.

Priortech Ltd. has substantial control over most matters
submitted to a vote of our shareholders, thereby limiting your power to
influence corporate action.

Priortech
Ltd., formerly PCB Ltd., beneficially owns 77.8% of our issued and outstanding
ordinary shares. As a result, Priortech has the power to control the outcome of
most matters submitted to a vote of shareholders, including the election of
members of our board and the approval of significant corporate
transactions.  This concentration of
ownership may also have the effect of making it more difficult to obtain
approval for a change in control of Camtek. The equity interest of Priortech
will make it impossible to obtain shareholder approval without Priortechs
consent on matters requiring shareholder approval. Messrs. Rafi Amit, Yotam
Stern and Itzhak Krell control Priortech and may be deemed to control us.

Our relationship with Priortech Ltd. may give rise to
conflicts of interest.

From
time to time, we use services and products of other companies owned or
controlled by Priortech, which may create a conflict of interest. Although
Israeli law imposes procedural requirements, like obtaining special approvals,
in order to approve extraordinary interested party transactions, we cannot be
certain that those procedures will eliminate the possible detrimental effects
of any of these potential conflicts of interest. In addition, pursuant
to their employment agreements with us, Mr. Rafi Amit, our general manager, and
Mr. Yotam Stern, our Executive Vice President, Business and Strategy, may each
spend up to 20% and 25% of their time, respectively, working for Priortech and
other entities in the Priortech group.

Our operating results could be negatively impacted if we are
unable to obtain the necessary resources to maintain our operations and invest
in our future.

Although
the markets we serve are currently in a downturn, we need to maintain our
current operations and to prepare for any potential recovery in these markets
by continuing to invest in certain areas of our business.  These investments require us to use existing
cash reserves to fund our research and development activities, to fund the
development of new products and to respond to unanticipated developments,
increasing customer demands or competitive pressures.

7

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As
of March 31, 2003, our cash reserves were at a level of approximately $14.2 million. 
If our cash reserves, together with cash available under our credit
facility, are insufficient to meet our cash requirements, we will need to seek
alternative sources of financing to carry out our operating strategies.  We may not be able to raise needed cash or
we may not be able to do so on terms that are acceptable to us.  Additional financing may be on terms that
are dilutive or potentially dilutive to existing shareholders.  In addition, the current economic
environment and political climate in Israel may make it more difficult for us
to obtain financing. In August 2002, we raised approximately $6.1 million in a
rights offering of ordinary shares to our then existing shareholders. Our cash
reserves and cash available under our credit facility may not be sufficient for
our long-term needs. If we are not able to find alternative sources of
financing that are sufficient to meet our cash requirements, we may need to
modify our operating plans to the extent of available resources.

Our share price has been volatile in the past and may
continue to decline in the future.

Our
ordinary shares have experienced significant market price and volume
fluctuations in the past and may experience significant market price and volume
fluctuations in the future in response to factors such as the following, some
of which are beyond our control:

| |  | quarterly variations in
  our operating results;                                                                                                 
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                  
| |  | operating results that
  vary from the expectations of securities analysts and investors;                                                        
| |   |                                                                                                                                                  
| |  | changes in expectations
  as to our future financial performance, including financial estimates by
  securities analysts and investors;          
| |   |                                                                                                                                                  
| |  | announcements of
  technological innovations or new products by us or our competitors;                                                           
| |   |                                                                                                                                                  
| |  | announcements by us or
  our competitors of significant contracts, acquisitions, strategic
  partnerships, joint ventures or capital commitments;
| |   |                                                                                                                                                  
| |  | changes in the status of
  our intellectual property rights;                                                                                     
| |   |                                                                                                                                                  
| |  | announcements by third
  parties of significant claims or proceedings against us;                                                                
| |   |                                                                                                                                                  
| |  | additions or departures
  of key personnel;                                                                                                      
| |   |                                                                                                                                                  
| |  | future sales of our
  ordinary shares; and                                                                                                       
| |   |                                                                                                                                                  
| |  | stock market price and
  volume fluctuations.                                                                                                    

Domestic
and international stock markets often experience extreme price and volume
fluctuations. Market fluctuations, as well as general political and economic
conditions, such as a recession or interest rate or currency rate fluctuations
or political events or hostilities in or surrounding Israel, could adversely
affect the market price of our ordinary shares.

In
the past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its securities.
We may in the future be the target of similar litigation. Securities litigation
could result in substantial costs and divert managements attention and resources.

Our shares are listed for trade on more than one stock
exchange, and this may result in price variations.

Our
ordinary shares are listed for trade on the Nasdaq SmallCap Market and on the
Tel Aviv Stock Exchange, and this may result in price variations.  Our ordinary shares are traded on these
markets in different currencies (U.S. dollars on the Nasdaq and New Israeli
Shekels, or NIS, on the Tel Aviv Stock Exchange).  These markets have different opening times and close on different
days. Different trading times and differences in exchange rates, among other
factors, may result in our shares being traded at a price differential on these
two markets.  In addition, market
influences in one market may influence the price at which our shares are traded
on the other.

8

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The listing of our ordinary shares was
transferred from The Nasdaq National Market to The Nasdaq SmallCap Market in
February 2003. The Israeli Securities Authoritys current position is that,
following the transfer of our ordinary shares to the Nasdaq SmallCap Market, we
are required to provide disclosure in Israel in accordance with the provisions
of Chapter F of the Israeli Securities Law, 1968 (similar to the requirements
of a company listed only on the Tel Aviv Stock Exchange). Based on the advice
of our Israeli legal counsel, we believe that, notwithstanding the transfer of
our ordinary shares to the Nasdaq SmallCap Market, we may continue to report in
accordance with the provisions of Chapter E3 of the Securities Law, which does
not impose on us the burden of reporting under two different sets of disclosure
rules and requirements. The Israeli Securities Authority may order the Tel Aviv
Stock Exchange to halt the trade in our ordinary shares if we do not provide
disclosure in Israel in accordance with the provisions of Chapter F of the
Securities Law.

We may be classified as a passive foreign investment company
and, as a result, our U.S. shareholders may suffer adverse tax consequences.

Generally,
if for any taxable year 75% or more of our gross income is passive income, or
at least 50% of our assets are held for the production of, or produce, passive
income, we may be characterized as a passive foreign investment company, or
PFIC, for U.S. federal income tax purposes. Our passive income would not
include income derived from the sale of our products but would include amounts
derived by reason of the temporary investment of any cash amounts. This
characterization could result in adverse U.S. tax consequences to our
shareholders, including having gain realized on the sale of our shares be
treated as ordinary income, as opposed to capital gain income, and having
potentially punitive interest charges apply to such sales proceeds. U.S.
shareholders should consult with their own U.S. tax advisors with respect to
the U.S. tax consequences of investing in our ordinary shares.

We
believe that in 2002 we were not a PFIC. 
However, there can be no assurance that the U.S. Internal Revenue
Service will not challenge the calculations we used in determining that we were
not a PFIC in 2002.  We currently expect
that we will not be a PFIC in 2003. 
However, PFIC status is determined as of the end of the taxable year and
is dependent on a number of factors, including the value of a corporations
assets and the amount and type of its gross income.  Therefore, there can be no assurance that we will not become a
PFIC for the current fiscal year ending December 31, 2003 or in a future
year.  For a discussion of how we might
be characterized as a passive foreign investment company and related tax
consequences, please see the section of this annual report entitled Taxation 
U.S. Federal Income Tax Considerations - Tax Consequences if we are a Passive
Foreign Investment Company.

9

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Risks relating to our operations in Israel

Conducting business in Israel entails special risks.

We
are incorporated under the laws of, and our principal offices are located in,
the State of Israel. We are directly influenced by the political, economic and
military conditions affecting Israel. 
Our product development depends on components imported from outside of
Israel. A majority of our sales occur outside of Israel. We could be adversely
affected by:

| |  | any major hostilities
  involving Israel;                                                  
| | - | -------------------------------------------------------------------------------------------
| |   |                                                                                            
| |  | a full or partial
  mobilization of the reserve forces of the Israeli army;                
| |   |                                                                                            
| |  | the interruption or
  curtailment of trade between Israel and its present trading partners;
| |   |                                                                                            
| |  | a significant increase in
  inflation; and                                                 
| |   |                                                                                            
| |  | a significant downturn in
  the economic or financial condition of Israel.                 

Since
September 2000, there has been a marked increase in violence, civil unrest and
hostility, including armed clashes, between the State of Israel and the
Palestinians, and acts of terror have been committed inside Israel and against
Israeli targets in the West Bank and Gaza. Since 2002, there has been a significant
escalation in armed clashes between Israel
and the Palestinians, and Israel has undertaken military actions in Palestinian
controlled areas. There is no indication how long the current
hostilities will last or whether there will be any further escalation. Any
further escalation in these hostilities or any future armed conflict, political
instability or violence in the region may have a negative effect on our
business condition, harm our results of operations and adversely affect our
share price. There are a number of countries that restrict business with Israel
or Israeli companies. Restrictive laws or policies directed towards Israel or
Israeli businesses and civil unrest, military conflict and uncertainty may have
an adverse impact on our operating results, financial condition or the
expansion of our business.

Our operations could be disrupted as a result of the
obligation of key personnel in Israel to perform military service.

Many
of our officers and employees in Israel, including certain key employees, are
obligated to perform annual reserve duty in the Israeli army and are subject to
being called up for reserve duty at any time. 
The absence of one or more of our officers and key employees for
significant periods of time due to military service could be disruptive to our
operations.  Although we have
effectively operated under these conditions since our inception, there has not
been a full mobilization of the Israeli army during such time, and a full
mobilization will likely have an adverse effect on our operations.  We cannot predict the effect these
obligations may have on us in the future.

The Israeli rate of inflation may negatively impact our costs
if it exceeds the rate of devaluation of the NIS against the U.S. dollar.

We
generate most of our revenues in dollars but we incur the majority of our salary
and operating expenses in NIS. As a result, we bear the risk that the rate of
inflation in Israel will exceed the rate of devaluation of the NIS in relation
to the dollar, which will increase our costs expressed in dollars.

The
government programs and tax benefits in which we participated in the past and
in which we currently participate or from which we receive benefits, require us
to meet several conditions. These programs or benefits may be terminated or
reduced in the future, which could increase our costs.

10

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Since
our inception, we had relied on government grants for the financing of a
significant portion of our product development expenditures. Until March 2001,
we received grants and we participated in programs sponsored by the Government
of Israel through the Ministry of Industry and Trade, Office of the Chief
Scientist.  In March 2001, we made an
arrangement with the Chief Scientist whereby we have to repay the outstanding
balance of the grants we received, not including grants received by Inspectech
Ltd. prior to its merger into us, at a quarterly rate equal to 4.5% of the
revenues derived in connection with products we developed as a result of
research and development funded by Chief Scientist participations, up to a the
maximum amount of $250,000 per quarter. We have not received any additional
grants from the Office of the Chief Scientist since 2000. As of December 31,
2002, the outstanding balance of the grants was approximately $1.08
million,  of which $950,000 was due as
of such date, including grants received by Inspectech prior to its merger into
us.   We continue to benefit
from government programs and tax benefits, particularly as a result of the
Approved Enterprise status of our existing facilities. To be eligible for these
programs and tax benefits, we must continue to meet certain conditions,
including:

| |  | making investments in
  fixed assets, the amount of which varies depending on the program approved by
  the Government of Israel;
| | - | ---------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                  
| |  | financing at least 30% of
  the investment for the Approved Enterprise with share capital; and                                   
| |   |                                                                                                                                  
| |  | receiving revenues from
  the Approved Enterprise.                                                                               

The
tax benefits could be cancelled, and we may be required to refund the tax
benefits already received if we fail to meet these conditions in the future.
These programs and tax benefits may not be continued in the future at their
current levels or at any level or our requests for future participation in
these programs may not be approved. In August 2002, the Israeli legislature
enacted new legislation adopting tax reforms. The new legislation does not
reduce the benefits we receive as a result of our Approved Enterprise status.

Pursuant
to the law governing the Israeli governments participation in research and
development programs through the Office of the Chief Scientist, the technology
developed with government grants may not be transferred outside of Israel, and
may be transferred within Israel only with the approval of a special governmental
committee. The manufacture outside of Israel of products developed with
government grants is also allowed only with the approval of a special
governmental committee. However, if such approval is granted, we would be
required to pay royalties at a higher royalty rate and an increased aggregate
pay back amount in proportion to manufacturing performed outside of Israel.
This could result in our being required to repay up to three times the amount
of our original grant. An amendment to the law governing the Israeli
governments participation in research and development programs through the
Office of the Chief Scientist was enacted in November 2002 and it entered into
effect on April 1, 2003.  However, the
amendment did not introduce any relief with respect to the restrictions on the
transfer out of Israel of the technology developed with government grants or
with respect to the restrictions on the manufacture outside of Israel of
products developed with government grants. The restriction regarding the transfer
of technology out of Israel or the lack of approval by the special governmental
committee with respect to the transfer of manufacturing out of Israel could
have a material adverse effect on our ability to enter into strategic alliances
in the future that provide for the transfer of manufacturing rights.

It may be difficult to enforce a U.S. judgment against us,
our officers and directors and some of the experts named in this prospectus or
to assert U.S. securities law claims in Israel.

We
are incorporated in Israel. Substantially all of our executive officers and
directors and our Israeli accountants and attorneys, are nonresidents of the
United States, and a substantial portion of our assets and the assets of these
persons are located outside the United States. Therefore, it may be difficult
to enforce a judgment obtained in the United States against us or any of these
persons. Additionally, it may be difficult for you to enforce civil liabilities
under U.S. Federal Securities laws in original actions instituted in Israel.

The effects of anti-takeover provisions could inhibit the
acquisition of us by others.

Some
of the provisions of our articles of incorporation and of Israeli law could,
together or separately

11

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| |  | discourage potential
  acquisition proposals;                                                  
| | - | -----------------------------------------------------------------------------------------------
| |   |                                                                                                
| |  | delay or prevent a change
  in control; and                                                    
| |   |                                                                                                
| |  | limit the price that
  investors might be willing to pay in the future for our ordinary shares.

We
are subject to Israeli corporate law. 
Generally, under Israeli corporate law, a merger (1) if effected within
the framework of an arrangement, is subject to approval by the court and a
majority of shareholders present and voting on the proposed merger, holding at
least 75% of the shares represented at the shareholders meeting and a similar
majority at the creditors meeting; or (2) if effected not within the framework
of an arrangement, must receive the approval of the board of directors and
shareholders of both merging companies, and can be consummated only after 70
days have passed from the date the merger proposal was filed with the Registrar
of Companies. Additionally, a tender offer for our shares, or the acquisition
of the interests of our minority shareholders, may be subject to the
requirements of Israeli corporate law. 
The requirements of Israeli corporate law generally make these forms of
acquisition significantly more difficult than under United States corporate
laws.

Israeli
tax law treatment for acquisitions, like stock-for-stock exchanges between an
Israeli company and a foreign company, may be less favorable than the treatment
that may be available under U.S. tax law. Israeli tax law may, for instance,
subject a shareholder who exchanges shares in us for shares in a foreign
corporation to immediate taxation.

In
addition, our technology developed pursuant to the terms of the Law for the
Encouragement of Industrial Research and Development, 1984 may not be
transferred to third parties outside of Israel, and may be transferred within
Israel only with the approval of the a special governmental committee. This
approval is not required for the export of any products resulting from that
research and development. Approval for the transfer within Israel of technology
developed with government grants may be granted only if the recipient abides by
all of the provisions of the research law and its regulations, including the
restrictions on the transfer of know-how, the obligation to manufacture in
Israel and the obligation to pay royalties at variable rates. These
requirements could inhibit the acquisition of us by others. There can be no
assurance that this consent, if requested, will be granted. An amendment to
this law was enacted in November 2002 and it entered into effect on April 1,
2003. However, the amendment did not introduce any relief with respect to the
restrictions on the transfer out of Israel of the technology developed with
government grants.

Item
4.                  Information
on the Company.

A.History
and Development of the Company

We
were incorporated under the laws of Israel in 1987.  During our first years of operation,
we were engaged in the
development, production and marketing of a manual optical inspection system for
the detection of manufacturing defects in printed circuit boards. In 1992,
Priortech purchased all of our shares then held by Camtek Corp. N.V., and
became the holder of a controlling interest of 66 2/3% in
us. In April 1996, Priortech purchased all of the remaining shares of Camtek,
and Camtek became a wholly owned subsidiary of Priortech.

In
July 2000, we sold 5,600,000 ordinary shares in an initial public offering in
which we received net proceeds of $34.5 million. In August 2000, we sold an
additional 235,000 ordinary shares following the exercise of the underwriters
over-allotment option in which we received an additional $1.5 million in net
proceeds.  In August 2002, we sold
5,926,730 ordinary shares in a rights offering of ordinary shares to our then
existing shareholders (of which 5,922,228 were sold to Priortech Ltd.), in
which we received net proceeds of $6.1 million. Our shares began trading on the
Nasdaq National Market in July 2000. In February 2003, the listing of our
shares was transferred from the Nasdaq National Market to the Nasdaq SmallCap
Market. Since December 2001, our ordinary shares have also been listed for
trade on the Tel Aviv Stock Exchange.

In
September 2001, we acquired all the outstanding shares of Inspectech Ltd., a
developer and producer of intelligent automatic inspection systems for the
microelectronics industry for an aggregate purchase price of $2,250,000, and in
December 2001, Inspectech was merged with us. In the second half of 2001, we
relocated to our new facilities and reorganized along three product divisions
for the printed circuit boards industry, the semiconductor packaging industry
and the microelectronics industry. During the fourth quarter of 2002, we
consolidated the product division for the semiconductor packaging industry and
the product division for the microelectronics industry into one unified product
division  the Microelectronics Packaging (MEP) Division.

12

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Our
principal executive offices are located at our new facilities in Ramat Gavriel
Industrial Zone, P.O. Box 544, Migdal Haemek 23150, Israel, and our telephone
number is 011-972-4-604-8111.  Our agent
for service of process in the United States is Camtek USA, Inc., located at 2
Meridian Road, Eatontown, New Jersey 07724. 
Our website is located at www.camtek.co.il.  The information on our website is not
incorporated by reference into this annual report.

B.Business
Overview.

For
discussion of capital expenditures and divestitures, see Item 5- Operating and
Financial Review and Prospects- Liquidity and Capital Resources.

Our Business

We
design, develop, manufacture, and market technologically advanced and
cost-effective, intelligent optical inspection systems and related products,
used to enhance both process and yields for the printed circuit board,
semiconductor packaging and microelectronics industries. Camtek has been a
public company since 2000, with headquarters in Migdal HaEmek, Israel and
subsidiaries in the United States, Europe, Japan, and East Asia.

The
following table shows our revenue classified by geographical segments for each
of the last three financial years

|                  |  | Year
  Ended December 31,
|----------------- |  | -------------------------
|                  |  | 2000                     
|                  |  |                          
|                  |  | (in
  thousands)         
|United States     |  | $                        
|Europe            |  |                          
|Japan             |  |                          
|Taiwan            |  |                          
|China             |  |                          
|Korea             |  |                          
|Singapore         |  |                          
|Canada            |  |                          
|Other Asia        |  |                          
|Rest of the world |  |                          
|                  |  |                          
|Total             |  | $                        
|                  |  |                          

We
believe that our products offer customers a high level of intelligent optical
inspection and competitive price performance, thereby enhancing their
production yields and processes. Our products incorporate proprietary advanced
software, as well as advanced electro-optics, precision mechanics and image
processing technology. Our products are designed for easy operation and
maintenance, which, we believe, allows for relatively short training time.

Priortech,
our parent company, through its affiliated companies, engages in various
aspects of electronic packaging, including the assembly of printed circuit
boards and the development of advanced substrates, which are intermediate
components connecting the chip to the printed circuit board. Priortech is also
one of the largest manufacturers of printed circuit boards in Israel, based on
2000, 2001 and 2002 sales. We have worked closely with Priortech and its
affiliated companies and have utilized their facilities to develop, modify and
test, during the manufacturing process, our Automated Optical Inspection, or,
AOI systems for the printed circuit board industry and our products for the
semiconductor packaging industry. This relationship has provided us with
insights into the needs of our customers and has enabled us to develop and
refine our products and technology with a customer orientation.

13

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Products

We
have historically designed, developed, manufactured and marketed
technologically advanced and cost-effective AOI systems and related products
used to detect defects in printed circuit boards during the manufacturing
process.  These printed circuit boards
are bare, meaning that they have not yet been populated by chips or other
components.  AOI systems are used to
ensure the quality of printed circuit boards and enhance production yield for
printed circuit board manufacturers.

More
recently, we also began to manufacture and market our intelligent optical
inspection systems for the inspection of high density interconnect substrates,
or HDI-S, used in the packaging of sensitive high density semiconductor devices
at various stages of production. HDI-S are intermediate components connecting
the chip to the printed circuit board and are more dense and complex than the
printed circuit board.

In
addition, following the acquisition of Inspectech Ltd. in 2001, we also design,
develop, manufacture and market intelligent optical inspection systems for the
microelectronics industry. These products inspect wafers, which are silicon
disks from which individual chips are diced. When we acquired Inspectech, its
range of products included three systems, the Kerf Inspection System (KIS) for
the detection and analysis of defects caused during the dicing process, the
Bump Inspection System (BIS) for the inspection of surface defects and the
inspection and measurement of bumps on wafers and the Wafer Inspection System
(WIS) for wafer surface inspection at different stages of the dicing process.
Two of these systems, the BIS and the WIS, were still under development at the
time of the acquisition. Following the acquisition, we completed the
development of these systems and sold several of them to customers.  Simultaneously, we invested extensive
research and development efforts to further develop the core technology on
which these systems were based.  As a
result of these efforts, we are currently in the final stages of development of
two new systems  the Falcon and the Gemini, which will replace the BIS and the
WIS systems, respectively. The new systems deliver significantly higher
throughput both in surface defect detection and in 2D and 3D metrology,  and will be introduced to the market during
the second half of 2003.  Therefore, we
recently decided to discontinue the marketing of the BIS and WIS Systems. In
order to reduce costs, during the fourth quarter of 2002, we consolidated our
product division for the semiconductor packaging industry (the HDI-S Product
Division) and our product division for the microelectronics industry (the ME
Products Division), into one unified product division  the Microelectronics
Packaging (MEP) Division.

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The following table describes
our current product line and some of our products under development:

|Product                |  | Target
  Market                                                                                 |  | Functionality                                          
|---------------------- |  | ----------------------------------------------------------------------------------------------- |  | -------------------------------------------------------
|                       |  |                                                                                                 |  |                                                        
|                       |  |                                                                                                 |  |                                                        
|PCB
  Product Division |  |                                                                                                 |  |                                                        
|                       |  |                                                                                                 |  |                                                        
|Orion Product Line     |  | Manufacturers of high-end
  printed circuit boards                                              |  | Inspection and
  verification of printed circuit boards
|                       |  |                                                                                                 |  |                                                        
|Vega System            |  | High-volume manufacturers
  of high-end printed circuit boards who require unattended operation |  | Unattended inspection of
  printed circuit boards      
|                       |  |                                                                                                 |  |                                                        
|Lynx System            |  | Manufacturers of
  high-end, back-plane printed circuit boards                                  |  | Inspection and
  verification of printed circuit boards
|                       |  |                                                                                                 |  |                                                        

|Sirius System                                                                   |  | Manufacturers of high-end
  printed circuit boards that require offline verification                   |  | Offline verification of
  printed circuit boards                                                                        
|------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------
|                                                                                |  |                                                                                                        |  |                                                                                                                         
|Dragon System                                                                   |  | Mass production
  manufacturers of high-end printed circuit boards that require unattended
  operation |  | High-speed unattended
  inspection of printed circuit boards                                                            
|                                                                                |  |                                                                                                        |  |                                                                                                                         
|MEP
  Product Division 
  Systems for the
  Semiconductor Packaging
  Industry |  |                                                                                                        |  |                                                                                                                         
|                                                                                |  |                                                                                                        |  |                                                                                                                         
|Pegasus FI-S System                                                             |  | Manufacturers of
  HDI-S                                                                               |  | High-speed surface
  inspection of both sides of HDI-S                                                                  
|                                                                                |  |                                                                                                        |  |                                                                                                                         
|Phoenix System                                                                  |  | Manufacturers of high-end
  HDI-S packages                                                             |  | Surface inspection and 2D
  and 3D metrology of counter-bumps surface defects and inspection and
  measurement of bumps.
|                                                                                |  |                                                                                                        |  |                                                                                                                         
|Orion Fine Line System(formerly  Orion ASI
  System)                           |  | Manufacturers of HDI-S
  and manufacturers of very dense and complex printed circuit boards            |  | Inspection of HDI-S and
  very dense and complex printed circuit boards                                                 
|                                                                                |  |                                                                                                        |  |                                                                                                                         
|MEP
  Product Division 
  Systems for the
  Microelectronics Industry          |  |                                                                                                        |  |                                                                                                                         
|                                                                                |  |                                                                                                        |  |                                                                                                                         
|KIS System                                                                      |  | Manufacturers of
  semiconductors                                                                      |  | Inspection of wafer
  dicing                                                                                            
|                                                                                |  |                                                                                                        |  |                                                                                                                         
|Falcon System                                                                   |  | Manufacturers of
  semiconductor wafers and bumping service providers                                  |  | Inspection of surface
  defects and 2D and 3D metrology of wafers in their final manufacturing
  stages.                
|                                                                                |  |                                                                                                        |  |                                                                                                                         
|Gemini System                                                                   |  | Manufacturers of
  semiconductor devices and providers of semiconductor packaging services             |  | Inspection of surface
  defects and 2D and 3D metrology of frame-mounted wafers before or after
  dicing.               

AOI
Systems for the Printed Circuit Board Industry.

Our
AOI systems for the printed circuit board industry utilize technology that
enables the customer to handle a wide range of sophisticated printed circuit
board inspection and verification needs. Advanced proprietary software
algorithms designed for intelligent feature recognition provide for a high
level of defect detection and are programmed to run on special imaging
processing hardware as well as very high speed processors.  Our AOI systems can be used with various
software applications that we offer.

We
believe that the modular design of our AOI systems for the printed circuit
board industry, their high level of defect detection and our flexible price
structure enable printed circuit board manufacturers to plan their investments
in AOI systems incrementally in accordance with their increasing technological
needs, throughput and capacity needs.

15

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The
Orion Product Line

Our
Orion AOI systems for the printed circuit board industry scan printed circuit
board panels for defects for verification by an operator.  The Orion AOI systems utilize technology
that enables customers to handle a wide range of sophisticated printed circuit
board inspection and verification needs as well as high and low densities and
resolutions.  The market for our Orion AOI
systems consists of the whole range of low-volume to high-volume manufacturers
of high-end printed circuit boards.

The
Vega System

The
Vega AOI systems for printed circuit board manufacturers use the same detection
technology as our Orion AOI system.  The
Vega is an automatic and unattended system that uses automated material
handling of printed circuit board panels. 
The Vega systems have a high throughput and a wide resolution scanning
range.  We market the Vega systems to
high-volume manufacturers of high-end printed circuit boards who require
unattended operation.

The
Lynx System

Formerly
called the Orion 1004, the Lynx system is an inspection system for large format
panels and back-planes.  The Lynx system
uses the same detection technology as our Orion AOI systems. We market the Lynx
system to manufacturers of high-end back-plane printed circuit boards.

The
Sirius System

The
Sirius system, our stand-alone verification and repair station, provides
offline verification of printed circuit boards and is used after the boards
have been inspected by one of our other AOI systems.  We market the Sirius system to manufacturers of high-end printed
circuit boards that require offline verification.

The
Dragon System

The
Dragon system is a high-speed automatic inspection system that delivers
enhanced throughput and detection ability for the fine line technology
industry.  We will market the Dragon
system to mass production manufacturers of high-end printed circuit boards that
required unattended operation.

MEP Product Division  Systems for the Semiconductor
Packaging Industry

Our
intelligent optical inspection systems for the semiconductor packaging industry
inspect HDI-S, and increase both yields and throughput of HDI-S manufacturers.
These systems utilize proprietary technologies that enable the customer to
handle a wide scope of HDI-S packaging inspection and verification needs.  These systems use advanced software
algorithms that are designed for intelligent feature recognition and provide a
high level of defect detection.

The
Pegasus FI-S System

Our
Pegasus FI-S system performs automatic optical inspection of surface defects
found on both sides of the HDI-S, the side which attaches to the chip and the
side which attaches to the printed circuit board where ball-grid array, or BGA,
strips are found. BGA strips are high-density packages that use an array of
solder balls, or joints that provide the contact between the grid package and
the printed circuit board, in a grid pattern to mount chips on printed circuit
boards. The Pegasus FI-S system uses an automatic material handling system for
unattended operation.  It scans the
substrates after the completion of the manufacturing process and then analyzes
the acquired images for defects.  The
Pegasus FI-S system employs self-learning routines and statistical methods to
enhance detection accuracy and reduce false alarms.  HDI-S that require verification may be scanned on our Pegasus
Verification Station. We market the Pegasus FI-S system to high volume
manufacturers of high-end HDI-S.

16

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The
Phoenix System

Our
Phoenix system is still under development. We currently expect that it will be
introduced to the market in the second half of 2003. The Phoenix system
performs intelligent optical inspection on flip-chip BGA packages with counter
bumps on their pads and is based on the technology acquired from Inspectech
Ltd.  The Phoenix system is used for
flip chip BGA technology, a technique used to attach the bumps on a chip to the
bumps on a substrate by flipping the chip on to the substrate. The Phoenix
system is capable of handling most complex substrate devices, including
substrates with a high number of contact points.  The Phoenix system performs substrate metrology measurements and
records bump dimension and shape.  The
Phoenix system also scans the substrate surface for detection of surface
defects, and, using user-determined parameters, marks out rejected units.  The Phoenix system helps enhance yields in
the package manufacturing stage.  We will
market the Phoenix system to manufacturers of integrated circuit packages.

The
Orion Fine Line System

Formerly
called the Orion ASI system, the Orion Fine Line system is based on the
detection technology of the Orion AOI system and adds a new high-resolution
optical system.  The Orion ASI system is
used to inspect complex, fine-line and high-density substrate designs and very
dense and complex printed circuit boards during the manufacturing process.  We market the Orion Fine Line system to
manufacturers of HDI-S and manufacturers of very dense and complex printed
circuit boards.

MEP Product Division  Systems for the Microelectronics
Industry

Our
intelligent optical inspection systems for the microelectronics industry address the inspection needs of
semiconductor manufactures, bumping service providers and device packaging
houses. Our systems detect surface defects and dimensional deviations, thus
providing data for process monitoring and helping to assure high production
yield, as well as producing valuable data for process monitoring.

The
KIS System

The
KIS system inspects the wafer after the dicing process for the detection and
analysis of defects caused during the dicing process.  This system inspects both the front and back sides of diced
wafers and can measure chipping, cracks and scratches.  The KIS system uses statistical process
control to analyze chipping, cracking and cut placement deviations, which
enables both engineering and production teams to improve, optimize and
stabilize the wafer dicing process.  The
KIS system is capable of handling a wide range of wafer material, thin wafers
and wafers of up to 12 inches.  We
market the KIS system to manufacturers of semiconductors, however, since the
features of the KIS system will be integrated into the Falcon and the Gemini
systems, which are currently under development, we do not believe that the KIS
system, as a stand-alone unit, will generate a significant amount of revenues
in the future.

The
Falcon System

Our
Falcon system is currently under development, and we plan to introduce it to
the market in the second half of 2003. The Falcon system has the ability to
inspect un-mounted wafers in the final manufacturing stages.  It detects surface defects such as
scratches, contamination and probe misplacement, as well as bump size and
placement deviations.  We will market
the Falcon system to manufacturers of semiconductor wafers and bumping service
providers.

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The Gemini System

Our
Gemini system is currently under development, and we expect to introduce it to
the market during the second half of 2003. 
The Gemini system inspects frame-mounted wafers before or after dicing.
The Gemini system can measure dicing-related defects, such as excessive
chipping and cracking on both sides of the wafer. It also detects surface
defects, such as scratches, contamination and probe misplacement, as well as
bump size and placement deviations.

Customers

Our
customers are located in 33 countries. During the year ended December 31, 2002,
two customers accounted together for about 14.1 % of our total revenue.

Sales, Marketing and Customer Support

Our
policy is to provide customer support and services through local subsidiaries
in each territory in which our products are sold. We have established a global
distribution and support network, spread over territories in which we have
sales, including North America, Europe and Asia. We may expand our network into
additional territories as market conditions warrant.

In
North America and Europe, we currently market our products through Camtek USA,
Inc., and Camtek (Europe) N.V., respectively, our wholly owned subsidiaries,
which operate independently using a direct sales force and a network of local
agents. In Asia, we market our products using distributors, sales
representatives and our own sales support personnel, and in Japan, we
distribute our products for the printed circuit board and semiconductor
packaging industries using a local distributor. Our foreign subsidiaries in the
United States, Europe and Asia employ local personnel. Worldwide marketing
efforts are coordinated by our General Manager, who is based at our
headquarters in Israel.

As
of December 31, 2002, 95 people were engaged in our worldwide sales, marketing
and support efforts, including support and sales administration staff. Due to
the shift in our sales from North America and Europe to East Asia, we are in
the process of adjusting our worldwide sales, marketing and support
organization, which includes the transfer of personnel to East Asia.

Our
marketing efforts include participation in various trade shows and conventions,
publications and trade press, demonstrations performed at our facilities and
regular contact with customers by sales personnel.  We service and provide training to customers on all our products.
We provide our customers with system documentation and training in maintenance
and use. In addition, for a fee, we offer service and maintenance contracts
commencing after the expiration of the warranty period, which is typically one
year. Under our service and maintenance contracts, we provide prompt on-site
customer support. Software updates are typically included in the service and
maintenance contract fees.

Manufacturing

We
maintain an ISO-9002 certified, manufacturing facility in Israel of
approximately 28,000 square feet
for production of our products, and we are subject to periodic inspections by
ISO representatives, to ensure continued adherence to ISO guidelines.
Maintenance of ISO certified manufacturing facilities is standard in our
industry.

We
believe that our production capacity is sufficient for our current and expected
level of sales, and the manufacturing process for our products generally lasts
three to four weeks.

Our
manufacturing activities consist primarily of the assembly, integration and
testing of parts, components and subassemblies, which are acquired from
third-party vendors and subcontractors. We utilize subcontractors in Israel,
the United States, Europe, China, Korea and Japan for the production of
subsystems, mechanical parts, optical components, castings and casings,
electronic cabinets, printed circuit board fabrication and assembly. Most
electronic components are imported from the United States, Europe and Japan.

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We
purchase some of the key components and subassemblies included in our products
from a limited group of suppliers. To date, we have been able to obtain
sufficient units of these components to meet our needs and do not foresee any
short-term supply difficulty in obtaining timely delivery of any parts or
components. We generally maintain a two- to three-month inventory of critical
components used in the manufacture and assembly of our products.

Competition

The
industries and markets we serve are characterized by intense competition. We
believe our success will depend primarily on our ability to provide
competitively priced, efficient and easy-to-use products, which offer reliable
defect detection capability, as well as prompt delivery and responsive customer
support. As a result, we cannot be certain that the products and services we
offer will compete effectively with those of our competitors. Furthermore,
should competition intensify, we may have to reduce the prices of our products.
If we are unable to compete successfully against our competitors, our business
would be materially adversely affected.

Our
principal competitor in the printed circuit boards industry is Orbotech, which
currently commands a substantial majority of that market for AOI systems and
services for printed circuit board manufacturers. Our other competitors in this
industry include Lloyd Doyle, Dainippon Screen Manufacturing, and Barco-Manya.
To date, Orbotech has the largest installed base of AOI systems globally for
printed circuit board manufacturers, which gives Orbotech a distinct advantage
in this field.  Our inability to further
penetrate this market or the development of superior products by one or more
competitors, or our failure to successfully respond to these developments,
could adversely affect our business prospects.

The
semiconductor packaging and microelectronics markets we serve are also
characterized by intense competition, and many companies develop and provide
products for these markets that are similar to or serve the same function as
our products, although there are no dominant market participants presently in
either of those markets.  The principal
competitive factors in these markets are reliability, technology, sales and
equipment performance.  Some of our primary
competitors in the semiconductor packaging industry are Orbotech, Robotic
Vision Systems, Inc., and Utechzone Co. Ltd. Some of our primary competitors in
the microelectronics industry are August Technology Corporation and Robotic
Vision Systems, Inc.  Competition may
also include companies seeking to enter our markets.  If widespread acceptance of intelligent optical inspection
technology and for our systems does not develop in the semiconductor packaging
and microelectronics industries or if we fail to further penetrate these
markets due to the acceptance of our competitors technologies, our future
growth will be adversely affected.

Some
of our competitors, most notably Orbotech, have greater financial, personnel
and other resources, offer a broader range of products and services than we do,
and may be able to respond more quickly to new or emerging technologies or
changes in customer requirements, benefit from greater purchasing economies,
offer more aggressive pricing or devote greater resources to the promotion of
their products. In addition, one or more of our competitors may develop
superior products and these products may achieve greater market acceptance than
our products.

Legal Proceedings

We
are not party to any material legal proceedings.

C.          Organizational Structure

Priortech,
our parent company, beneficially owns 77.8% of our issued and outstanding
ordinary shares. Priortech, through its affiliated companies, engages in
various aspects of electronic packaging, including the assembly of printed
circuit boards and the development of advanced substrates, which are
intermediate components connecting the chip to the printed circuit board.
Priortech is also one of the largest manufacturers of printed circuit boards in
Israel, based on 2000, 2001 and 2002 sales. We have worked closely with
Priortech and its affiliated companies and have utilized their facilities to
develop, modify and test, during the manufacturing process, our AOI systems for
the printed circuit board industry and our products for the semiconductor
packaging industry.

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We
have eight wholly owned subsidiaries: Camtek USA, Inc., incorporated under the
laws of the State of New Jersey, Camtek (Europe) N.V., incorporated under the
laws of Belgium, Camtek H.K. Limited, incorporated under the laws of Hong Kong,
Camtek Japan Limited, incorporated under the laws of Japan, Camtek Electronic
Technologies (Suzhou) Co. Limited, incorporated under the laws of China, Camtek
Korea Limited, incorporated under the laws of Korea, Camtek South East Asia
Pte. Limited, incorporated under the laws of Singapore, and Camtek Taiwan Ltd.,
incorporated under the laws of Taiwan.

D.Property, Plants and
Equipment

Our
main office, manufacturing and research and development facilities, located in
the Ramat Gavriel new industrial area of Migdal Haemek in northern Israel,
occupy 74,000 square feet. We believe that these facilities are adequate for
our current operations.

On
September 14, 1998, we entered into an agreement to lease our present
premises.  We also acquired an option to
purchase the building and the underlying land from the lessor, which we intend
to exercise.  We relocated to this
facility in the fourth quarter of 2001. The lease is for a term of 23 years and
eight months commencing in the fourth quarter of 2001. The lease payments and
the price of the option equal the actual cost of the building, which is
approximately $8.0 million, plus standard financing costs and $595,000, less
any grants received for the building, divided by the term of the lease. We have
the right to terminate the lease agreement after seven years and at the end of
each three year period thereafter.

Item 5.                 Operating and Financial Review and Prospects.

A.          Operating Results

The
following discussion of our financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
the notes to those statements included herein, which have been prepared in
accordance with accounting principles generally accepted in the United States,
or United States GAAP.

Overview

We
design, develop, manufacture and market intelligent optical inspection systems
and related products for the printed circuit board, semiconductor packaging and
microelectronics industries used to enhance yields and processes in these
industries. We began operations in 1987. In 1992, Priortech purchased all of
our shares then held by Camtek Corp. N.V., and became the holder of a
controlling interest of 66 2/3% in us. In April 1996,
Priortech purchased all of the remaining shares of Camtek, and Camtek became a
wholly owned subsidiary of Priortech. In July 2000, we sold 5,600,000 ordinary
shares to the public in an initial public offering. In August 2000, we sold an
additional 235,000 ordinary shares following the exercise of the underwriters
over-allotment option. In August 2002, we sold 5,926,730 ordinary shares in a
rights offering of ordinary shares to our then existing shareholders, out of
which 5,922, 228 were sold to Priortech Ltd. Consequently, at the present Priortech
Ltd. beneficially owns 77.8% of our issued and outstanding ordinary shares.
During 1993, we began development of our AOI systems for the printed circuit
board industry and sold our first AOI systems in the last quarter of 1994.  Since 1995, we have derived substantially
all of our revenues from sales of our AOI systems.   In 2001, we began to develop products for the inspection of
HDI-S for the semiconductor packaging industry, and in 2002, we commercially
released our Pegasus system and our Orion Fine Line System for this
market.

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In
September 2001, we acquired all of the outstanding shares of Inspectech Ltd., a
developer and producer of automatic inspection systems for the microelectronics
industry for an aggregate purchase price of $2,250,000.  In December 2001, Inspectech was merged into
us.  The acquisition has allowed us to
market a new line of products for the microelectronics industry and to develop
a new system for inspecting flip chip bumps. In the second half of 2001, we reorganized
along three product divisions for the printed circuit boards industry, the
semiconductor packaging industry and the microelectronics industry.  Our research and development expenses have
increased since the acquisition as a result of the write off of purchased in
process research and development, our efforts to assimilate Inspectechs
technology and products into our own and our ongoing development efforts.
During the fourth quarter of 2002, we consolidated our product division for the
semiconductor packaging industry and our product division for the
microelectronics industry into one unified product division  the
Microelectronics Packaging (MEP) Division. This allowed us to reduce some of
the costs associated with the expansion of our business and product range.

We
introduced six new products in 2001 and two new products in 2002.  We anticipate that we will continue to
devote substantial resources to research and development in the future but do
not expect any significant increase in our overall research and development
expenditures in 2003.

The
printed circuit board industry is experiencing a prolonged and severe downturn,
which is reflected in a continuing low level of sales of printed circuit
boards.  As a result, the overall rate
of capital spending by printed circuit board manufacturers has been greatly
reduced, and sales of our products to these manufacturers have declined.  In addition, many of our customers are
currently experiencing a period of excess capacity, and it is not clear when a
recovery in sales will take place or when demand for our AOI systems will start
to increase. This downturn has resulted in a 17.1% decrease in our revenues in
2001 from 2000 and a 48.7% decrease in our revenues in 2002 from 2001.  It is also unclear as to whether a market
for our products for the semiconductor packaging and microelectronics
industries will develop at the rate we expect or whether these products will be
accepted by manufacturers in these industries.

We
recognize revenues from the sales of our products upon the acceptance of our
systems, which, in general, occurs no earlier than at the time we install the
system at the customers site.

We
recognize revenues from the provision of services at the time the service is
provided or, if provided under a service contract, over the life of the
contract on a straight-line basis. We expect that in the long term revenues
from the performance of services will increase with the increase in the
installed base, however, this may not occur in periods of economic decline.
Estimated warranty obligations are charged to operations in the period in which
the associated revenue is recognized. Our research and development costs are
expensed as incurred.

Grants
received from the Office of the Chief Scientist for approved research and
development programs are recognized upon the later of the time the costs
related to a particular project are incurred and the time that project receives
approval from the Office of the Chief Scientist. Royalties related to those
grants are included in selling, general and administrative expenses when paid.
In March 2001 we made an arrangement with the Chief Scientist whereby we have
to repay the outstanding balance of the grants we received, not including
grants received by Inspectech prior to its merger into us, at a quarterly rate
equal to 4.5% of the revenues derived in connection with products we developed
as a result of research and development funded by Chief Scientist
participations, up to a maximum amount of $250,000 per quarter.  We have not received any
additional grants
from the Office of the Chief Scientist since 2000.  As of December 31, 2002, the
outstanding balance of the grants
was approximately $1.08 million, of which  approximately  $950,000 was due as
of such date, including grants received by
Inspectech prior to its merger into us. See Business--Research and
Development.

We
sell our AOI systems for the printed circuit board industry to Priortech
affiliates at a discount off the list price of our AOI systems which is within
the range of discounts we give to other multiple-order customers or other
customers that are located in proximity to our manufacturing facility. Sales to
Priortech affiliates represented 1.3% of sales in 2000 and, 1.2% of our sales
in 2001. In 2002, we did not sell any AOI systems or related services to
Priortech.

The
currency of the primary economic environment in which our operations are
conducted is the dollar. Most of our revenues are derived in dollars while the
prices of most of our materials and components are purchased in dollars or are
linked to changes in the dollar/NIS exchange rate effective on the date of
delivery of the goods to our factory. Most of our marketing expenses are also
denominated in dollars or are dollar linked. Salaries and other operating
expenses in Israel are paid in NIS. In our consolidated financial statements,
transactions and balances originally denominated in dollars are presented at
their original amounts. In Europe, our sales are denominated in euros. Gains
and losses arising from non-dollar transactions and balances are included in
the determination of net income as part of financial expenses, net.

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During
the fourth quarter of 2001 and throughout 2002, we implemented several cost
cutting and adjustment programs and measures, which included reductions in
salaries, selective layoffs on a world-wide basis, the consolidation of two of
our product divisions and a reduction of other expenses, including
subcontractor and materials costs. Our cost reduction programs and measures
resulted in an improvement in the level of our expenses during 2002 and the
first quarter of 2003.

Year Ended
December 31, 2002 Compared to Year Ended December 31, 2001

Revenues.  Revenues decreased 48.7% to
$22.6 million in the year ended December 31, 2002 from $44.1 million in the
year ended December 31, 2001, primarily as a result of the downturn in the
global electronics industry, which resulted in our customers having excess
capacity of capital equipment. Our revenues in 2002 included sales of new
products related to the High Density Interconnect division (HDI) and to the
Microelectronic division (ME) of about $1.8 million. In 2002, our total sales
declined on an absolute basis in all geographic markets; however, the relative
significance of the geographic markets as a percentage of our total sales has
continued to shift from Europe and the United States to East Asia, principally
to China and Taiwan. Within this sales shift we had a decrease of 73.9% in
sales to the United States and Europe and had a decrease of 18.5% in sales to
China and Taiwan.

Gross Profit.  Gross profit consists of
revenues less cost of revenues, which includes the cost of components, other
production materials, labor, depreciation, factory overhead, installation and
training.  These expenditures are only
partially affected by sales volume.  In
2002, we experienced a decrease in gross profit and margins primarily due to a
decrease in our sales volume and price reductions due to intense competition.
Gross profit decreased 68.1% to $7.1 million in 2002 from $22.4 million in
2001. Gross margin decreased to 31.6% in 2002, including a one-time inventory
write-off of $1.8 million due to engineering enhancements, or 39.6%, excluding
this one-time write off, compared to 50.9% in 2001.

Research and Development Costs, Net. 
Research and development expenses consist primarily of salaries, materials
consumption and costs associated with subcontracting certain development
efforts. Total research and development expenses for 2002 were $7.2 million,
compared to $12.7 million in 2001. In 2002, we reduced our research and
development costs due to an expense cutting program, and because the expenses for 2001 included a
one-time charge of $3.6 million related to in-process research and development,
which was written off in connection with the acquisition of Inspectech Ltd. In
2002, our research and development expenses were reduced by 43.3%, including
the one-time charge related to the acquisition of Inspectech Ltd , or 20.1%,
excluding this one-time charge. We have not received any additional grants
from the Office of the Chief Scientist since 2000.

Selling, General and Administrative Expenses. 
Selling, general and administrative expenses consist primarily of
expenses associated with salaries, commissions, royalties, promotional and
travel, doubtful debt and rent costs. Our selling, general and administrative
expenses decreased by 22.0% to $11.1 million in 2002 from $14.2 million in
2001.  Selling, general and
administrative expenses as a percentage of revenues increased to 48.9% from
32.2% in 2001.  A major portion of our
selling, general and administrative expenses consists of fixed expenses incurred as a result
of maintaining a global sales infrastructure, therefore, the decrease in the
absolute cost did not have the same impact as a percentage of total revenue.

Financial and Other (Expenses) Income, Net.  We
had a net financial income of $331,000 in 2002 as compared to a net financial
income of  $1.4 million in 2001. Our
cash balances, which generate financial income, decreased by $4.1 million
resulting in lower interest income. Additionally, we experienced a lower
devaluation rate of the NIS against the U.S. dollar that resulted a lower
income from exchange rate fluctuations in 2002 compared with 2001.

Provision for Income
Taxes.  We had a provision for income tax of
$519,000 in 2002, compared to $152,000 in 2001. The increase in 2002 is
attributable to the recording of a valuation allowance to offset our deferred
tax assets in 2002 due to our continuing losses.

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Year Ended
December 31, 2001 Compared to Year Ended December 31, 2000

Revenues.  Revenues decreased 17.1% to
44.1 million in the year ended December 31, 2001 from $53.1 million in the year
ended December 31, 2000 primarily as a result of decreased sales resulting from
the downturn in the global electronics industry, which resulted in our
customers having excess capacity of capital equipment. Our revenues in 2001
included for the first time revenue from Inspectech, which we acquired in
September 2001, in the amount of $842,000. 
In 2001, our sales decreased in Europe, the United States and in Asia,
with the exception of China.  In China,
our sales increased by approximately 30% in 2001 as compared to 2000.

Gross Profit In 2001, we experienced a decrease in gross profit and margins
primarily due to a decrease in our sales volume and price reductions. Gross
profit decreased 22.6% to $22.4 million in 2001 from $29.0 million in 2000.
Gross margin decreased to 51.0% in 2001 from 54.5% in 2000.

Research and Development Costs, Net.   
In 2001, our research and development costs included a one-time charge
of $3.6 million related to in process research and development which was
written off in connection with the acquisition of Inspectech. Before
participation by the Office of the Chief Scientist and after eliminating the
research and development cost of the Inspectech acquisition, research and
development expenses increased 28.1% to 
$9.0 million in 2001 from $7.0 million in 2000. In 2001, we received no
funding from the Office of the Chief Scientist as compared to $2.1 million in
2000.

Selling, General and Administrative Expenses. 
Our selling, general and administrative expenses increased 15.2% to
$14.2 million in 2001 from $12.3 million in 2000.  Selling, general and administrative expenses as a percentage of
revenues increased to 32.2% from 23.2% in 2000 primarily due to the expansion
of our global sales and marketing infrastructure and from the integration of
Inspectech.

Financial and Other (Expenses) Income, Net.  We
had a net financial income of $1.4 million in 2001 as compared to a net
financial income of  $31,000 in 2000.
Our cash balances resulting from our initial public offering earned interest
income throughout 2001, as compared to only the second half of 2000.  Additionally, our net financial income in
2001 also included exchange rate income which derived mainly from a
significantly higher rate of devaluation of the NIS against the US dollar in
2001 as compared with 2000.

Provision for Income Taxes.  We
had a provision for income taxes of $152,000 in 2001 as compared to $848,000 in
2000. The decrease in 2001 was attributable to the losses we incurred in 2001.

B.   Liquidity and Capital
Resources

Our
cash and cash equivalent balances and marketable securities totaled
approximately $20.9 million and $13.8 million at December 31, 2001 and December
31, 2002, respectively. We had  $13.9
million and $10.9 million invested as of December 31, 2001 and 2002,
respectively, in marketable securities, such as bonds of highly rated
corporations, with maturity periods varying between three and 18 months. The
average annual interest rate on those marketable securities was approximately
2.9% in 2002. Our cash ,and marketable securities mainly consisted of money
raised through equity offerings in 2000 and 2002. We raised $36.0 million from
our initial public offering in 2000 and approximately $6.1 million in a rights
offering of ordinary shares to our then existing shareholders in 2002. Our
working capital was approximately $34.9 million and $30.2 million at December
31, 2001 and December 31, 2002, respectively.

Cash flow from operating activities

We
had negative cash flow from operations of $7.7 million and $9.4 million in 2002
and 2001, respectively. We had a positive cash flow from operations of $10.0
million in 2000.  In 2002, most of our
negative cash flow from operations was due to losses of $11.3 million that
occurred in that year, which were partly offset by  a decrease in accounts receivable of approximately $3.2 million.
In 2001, our negative cash flow from operations consisted mainly from the
following factors: $3.7 million of net loss, $3.8 million due to an increase
in accounts receivable and an accounts payable decrease of $3.7 million.  In the year 2000 we had
a positive cash flow from operation mainly from our $10.9 million of net income.

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Cash flow from investing activities

Cash
flow provided by investing activities in 2002 was $2.7 million, mainly due to
the redemption of marketable securities. 
In 2001, we had cash flow from investing activities of $4.5 million,
mainly from redemption of marketable securities for net amount of $13.1
million, which was offset by the $1.2 million used for the acquisition of
Inspectech Ltd. and capital expenditures of $7.4 million, mainly for the
construction of our manufacturing facility. 
In 2000, we used a total of $28.5 million in investing activities,
mainly to purchase marketable securities.

Capital
expenditures in 2002 were $240,000, compared to $7.4 million in 2001 and $1.7
million in 2000. Most of the capital expenditures in the past year were for the
purpose of post completion investments 
in our manufacturing facility, which was completed by the end of 2001.
We currently do not have significant capital spending or purchase commitments.

In
2002, we reached an agreement with Bank Leumi to increase our existing credit
line to approximately $5.0 million. In connection with the increase of our
credit line, we are required to maintain a deposit of a minimum of $2.0 million
in a bank account or invest such amount in debentures rated AA or higher and to
maintain a minimal shareholders equity of 45% of total assets.  Any change of control in us or and any
merger that is effected without Bank Leumis consent will be considered a
default under the terms of the increased credit line. There is no guarantee
that we can maintain compliance with all the conditions imposed by Bank Leumi
in connection with the credit line, and therefore the credit line may not be
available to us in the future.

We
believe that our existing sources of liquidity and anticipated cash flow from
operations will be sufficient to meet our anticipated cash requirements for at
least the next twelve months.

Off-Balance Sheet Arrangements

We
are not a party to any off-balance sheet arrangements.

Contractual Obligations and Other Commercial
Commitments

As
of December 31, 2002, we had contractual obligations and commercial commitments
of:

|                                                                                       |  |  | Payment
  due in
  (in thousands) | 
|-------------------------------------------------------------------------------------- |  |  | --------------------------------- | 
|                                                                                       |  |  |                                   | 
|Contractual
  Obligations                                                              |  |  | Total                             | 
|                                                                                       |  |  |                                   | 
|Long-Term Debt
  Obligations                                                           |  |  |                                  | 
|Capital Lease
  Obligations                                                            |  |  |                                  | 
|Operating Lease
  Obligations                                                          |  |  | 1,489                             | 
|Purchase obligations                                                                   |  |  |                                  | 
|Other Long-Term
  Liabilities Reflected
  on Registrants
  Balance Sheet under
  GAAP |  |  | 390                               | 
|                                                                                       |  |  |                                   | 
|Total                                                                                  |  |  | $  1,879                          | 
|                                                                                       |  |  |                                   | 

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We
do not have any material long-term debt obligations, capital lease obligations
or purchase obligations

Our
subsidiaries have entered into various operating lease agreements, principally
for office space.  As of
December 31, 2002, rental obligations under these leases totaled
$954,000.  In October 2000, the Company
entered into an operating lease for vehicles for a period of 44 months.  As of December 31, 2002, the total
rental obligations for the operating lease was approximately $535,000.

Effective Corporate Tax Rate

Our
production facilities are the subject of several investment programs, and
have been granted Approved Enterprise status under the Law for Encouragement
of Capital Investments, 1959, and consequently are eligible for tax benefits
for the first several years in which they generate taxable income. We are
entitled to a tax holiday for a period of ten years from the year in which the
Approved Enterprise first earns taxable income, limited to 12 years from the
commencement of production or 14 years from the date of approval, whichever is
earlier. The periods of benefits relating to our investment programs which
received Approved Enterprise status expire at different times. The tax benefits
with regard to our first investment program which received Approved Enterprise
status, expired on December 31, 1999, and the tax benefits with regard to our
latest approved investment program will expire in 2008.  Income related to our first investment
program is now subject to a 36% corporate tax rate. The percentage of our
income which will be subject to the 36% tax rate is dependent on several
factors, mainly the amount of our revenues derived in Israel.  In 2003, approximately a third of our
taxable income will be subject to the 36% tax rate.

In
the event that we operate under more than one approval or that our capital
investments are only partly approved, our effective tax rate will be a weighted
combination of the various applicable tax rates.

Disclosure About Market Risk

Since
the majority of our revenues are denominated in dollars, we believe that
inflation and fluctuations in the NIS/dollar exchange rate have no material
effect on our revenues. However, a portion of the cost of our Israeli
operations, mainly personnel and facility-related, is incurred in NIS.
Inflation in Israel and dollar exchange rate fluctuations, however, have some
influence on our expenses and, as a result, on our net income. Our NIS costs,
as expressed in dollars, increase to the extent by which any increase in the
rate of inflation in Israel is not offset, or is offset on a lagging basis, by
a devaluation of the NIS in relation to the dollar or to the extent that the
NIS appreciates in relation to the dollar.

The
following table sets forth, for the periods indicated, information with respect
to the rate of inflation in Israel and the rate of devaluation (appreciation)
of the NIS in Israel. These figures are based on reports of the Israel Central
Statistics Bureau. Inflation is the percentage change in the Israeli consumer
price index between December 31 of the year indicated and December of the
preceding year. Devaluation is the percentage decrease in the value of the
Israeli currency in relation to the dollar calculated by comparing the rate of
exchange at the beginning and the end of the year.

|Year Ended December 31, |  |  | Israeli
  Inflation
  Rate% |  | Devaluation
  (Appreciation)
  Rate% | 
|----------------------- |  |  | --------------------------- |  | ------------------------------------ | 
|                        |  |  |                             |  |                                      | 
|1998                    |  |  | 8.6                         |  |                                      | 
|1999                    |  |  | 1.3                         |  |                                      | 
|2000                    |  |  | 0                           |  |                                      | 
|2001                    |  |  | 1.4                         |  |                                      | 
|2002                    |  |  | 6.5                         |  |                                      | 

Currently,
we do not engage in hedging or other transactions intended to manage risks
relating to foreign currency exchange rate or interest rate fluctuations.

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C.  Research
and Development, Patents and Licenses

In
order to accommodate the rapidly changing needs of the markets we serve, to
improve our existing products and to develop new products and product lines, we
place considerable emphasis on research and development projects, including the
development of generic technologies in the fields of software algorithms,
three-dimensional image acquisition and sensors for high-speed, sub-micron
metrology. As of December 31, 2002, 80 of our employees were engaged primarily
in research and development.

In
our printed circuit board product division our product development efforts in
2002 focused primarily on the development and release of our new Dragon System
and on the enhancement of our current product lines and core technologies.

In
our Microelectronics Packaging (MEP) Division, our research and development
efforts in 2002 concentrated primarily on the development of our Phoenix
system, the development and research of our Orion Fine Line system and the
further development of the core technology developed by Inspectech Ltd.    Currently, we are in the final stages of
development of two new systems  the Falcon system and the Gemini system, which
we expect to release during the second half of 2003.  The Falcon and the Gemini systems will replace the BIS and the
WIS systems, respectively. We use subcontractors for assistance in different
development efforts, in areas such as mechanics, optics and hardware.

A
portion of our research and development expenses had been funded through
third-party royalty-bearing participations from the Government of Israel. The
following table shows our total research and development expenditures and
participation in these expenditures by the Government of Israel for the periods
indicated:

| |                                                                  |  | Year
  Ended December 31, |       
| | ---------------------------------------------------------------- |  | ------------------------- | ------
| |                                                                  |  |                           |       
| |                                                                  |  | 2000                      |       
| |                                                                  |  |                           |       
| |                                                                  |  | (In thousands)            |       
| | Research and development
  expenses                              |  |                           | $7,037
| | Purchased in process
  research and
  development                |  |                           | -     
| | Royalty-bearing
  participations from the
  Government of Israel |  |                           | (2,086
| |                                                                  |  |                           |       
| | Research and development
  costs, net                            |  |                           | $4,951
| |                                                                  |  |                           |       

We
are obligated to pay to the State of Israel royalties on revenues derived in
connection with products we develop as a result of research and development
funded by Chief Scientist participations of up to 100% of the dollar-linked
value of the participations received. During 2000, our royalty expenses to the
Government of Israel with respect to its participations were approximately
$2,391,000, during 2001 they were approximately $1.0 million, and during 2002
they were approximately $1.0 million. In March 2001, we made an arrangement
with the Chief Scientist whereby we have to repay the outstanding balance of
the grants we received, not including grants received by Inspectech prior to
its merger into us, at a quarterly rate equal to 4.5% of the revenues derived
in connection with products we developed as a result of research and
development funded by Chief Scientist participations, up to a maximum amount of
$250,000 per quarter.  We have not applied
for additional grants from the Office of the Chief Scientist since 2000. As of
December 31, 2002, the outstanding balance of the grants was approximately $1.08
million, of which  approximately
$950,000 was due as of such date, including grants received by Inspectech prior
to its merger into us.  In addition, the
technology embodied in products developed under programs supported by the
Office of the Chief Scientist may not be transferred outside of Israel. The products
developed under these programs may be manufactured outside of Israel only with
appropriate government approvals. Accordingly, we may not be able to take
advantage of strategic manufacturing and other opportunities outside of Israel.
These restrictions do not apply to the sale or export from Israel of our
products developed with that know-how. 
An amendment to the law governing the Israeli governments participation
in research and development programs through the Office of the Chief Scientist
was enacted in November 2002 and became effective on April 1, 2003.  However, the amendment did not provide any
relief with respect to the restrictions on the transfer out of Israel of the
technology developed with government grants or with respect to the restrictions
on the manufacture outside of Israel of products developed with government
grants. In general, we rely on a combination of copyrights, trade secrets,
patents, trademarks and non-disclosure agreements to protect our proprietary
know-how and intellectual property. We also enter into confidentiality
agreements with our key employees and key sub-contractors who develop and
manufacture components and subsystems for use in our products. We cannot be
certain that actions we take to protect our proprietary rights will be adequate
nor can we be certain that we will be able to deter reverse engineering or that
there will not be independent third-party development of our technology.
Although we have not been involved in any litigation regarding our intellectual
property rights, we cannot be certain that any litigation will not be brought
in the future.

26

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We
have registered several trademarks with the Israeli Registrar of Trademarks,
and we are in the process of registering additional trademarks. We have also
filed several patent applications with the Israeli Registrar of Patents and
correlative applications under the Patent Convention Treaty.  In addition, we registered one patent in the
United States and have a patent pending in Japan.

We
consider aspects of all elements of our products to be proprietary to us. To
the extent that we rely on technology which we license from third parties,
including software that is integrated with internally developed software and
used in our products and services we cannot be certain that these third-party
technology licenses will continue to be available to us on commercially
reasonable terms or at all.

D.  Trend
Information

The
printed circuit board, microelectronics and semiconductor industries, which we
serve, are experiencing a prolonged and severe downturn, which is reflected in
a continuing low rate of capital spending by manufacturers. This trend
commenced in the second half of 2000 and has extended into 2003. As a result,
sales of our AOI systems for the printed circuit board industry declined
significantly during 2001 and continued to be low during 2002, and we have
experienced difficulties in penetrating the semiconductor packaging industry
and the microelectronics industry with our new products. We cannot predict the
extent to which this trend will continue. 
As long as this trend continues, our sales and results of operations
will continue to suffer, and it is not clear how long after a recovery in these
industries commences, demand for our products will start to grow. Our
visibility of future trends and of future sales of all of our products
continues to be very limited.

Additionally,
as a result of a general decline in economic conditions in 2001 and 2002, we
experienced increased pressure from our customers to provide more favorable
terms of sale, such as extended payment cycles.  Since the beginning of 2001, we have experienced longer accounts
receivable payment cycles. We have also increased our provisions for doubtful
debts.

In
2002, our total sales declined on an absolute basis in all geographic markets;
however, the relative significance of the geographic markets as a percentage of
our total sales has continue to shift from Europe and the United States to East
Asia, principally China and Taiwan.  We
do not expect a change in this trend in 2003.

Item 6.                  Directors, Senior
Management and Employees.

A.          Directors and Senior Management.

The
following table sets forth information with respect to our executive officers
and directors as of the date of this annual report:

|Name               | Age | Position                                                      
|------------------ | --- | --------------------------------------------------------------
|Rafi Amit          | 54  | Chairman of the Board of
  Directors and General Manager      
|Moshe Amit         | 58  | Executive Vice President
  and Chief Financial Officer        
|Yotam Stern        | 50  | Executive Vice President,
  Business and Strategy and Director
|Benjamin P. Sabbah | 70  | Executive Vice President,
  New Technologies                  
|Amir Gilead        | 52  | Vice President,
  Microelectronics Packaging (MEP) Division   
|Adi Corem          | 50  | Vice President,
  Operations                                  
|Jacob Yavor        | 44  | Vice President, Printed
  Circuit Boards Division             
|Meir Ben-Shoshan   | 73  | Director                                                      
|Haim Horowitz      | 55  | Director                                                      
|Eran Bendoly       | 39  | Director                                                      

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Rafi Amithas served as our General Manager, or Chief Executive Officer, since
January 1998 and has served as Chairman of the Board of Directors since 1987.
Since 1981, Mr. Amit has also served as the President, General Manager and
director of Priortech and has been the Chairman of the Board of Directors of
Priortech since 1988. Mr. Amit has a B.Sc. in Industrial Engineering and
Management from The Technion-Israel Institute of Technology. Rafi Amit is the
brother of Moshe Amit.

Moshe Amithas served as our Executive Vice President and Chief Financial Officer
since February 2001, and prior to that from March 2000 to February 2001, Mr. Amit
served as our Vice President, Sales and Subsidiaries, and from October
1994 to March 2000, he served as our Vice President, Sales and Marketing. From
1987 until 1994, Mr. Amit served as the President of PCE, Inc., a New
Jersey-based company affiliated with Camtek and, which until 2001, sold and
serviced printed circuit boards and AOI systems. Mr. Amit has a B.Sc. in
Industrial Engineering and Management from the Technion. Moshe Amit is the
brother of Rafi Amit.

Yotam Sternhas served as our Executive Vice President, Director of Business and
Strategy since February 2001 and as a member of our board of directors since
1987.  From January 1998 until February
2001, Mr. Stern served as our Chief Financial Officer.  Mr. Stern has also served as the Chief Financial Officer of
Priortech since 1981 and has served as a director of Priortech Ltd. since 1985.
Mr. Stern has a B.A. in Economics from the Hebrew University of Jerusalem.

Benjamin P. Sabbah has served as our Executive Vice President, New Technologies
since May 1999, and, from November 1995 until May 1999 Mr. Sabbah was our
Executive Vice President, Research and Development. Mr. Sabbah is also a senior
member of the Institute of Electrical Engineers in Israel. Prior to joining
Camtek, Mr. Sabbah co-founded and served as the President, Chief Executive
Officer and Chief Operations Officer of Elscint Ltd., which was a medical
imaging equipment company. From 1987 to 1989, Mr. Sabbah was a senior research
associate and lecturer at the Technion. Mr. Sabbah has a B.Sc. and an M.Sc. in
Electrical Engineering from the Technion - the Israel Institute of Technology.

Amir Gileadhas served as our Vice President, Microelectronics Packaging (MEP)
Division since November 2002. From November 2001 until November 2002, Mr.
Gilead served as our Vice President, Semiconductor Packaging (HDI) Division,
and from March 2000 until November 2001, he served as our Vice President,
Marketing. From 1999 until March 2000, Mr. Gilead served as President and Chief
Executive Officer of Advanced Automation International Inc., a startup in the
semiconductor equipment manufacturing industry. From 1990 until 1999, Mr.
Gilead held various executive positions with Kulicke & Soffa, a
semiconductor equipment manufacturer. From 1984 until 1990, Mr. Gilead held
various management positions with Optrotech Ltd., which subsequently merged
with Orbotech. Mr. Gilead has a B.Sc. and an M.Sc. in electrical engineering from
the Technion - the Israel Institute of Technology.

28

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Adi Coremhas served as our Vice President, Operations since January 2001, and
from November 1998, he served as our Operations Manager. From 1988 to November
1998, Mr. Corem served as the Operation Manager of Volta Carmiel Ltd., a
manufacturer of plastic products. From 1984 to 1988, Mr. Corem worked as a
Projects Manager in Elbit Systems Ltd., a military technology developer and
producer. Mr. Corem has a B.Sc. in Industrial Engineering from the Technion -
the Israel Institute of Technology.

Jacob Yavorhas served as our Vice President, Printed Circuit Boards Division since
May 2002.  Prior to that time and since
January 2001, he served as a Vice President. 
From 1998 until January 2001, Mr. Yavor served as Regional Manager in
our subsidiary, Camtek USA, Inc.  From
1987 to 1998, Mr. Yavor held various positions in Camtek, including Regional
Manager, Worldwide Customer Support Manager, Products Manager and Deputy
Manager of our Electronics Department. Mr. Yavor has a B.Sc. in Computers
Engineering from the Technion - the Israel Institute of Technology.

Meir Ben-Shoshanhas served on our Board of Directors since November 1998. From May 1995
until March 1999, Mr. Ben-Shoshan was a director of AG Associates (Israel)
Ltd., a manufacturer of integrated processing equipment for the semiconductor
industry, and was Chairman of its Board from April 1996 to March 1999. From
1986 to 1998, Mr. Ben-Shoshan was a Vice President of Clal Electronics
Industries Ltd.,a large electronics company . From March 2000 to March 2001,
Mr. Ben-Shoshan was a director of Tower Semiconductor Ltd., a manufacturer of
semiconductors.  He has been a director
of IFN Ltd., a company dealing in e-knowledge and e-content management, since
January 2000, and is Chairman of the Board of Jordan Valley Applied Radiation
Ltd. since August 1999. Mr. Ben-Shoshan has been a member of the Association of
Production Engineers in England since 1965, and received an M.B.A. from
Tel-Aviv University.

Haim Horowitzhas served on our Board of Directors since November 1998. Mr. Horowitz
is also the Vice President and Chief Financial Officer of Menen Medical Ltd., a
medical equipment manufacturer, since 1999, and, between 1994 and 1999, he
served as Treasurer of Menen Medical Ltd. From 1993 to 1994, Mr. Horowitz
served as the Chief Financial Officer of Menen Medical Corp., a subsidiary of
Menen Medical Ltd. From 1991 to 1993, Mr. Horowitz served as Treasurer of
Elscint, Inc., a medical imaging equipment company. Mr. Horowitz holds a B.Sc.
in Industry and Management from the Technion - the Israel Institute of
Technology.

Eran Bendolyhas served as on our Board of Directors since November 2000. Currently,
Mr. Bendoly serves as the chief executive officer of Xenia Management Ltd.,
which is the managing partner of Xenia Ventures LP, a limited partnership that
operates the technological incubator in Kiryat Gat, Israel. From 1998 to 2000,
Mr. Bendoly served as Chief Financial Officer of Novanet Semiconductor Ltd., and
from 1996 to 1998, he served as Vice President, Finance and Operations of
Novacom Technologies Ltd. Mr. Bendoly holds a B.A. from the Hebrew University
of Jerusalem and an M.B.A. from the KU Leuven University of Belgium.

B.          Compensation.

Compensation of Officers

The
aggregate remuneration paid by us to the eight persons who served in the
capacity of executive officer in the year ended December 31, 2002 was
approximately $884,000, which includes amounts paid to provide pension,
retirement or similar benefits, as well as amounts expended by us for
automobiles made available to all our officers, expenses reimbursed to officers
and other fringe benefits commonly reimbursed or paid by companies in Israel.  In September 2001, our executive officers
agreed to a reduction in their base salary and to a further reduction in
January 2002.

Employment Agreements

We
maintain written employment agreements with our key employees that contain
customary provisions, like non-compete and confidentiality agreements.  In recent years, Israeli courts have
required employers seeking to enforce non-compete undertakings of a former
employee to demonstrate that the competitive activities of the former employee
will harm one of a limited number of material interests of the employer.  If we cannot demonstrate that we will be
harmed by the competitive activities of a former employee, we may be unable to
prevent our competitors from benefiting from the expertise of our former
employees.

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Effective
January 1, 1998, we entered into an employment agreement with Mr. Rafi Amit,
our General Manager. The agreement is for an initial term of two years and is
automatically renewable for two-year periods thereafter. The agreement contains
confidentiality and non-compete provisions for the term of Mr. Amits
employment and for a two-year period after the termination of his employment.
Furthermore, the agreement provides that all intellectual property developed by
Mr. Amit, or in which he took part, in connection with his employment, are the
sole property of us. Pursuant to his employment agreement, Mr. Amit may
dedicate not more than 20% of his time to work for Priortech or any of the
Priortech entities. The employment agreement may be terminated by either party
or not renewed at the end of the initial term or any extension, by written
notice of termination or non-renewal delivered to the other party eight months
in advance. We, however, may immediately terminate the employment of Mr. Amit
in various circumstances, including a breach of fiduciary duty.

Effective
January 1, 1998, we entered into an employment agreement with Mr. Yotam Stern,
our Executive Vice President, Business and Strategy. This agreement is for an
initial term of two years and is automatically renewable for two-year periods
thereafter. The agreement contains confidentiality and non-compete provisions
for the term of Mr. Sterns employment and for a two-year period after the termination
of his employment. Pursuant to his employment agreement, Mr. Stern may dedicate
not more than 25% of his time to work for Priortech or any of the Priortech
entities. The employment agreement may be terminated by either party at any
time, or not renewed at the end of the initial term or any extension, by
written notice of termination or non-renewal delivered to the other party six
months in advance. We, however, may immediately terminate the employment of Mr.
Stern upon the occurrence of various circumstances, including a breach of
fiduciary duty.

As
of January 2001, Mr. Rafi Amit has been authorized to dedicate not more than
20% of his time to work for Priortech or any of the Priortech entities, and Mr.
Yotam Stern has been authorized to dedicate not more than 25% of his time to
work for Priortech or any of the Priortech entities.  Mr. Rafi Amit receives 80% of a full time salary while Mr. Yotam
Stern receives 75% of a full time salary. 
Messrs. Amit and Stern will be compensated directly by each of the
Priortech entities for which they work. 
In September 2001, Messrs. Amit and Stern agreed to a reduction in their
base salary and, in January 2002, to a further reduction.  For additional information on the employment
structure of Messrs. Amit and Stern, please see the section of this annual
report entitled Related Party Transactions.

Compensation of Directors

Regulations
promulgated under the Israeli Companies Law regulate the annual remuneration
and remuneration for participation in meetings of outside directors and the
refund of their expenses.  The aggregate
remuneration paid by us to the five persons who served in the capacity of
director during the year ended December 31, 2002 was approximately
$30,000.  In December 2001, our Audit
Committee and our Board of Directors approved the grant of options to Mr. Rafi
Amit for the purchase of 20,000 of our ordinary shares and the grant of options
to Mr. Yotam Stern for the purchase of 12,000 of our ordinary shares. However, as
of June 25, 2003, all of our directors have waived all the above mentioned
options held by them.

C.Board Practices.

Composition of the Board of Directors

Our
articles provide that the board of directors shall consist of not less than
five nor more than ten directors, including the outside directors. Currently,
our board consists of five directors.

Directors,
other than outside directors, are elected by a resolution of the shareholders
at the annual general meeting and serve until the conclusion of the next annual
meeting of the shareholders.  Directors
may be removed at any time by a resolution of the shareholders.  Since directors may be elected and removed
by a majority vote, Priortech, which holds a majority of our voting shares has
the power to elect all of our directors, subject to the restrictions placed on
the election of outside directors as described below.  The General Manager, and any officer who is also a controlling
shareholder or a director, is appointed by and serves at the pleasure of the
board.  Each of the other officers is
appointed by the General Manager.

30

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The
Chairman of our Board of Directors is Mr. Rafi Amit, who also serves as our
General Manager, or Chief Executive Officer. Under the Israeli Companies Law,
1999, effective as of February 1, 2000, the Chief Executive Officer of a public
company may not hold the position of Chairman of the Board unless that
designation is approved by the general meeting of shareholders, by a vote of at
least two-thirds of the non-controlling shareholders attending the meeting and
voting on the resolution. The designation may be approved for a term of up to
three years, and may be re-approved by the same majority for additional
three-year terms each time. At our shareholders meeting held in December 2000,
our shareholders authorized Mr. Rafi Amit to continue to hold the position of
Chief Executive Officer for as long as he continues to serve as Chairman of the
Board, and for a maximum period of three years. A proposed amendment to the
Companies Law, currently in the process of enactment, suggests certain changes
to the special majority needed in the general meeting of shareholders to
authorize the Chief Executive Officer to hold the position of Chairman of the
Board. According to the proposed amendment, the general meeting of shareholders
will be able to authorize the Chief Executive Officer to hold the position of
Chairman of the Board, for terms of three years each, if (i) such resolution
was approved by a vote of at least two-thirds of the non-controlling
shareholders attending the meeting and voting on the resolution, or (ii) if the
total shareholdings of those who voted against this resolution represent 1% or
less of all of the voting rights in the company.  We cannot be certain whether or when the proposed amendment will
be enacted or what form this amendment will ultimately take.

Our
articles provide that any director may appoint, by written notice to us or to
the Chairman of the Board, any individual who is qualified to serve as director
and who is not then serving as a director or alternate director, to serve as an
alternate director.

An
alternate director has all of the rights and obligations of a director,
excluding the right to appoint an alternate for himself.  Unless the period or scope of any such
appointment is limited by the appointing director, the appointment is effective
for all purposes and for a period of time concurrent with the term of the
appointing director. Currently no alternate directors serve on our board.

Outside Directors; Independent Directors

Under
the Israeli Companies Law, public Israeli companies, including those whose
shares are registered for trade also outside of Israel, are required to appoint
at least two directors who are not affiliated with the company.

The
outside directors that must be appointed under the Israeli Companies Law must
not have any relationship with us. An individual whose relatives, business
partners, employers or controlled companies have a relationship with us may not
serve as an outside director. In addition, an individual whose other business
affairs may cause a conflict of interest with us may not serve as an outside
director. Outside directors are elected by the shareholders, and the
shareholders voting in favor of their election must include at least one third
of the shareholders present and voting at the meeting, not counting
abstentions, who are not controlling shareholders of the company. This minority
approval requirement need not be met if the total shareholdings of those who
vote against their election represent 1% or less of all of the voting rights in
us. However, shareholder approval is not required if the board of directors
resolved, at the time the Israeli Companies Law became effective, that a
director in office be deemed to be an outside director, provided that he or she
otherwise qualifies as an outside director.

Outside
directors serve for a three-year term, which may be renewed for a maximum of
one additional three-year term. An outside director can be removed from office
only by either the same percentages of shareholders that may elect him, or by a
court order and then only if the outside director ceases to meet the statutory
qualifications or breaches his fiduciary duty. The court may also remove an
outside director from office if he or she is unable to perform his or her
duties on a regular basis. According to regulations promulgated under the
Israeli Companies Law, outside directors of an Israeli company whose shares are
registered for trade outside of Israel may be non-Israeli residents. If at the
time an outside director is appointed by the shareholders, all other directors
are of the same gender, the outside director to be appointed shall be of the
other gender.

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Mr.
Horowitz and Mr. Ben-Shoshan qualify as outside directors and serve in such
capacity on our board of directors.

Under
the requirements for listing on the Nasdaq SmallCap Market, we are required to
have at least three independent directors on our board of directors. Mr. Haim
Horowitz, Mr. Meir Ben-Shoshan, and  Mr.
Eran Bendoly are independent directors.

Committees of the Board of Directors

Our
articles provide that the board of directors may delegate its powers to such
committees of the board of directors as it deems appropriate, subject to the
provisions of the Israeli Companies Law. Powers that may not be delegated
include, among others, the power to distribute dividends, the determination of
general company policy or the allotment of securities or the approval of
financial reports. However, those matters can be delegated to committees for
recommendation. According to the Companies Law, at least one outside director
must be appointed to serve on each committee of the board.

Our
board of directors has a Compensation Committee and an Audit Committee.

Compensation Committee.  The Compensation Committee reviews and makes
recommendations to our board concerning the terms of the compensation packages
provided to our employees, including our executive officers, the terms of any
bonus, share options or other awards provided to our employees, including our
executive officers.  Our Compensation
Committee also administers our current stock option arrangements. The members
of our Compensation Committee are Mr. Rafi Amit, Mr. Meir Ben Shoshan, and Mr.
Eran Bendoly.

Audit Committee.  The Audit Committee oversees and approves the retention,
performance and compensation of our independent auditors, and oversees and
establishes procedures concerning our systems of internal accounting and
auditing control, overseas deficiencies in our management operations and
proposes means of rectification, and approves certain acts and transactions
that involve conflicts of interest or that involve interested parties, in
accordance with the Israeli Companies Law. The members of our Audit Committee
are Mr. Meir Ben Shoshan, Mr. Eran Bendoly, and Mr. Haim Horowitz.  We may modify the composition of our Audit
Committee to ensure compliance with the rules promulgated by the Securities and
Exchange Commission, The Nasdaq Stock Market, Inc. and the Israeli Companies
Law.

D.          Employees.

As
of December 31, 2002, we employed a total of 249 people worldwide, including 80
in research and development, 8 in executive management, 63 in customer service
and support, 32 in sales and marketing, 25 in administration and 41 in
operations.  As of December 31, 2002, we
employed 151 people in Israel, 19 people in the United States, 11 people in
Europe, 37 people in Hong Kong, Singapore and China, 21 people in Taiwan, 5
people in Korea, and 5 people in Japan.

Israeli
labor laws and regulations are applicable to our employees in Israel. These
laws principally concern matters like paid annual vacation, paid sick days,
length of the workday, pay for overtime, insurance for work-related accidents,
severance pay and other conditions of employment. Israeli law generally
requires severance pay, which may be funded by Managers Insurance as described
below, upon the retirement or death of an employee or the termination of
employment by the employer. Furthermore, Israeli employees and employers are
required to pay predetermined sums to the National Insurance Institute. Since
January 1, 1995, these amounts also include payments for national health
insurance. The payments to the National Insurance Institute are approximately
14.5% of wages (up to a specified amount), of which the employee contributes
approximately 66% and the employer contributes approximately 34%.

Although
not legally required, we regularly contribute to a Managers Insurance fund
or to a privately managed pension fund on behalf of our employees located in
Israel. These funds provide employees with a lump sum payment upon retirement
(or a pension, in case of a pension fund) and severance pay, if legally
entitled thereto, upon termination of employment. We provide for payments to a
Managers Insurance Fund and pension fund contributions in the amount of 13.3%
of an employees salary on account of severance pay and provident payment or
pension, with the employee contributing 5.0% of his salary. We also pay an
additional 2.5% to some of our employees salaries in connection with
disability payments. In addition, we administer an Education Fund for some of
our Israeli employees and pay 5% or 7.5% thereto, with the employees
contributing 5% or 2.5%, respectively, of their salary.

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Furthermore,
our employees are subject to the provisions of the collective bargaining
agreements between the Histadrut, which is the General Federation of Labor in
Israel, and the Coordination Bureau of Economic Organizations, including the
Industrialists Associations, by order of the Israeli Ministry of Labor and
Welfare. These provisions principally concern cost of living increases, recreation
pay and other conditions of employment. We generally provide our employees with
benefits and working conditions above the required minimums. Our employees, as
a group, are not currently represented by a labor union. To date, we have not
experienced any work stoppages.

E.
          Share Ownership.

The
following table sets forth certain information concerning the share ownership
of our directors and executive officers as of May 15, 2003:

| | Name                                                    |  |  | Number
  of Ordinary
  Shares Owned(1) (7) |  | Percentage
  of Ordinary Shares
  Beneficially Outstanding Owned(2) |    
| | ------------------------------------------------------- |  |  | ------------------------------------------ |  | ------------------------------------------------------------------- | ---
| |                                                         |  |  |                                            |  |                                                                     |    
| | Rafi Amit(3)                                            |  |  | 140,000                                    |  |                                                                     | 0.5
| | Yotam Stern(4)                                          |  |  | 155,000                                    |  |                                                                     | 0.6
| | 8 directors and executive
  officers as a
  group(5)(6) |  |  | 1,282,970                                  |  |                                                                     | 4.6

---

| | (1) | Beneficial ownership is
  determined in accordance with the rules of the Securities and Exchange
  Commission and generally includes voting or investment power with respect to
  securities.  Ordinary shares relating
  to options currently exercisable or exercisable within 60 days of the date of
  this annual report are deemed outstanding for computing the percentage of the
  person holding such securities but are not deemed outstanding for computing
  the percentage of any other person. 
  Except as indicated by footnote, and subject to community property
  laws where applicable, the persons named in the table above have sole voting
  and investment power with respect to all shares shown as beneficially owned
  by them.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The
  percentages shown are based on 27,053,419 ordinary shares issued as of May
  15, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (3) | As
  a result of a voting agreement relating to a majority of Priortech Ltd.s
  voting equity, Messrs. Amit and Stern may be deemed to control Priortech.
  Also includes options to purchase 140,000 ordinary shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (4) | As a result of a voting
  agreement relating to a majority of Priortech Ltd.s voting equity, Messrs.
  Amit and Stern may be deemed to control Priortech. Also includes options to
  purchase 92,000 ordinary shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (5) | Includes options to
  purchase 86,270 ordinary shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | (6) | Does not include Messrs.
  Amit and Sterns interest in ordinary shares beneficially owned by Priortech.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (7) | As of June 25, 2003, all
  of the options granted to directors and officers were waived.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Option Grants During Fiscal Year 2002

We
did not grant any options to any directors or officers of the Company during
the year ended December 31, 2002.

Options Exercisable in Fiscal Year 2002The
following table sets forth the estimated value as of December 31, 2002 of the
exercisable and unexercisable options held by our executive officers.  (See Director and Employee Share Options-
Share Option Plan, hereunder, regarding the waiver of options).

33

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|                                                |  | Number
  of Securities Underlying
  Unexercised Options at Year End (#) |         | Value of
  Unexercised in-the-
  money Options at Year End (1) | 
|----------------------------------------------- |  | ----------------------------------------------------------------------- | ------- | -------------------------------------------------------------- | 
|                                                |  |                                                                         |         |                                                                | 
|Name                                            |  | Exercisable                                                             |         | Unexercisable                                                  | 
|                                                |  |                                                                         |         |                                                                | 
|                                                |  |                                                                         |         |                                                                | 
|Rafi Amit                                       |  |                                                                         | 125,556 |                                                                | 
|Yotam Stern                                     |  |                                                                         | 83,333  |                                                                | 
|8 directors and executive
  officers as a group |  |                                                                         | 63,770  |                                                                | 

---

| | (1) | The value of an
  in-the-money option represents the difference between the aggregate fair
  market value of the ordinary shares issuable upon exercise of the option and
  the aggregate exercise price of the option.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Director
and Employee Share Options

Share Option Plan

In
September 1997, we adopted share option plans, as amended, under which options
to purchase our shares are granted to employees as determined by the board from
time to time. One of the share option plans covers Israeli employees, while the
remaining two share option plans cover employees of our European, U.S. and
Asian subsidiaries. In addition, in November 2000, we adopted the Executive
Share Option Plan, under which options may be granted to directors and other
executive officers of the company and its subsidiaries who are not entitled to
receive options under the other share option plans. The share option plans are
intended to afford for directors, officers and our employees the opportunity to
acquire an equity interest in Camtek, thus encouraging them and also providing
them with an incentive to remain in our employ and/or to be personally involved
in our long-term success. The share option plans are administered by the board
of directors which, among other things, is authorized to designate the
recipients of the options, the number of the options to be granted and the
exercise price thereof. The options issued are non-assignable, except by the
laws of descent. The options are exercisable, following a vesting period, into
ordinary shares. We have recently amended our share option plan for Israeli
directors, officers and employees, to comply also with new Israeli tax
legislation (see also Item 10.E  Israeli Taxation). This amendment reflects
the implementation of the capital gains tax alternative for options granted as
of June 2003. This tax alternative subjects employees to whom options are
granted under the plan to a capital gains tax rate of 25%, rather than the customary
50%, upon the transfer of the options, the transfer of the ordinary shares
received upon exercise of the options, or on any gain on the sale of ordinary
shares received upon exercise of the options. 
However, we are not allowed to take any deductions on our income for tax
purposes with respect to the grant or exercise of the options.  The ordinary shares issued upon exercise of
options granted under the share option plan for Israeli employees are deposited
with a trustee and may be released to the employee only upon the expiration of
a waiting period following the issuance of the options, as required by the
provisions of the Israeli Income Tax Ordinance and the regulations promulgated
thereunder, as amended from time to time. This waiting period starts at the
date of the grant of the options and ends at the end of the second year
following the year in which the options were granted. The board may also
resolve that non-qualified stock options granted under the share option plan
for employees of the U.S. and Asian subsidiaries and the ordinary shares issued
upon the exercise of those options shall be held by a custodian for such period
of time as the board determines.   As of
June 25, 2003, directors, officers and many of our employees have waived the options
held by them.

As
of December 31, 2002, there were outstanding options exercisable for 697,346
ordinary shares at an average weighted exercise price of $4.81 per share, and
unvested options exercisable for 587,814 ordinary shares at an average weighted
exercise price of $ 2.53.

34

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Three
of our directors, Mr. Meir Ben Shoshan, Mr. Haim Horowitz, and Mr. Eran Bendoly
each received options to purchase 6,000 of our ordinary shares of which 3,500 are
vested for each such director, Our Chief Executive Officer, Mr. Rafi Amit, and
our Executive Vice President, Business and Strategy, Mr. Yotam Stern have been
granted options to purchase 120,000 ordinary shares and 80,000 ordinary shares,
respectively, following our initial public offering.  In December 2001, our Audit Committee and our Board of Directors
approved, subject to the approval of our shareholders, the grant of additional
options to Mr. Rafi Amit for the purchase of 20,000 of our ordinary shares and
the grant of additional options to Mr. Yotam Stern for the purchase of 12,000
of our ordinary shares. The grant of these options were not approved by our
shareholders, as of June 25, 2003, all of our directors have waived all the
options held by them.

Item 7.                 Major Shareholders and Related Party Transactions.

A.Major Shareholders.

The
following table provides information regarding the beneficial ownership of our
ordinary shares as of May 15, 2003, as to each person or entity who
beneficially owns more than 5.0% of our outstanding ordinary shares.  None of these shareholders has different
voting rights than any of the Companys other shareholders.

| | Name              |  |  | Number
  of Ordinary Shares
  Owed |  | Percentage
  of Outstanding 
  Ordinary Shares Owned |     
| | ----------------- |  |  | ---------------------------------- |  | ---------------------------------------------------- | ----
| | Priortech Ltd.(1) |  |  | 21,045,230                         |  |                                                      | 77.8

(1)  A majority of the voting
equity in Priortech Ltd. is subject to a voting agreement.  As a result of this agreement, Messrs. Rafi
Amit, Yotam Stern and Itzhak Krell may be deemed to control Priortech Ltd.  Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting or investment power with respect to the
securities. Except as otherwise indicated, the persons named in the table have
sole voting and investment power with respect to all ordinary shares held by
them.

B.Related Party Transactions

On January 1, 1998, we entered into a services agreement with Priortech
replacing their previous agreement with regard to the provision of services by
Priortech. Under the services agreement, Priortech undertook to provide
services to us, including accounting and bookkeeping, building maintenance,
human resources, payroll, vehicles, maintenance, employee transportation and
employee meals services. Under the services agreement, we are entitled to
terminate the provision of any service received from Priortech by prior written
notification to Priortech.  The consideration
to be paid by us is generally calculated as a percentage of Priortechs actual
costs in providing these services to both us and to Priortech itself, whereas
the actual percentage paid by us depends on the relative portion of each
service rendered to us out of Priortechs total costs for each service.  The term of the services agreement is four
years which automatically extends for one year periods, unless written notice
of termination is given by one party to the other three months prior to the end
of the initial term or any extension thereof. In 1998, we paid $166,000 to
Priortech under this agreement. No services were provided under this agreement
in 2000, 2001 or 2002.

In August 2002, we sold 5,926,730 ordinary shares in a rights offering of
ordinary shares to our then existing shareholders, in which we received
proceeds of approximately $6.1 million.
Of the shares sold in the rights offering, 5,922,228 shares were sold to
Priortech Ltd., which exercised all its rights under the rights offering.
From time to time we have made transactions in the ordinary course of business
with Priortech and its affiliates. Our purchases of raw materials, such as
printed circuit boards and assembled printed circuit board from Priortech and its
affiliates, totaled $1.6 million, $1.7 million and $532,000 in 2000, 2001 and
2002, respectively. In 2000, 2001, we sold an aggregate of $698,000 and
$521,000 of AOI systems for the printed circuit boards industry and related
services to Priortech and one of its subsidiaries. In 2002 we did not sell any
AOI systems or related services to Priortech or any of its subsidiaries. In
addition, we have committed to purchase printed circuit boards and assembled
printed circuit boards from a Priortech subsidiary for the development and
manufacture of our systems so long as the price charged is comparable to the
best offer we could obtain from a third party.

35

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C.Interests of Experts and Counsel.

Not Applicable.

Item 8.                 Financial Information.

A.Consolidated Statements and Other Financial
Information.

Please see the consolidated financial statements listed in Item 18 for
audited consolidated financial statements prepared in accordance with this
Item.

B.Significant Changes.

There have been no significant changes since the date of the financial
statements included in this annual report.

Item 9.                 The Offer and Listing.

A.Offer and Listing Details.

Price History of Ordinary Shares.

Our ordinary shares are quoted on the Nasdaq SmallCap Market and on the
Tel Aviv Stock Exchange under the symbol CAMT.  The following tables set forth, for the periods indicated, high
and low closing prices of our ordinary shares as reported on the Nasdaq
National Market prior to the transfer of the listing of our ordinary to the
Nasdaq SmallCap Market in February 2003, and on the Nasdaq SmallCap Market
thereafter, since our initial public offering on July 28, 2000:

Nasdaq National Market / Nasdaq SmallCap Market
(Starting February 5, 2003)

|                                                       |  | High |       | Low | 
|------------------------------------------------------ |  | ---- | ----- | --- | 
|Annual and Quarterly
  Market Prices                   |  |      |       |     | 
|Fiscal Year Ended
  December 31, 2000                  |  |      |       |     | 
|Third
  Quarter (from July 28)                         |  | $    | 9.69  |     | 
|Fourth
  Quarter                                       |  | $    | 11.50 |     | 
|Fiscal Year Ended
  December 31, 2001                  |  |      |       |     | 
|First
  Quarter                                        |  | $    | 8.88  |     | 
|Second
  Quarter                                       |  | $    | 7.25  |     | 
|Third
  Quarter                                        |  | $    | 5.60  |     | 
|Fourth
  Quarter                                       |  | $    | 3.95  |     | 
|Fiscal Year Ended
  December 31, 2002                  |  |      |       |     | 
|First
  Quarter                                        |  | $    | 3.90  |     | 
|Second
  Quarter                                       |  | $    | 2.15  |     | 
|Third
  Quarter                                        |  | $    | 1.05  |     | 
|Fourth
  Quarter                                       |  | $    | 0.57  |     | 
|Fiscal Year Ended
  December 31, 2003                  |  |      |       |     | 
|First
  Quarter                                        |  | $    | 0.42  |     | 
|Monthly
  Market Prices for the Most Recent Six Months |  |      |       |     | 
|December
  2002 (Nasdaq-NM)                            |  | $    | 0.56  |     | 
|January
  2003 (Nasdaq-NM)                             |  | $    | 0.42  |     | 
|February
  2003 (Nasdaq-NM / Nasdaq-SCM)               |  | $    | 0.40  |     | 
|March
  2003 (Nasdaq-SCM)                              |  | $    | 0.38  |     | 
|April
  2003 (Nasdaq-SCM)                              |  | $    | 0.55  |     | 
|May
  2003 (Nasdaq-SCM)                                |  | $    | 0.89  |     | 
|June
  2003  (through June 24) (Nasdaq-SCM)            |  | $    | 1.30  |     | 

36

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Since
our ordinary shares were listed on the Tel Aviv Stock Exchange, our ordinary
shares have not been regularly traded on the Tel Aviv Stock Exchange. On June
24, 2003, our shares were listed at a price of 
NIS 4.30.

B.Plan of distribution.

Not
applicable.

C.Markets.

As
noted above, the Companys ordinary shares are traded on the Nasdaq SmallCap
Market under the Symbol CAMT and on the Tel Aviv Stock Exchange.

D.Selling Shareholders.

Not
applicable.

E.Dilution.

Not
applicable.

F.Expenses of the Issue.

Not
applicable.

Item 10.             Additional Information.

A.Share Capital.

Not
applicable.

37

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B.          Memorandum and Articles.

Our
object under our memorandum is to deal in the manufacture and marketing of
industrial machines in Israel and in any other part of the world. Our object
under our Articles is to conduct any legal business.

Set
forth below is a summary of the material provisions of our Articles relating to
the shares.  This description does not
purport to be complete and is qualified on its entirety by reference to the
Articles.

Our
authorized share capital consists of 100,000,000 ordinary shares, par value NIS
0.01 per share.

Ordinary shares

The
ordinary shares do not have preemptive rights. The ownership and voting of
ordinary shares by non-residents of Israel are not restricted in any way by our
memorandum of association or Articles or by the laws of the State of Israel.
Under the Companies Law, Israeli companies may purchase or hold their own
shares subject to the same conditions that apply to distribution of dividends.
These shares do not confer any rights whatsoever for as long as they are held
by the company. Additionally, a subsidiary may purchase or hold shares of its
parent company to the same extent that the parent company is entitled to
purchase its own shares and these shares do not confer any voting rights for as
long as they are held by the subsidiary.

Action Necessary to Change Rights of Shareholders

Holders
of ordinary shares have one vote for each ordinary share held on all matters
submitted to a vote of the shareholders. These voting rights may be affected by
the grant of special voting rights to the holders of any class of shares with
preferential rights that may be authorized in the future.

Meetings of Shareholders

An
annual meeting of the shareholders must be held every year and not later than
15 months following the last annual meeting. 
A special meeting of the shareholders may be convened by the board of
directors at its decision or upon the demand of any of: (1) two of the
directors or 25% of the then serving directors, whichever is fewer; (2)
shareholders owning at least 5% of the issued share capital and at least 1% of
the voting rights in the company; or (3) shareholders owning at least 5% of the
voting rights in the company. If the board does not convene a meeting upon a
valid demand of any of the above, then the director(s) who demanded the
meeting, and in the case of a demand by shareholders, those shareholders
holding more than half of the voting rights of the shareholders who demanded
the meeting, may, not later than three months after having made the demand,
convene a meeting of the shareholders. Alternatively, upon application by the
individuals making the demand, a court may order that a meeting be convened.
The quorum required for a meeting of shareholders consists of at least two
shareholders present in person or by proxy who hold or represent together at
least 33 1/3% of the issued shares of the company which entitle the holders
thereof to participate and vote at shareholders meetings. A meeting adjourned
due to lack of a quorum is generally adjourned to the same day in the following
week at the same time and place or any time and place as the directors
designate in a notice to the shareholders. If a quorum is not present at the
deferred meeting, the meeting may be held with any number of participants.
However, if the meeting was convened following a demand by the shareholders,
the quorum will be that minimum number of shareholders authorized to make the
demand.

In
any shareholders meeting, a shareholder can vote either in person or by proxy.
General meetings of shareholders will be held in Israel, unless decided
otherwise by our board.

Most
resolutions at a shareholders meeting may be passed by a simple majority.
Resolutions requiring special voting procedures include the appointment of
outside directors and approval of transactions with related parties, including
controlling shareholders.

Under
the Companies Law, a shareholder has a duty to act in good faith and in a
customary manner in exercising his rights and duties towards the company and
other shareholders, to refrain from prejudicing the rights of other
shareholders and to refrain from abusing his power in the company. The rights
and duties include, among other things, in voting at the general meeting of the
shareholders on the following matters: (1) amendments to the articles; (2) an
increase in the companys authorized share capital; (3) a merger; or (4) an
approval of those related party transactions that require shareholder approval.

38

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In
addition, any shareholder who: (1) knows that it possesses power to determine
the outcome of a shareholder vote; (2) under the provisions of the articles,
has the power to appoint or to prevent the appointment of an office holder in
the company; or (3) controls the company in any other way, is under a duty to
act in fairness towards the company.

C.          Material Contracts.

None

D.          Exchange Controls

Nonresidents
of Israel who purchase our shares may exchange any NIS received as dividends,
if any, thereon, and any amounts payable upon the dissolution, liquidation or
winding up of our affairs, as well as the proceeds of any sale in Israel of the
ordinary shares to an Israeli resident, into freely repatriable dollars, at the
rate of exchange prevailing at the time of exchange, pursuant to regulations
issued under the Currency Control Law, 1978, provided that Israeli income tax
has been withheld with respect to amounts that are being repatriated to the
extent applicable or an exemption has been obtained.  Israeli residents are eligible, subject to reporting
requirements, to purchase securities in foreign currencies.

E.          Taxation

U.S. Federal Income Tax Considerations

Subject
to the limitations described herein, this discussion summarizes the material
U.S. federal income tax consequences of the purchase, ownership and disposition
of our ordinary shares to a U.S. holder. 
A U.S. holder is a holder of our ordinary shares who is:

| | an individual citizen or
  resident of the U.S.;                                                                                                                                                                                                                                                                                   
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a corporation (or another
  entity taxable as a corporation for U.S. federal income tax purposes) created
  or organized under the laws of the United States or any political subdivision
  thereof;                                                                                                                               
| | an estate, the income of
  which may be included in gross income for U.S. federal income tax purposes
  regardless of its source; or                                                                                                                                                                                               
| | a trust (i) if, in
  general, a U.S. court is able to exercise primary supervision over its
  administration and one or more U.S. persons have the authority to control all
  of its substantial decisions or (ii) that has in effect a valid election
  under applicable U.S. Treasury regulations to be treated as a U.S. person.

Unless
otherwise specifically indicated, this discussion does not consider the U.S.
tax consequences to a person that is not a U.S. holder and considers only U.S.
holders that will own the ordinary shares as capital assets.

This
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended (the Code), current and proposed Treasury regulations promulgated under
the Code and administrative and judicial interpretations of the Code, all as
currently in effect and all of which are subject to change, possibly with a
retroactive effect. This discussion does not address all aspects of U.S.
federal income taxation that may be relevant to any particular U.S. holder
based on the U.S. holders particular circumstances. In particular, this
discussion does not address the U.S. federal income tax consequences to U.S.
holders who are broker-dealers or who own, directly, indirectly or
constructively, 10% or more of our outstanding voting shares, U.S. holders
holding the ordinary shares as part of a hedging, straddle or conversion
transaction, U.S. holders whose functional currency is not the U.S. dollar,
insurance companies, tax-exempt organizations, financial institutions and
persons subject to the alternative minimum tax, who may be subject to special
rules not discussed below. Additionally, the tax treatment of persons who hold
the ordinary shares through a partnership or other pass-through entity is not
considered, nor is the possible application of U.S. federal estate or gift
taxes or any aspect of state, local or non-U.S. tax laws.

39

---

---

You are advised to consult your tax advisor with
respect to the specific U.S. federal, state, local and foreign income tax
consequences to you of purchasing, holding or disposing of our ordinary shares.

Taxation of Distributions on the Ordinary Shares

The
amount of a distribution with respect to the ordinary shares will equal the
amount of cash and the fair market value of any property distributed and will
also include the amount of any Israeli taxes withheld as described below under
Israeli Taxation-Taxation of Non-Residents on Receipt of Dividends. A
distribution paid by us with respect to the ordinary shares to a U.S. holder
will be treated as dividend income to the extent that the distribution does not
exceed our current and accumulated earnings and profits, as determined for U.S.
federal income tax purposes.  Dividends that are received by U.S. holders that
are individuals, estates or trusts will be taxed at the rate applicable to
long-term capital gains (a maximum rate of 15%), provided that such dividends
meet the requirements of qualified dividend income.  Dividends that fail to meet such requirements, and dividends
received by corporate U.S. holders are taxed at ordinary income rates.  No dividend received by a U.S. holder will
be a qualified dividend (1) if the U.S. holder held the ordinary share
with respect to which the dividend was paid for less than 61 days during the
120-day period beginning on the date that is 60 days before the ex-dividend
date with respect to such dividend, excluding for this purpose, under the rules
of Code section 246(c), any period during which the U.S. holder has an option
to sell, is under a contractual obligation to sell, has made and not closed a
short sale of, is the grantor of a deep-in-the-money or otherwise nonqualified
option to buy, or has otherwise diminished its risk of loss by holding other
positions with respect to, such ordinary share (or substantially identical
securities); or (2) to the extent that the U.S. holder is under an
obligation (pursuant to a short sale or otherwise) to make related payments
with respect to positions in property substantially similar or related to the
ordinary share with respect to which the dividend is paid.  If
we were to be a passive foreign investment company, a foreign personal
holding company or a foreign investment company (as such terms are defined
in the Code) for any year, dividends paid on our ordinary shares in such year
or in the following year would not be qualified dividends.  In addition, a non-corporate U.S. holder
will be able to take a qualified dividend into account in determining its
deductible investment interest (which is generally limited to its net
investment income) only if it elects to do; in such case the dividend will be
taxed at ordinary income rates.

The
amount of any distribution which exceeds the amount treated as a dividend will
be treated first as a non-taxable return of capital, reducing the U.S. holders
tax basis in its ordinary shares to the extent thereof, and then as capital
gain from the deemed disposition of the ordinary shares. Corporate holders will
not be allowed a deduction for dividends received in respect of the ordinary
shares.

Dividends
paid by us in NIS will be included in the income of U.S. holders at the dollar
amount of the dividend (including any Israeli taxes withheld therefrom), based
upon the spot rate of exchange in effect on the date of the distribution. U.S.
holders will have a tax basis in the NIS for U.S. federal income tax purposes
equal to that dollar value. Any subsequent gain or loss in respect of the NIS
arising from exchange rate fluctuations will generally be taxable as U.S.
source ordinary income or loss.

Subject
to the limitations set forth in the Code and the Treasury regulations
thereunder, U.S. holders may elect to claim as a foreign tax credit against
their U.S. federal income tax liability the Israeli income tax withheld from
dividends received in respect of the ordinary shares. The limitations on
claiming a foreign tax credit include, among others, computation rules under
which foreign tax credits allowable with respect to specific classes of income
cannot exceed the U.S. federal income taxes otherwise payable with respect to
each such class of income. In this regard, dividends paid by us will be foreign
source passive income for U.S. foreign tax credit purposes or, in the case of
a financial services entity, financial services income. U.S. holders that do
not elect to claim a foreign tax credit may instead claim a deduction for the
Israeli income tax withheld. The rules relating to foreign tax credits are
complex, and you should consult your tax advisor to determine whether and to
what extent you would be entitled to this credit.  A U.S. holder will be denied
a foreign tax credit for Israeli income tax withheld from a dividend received
on the ordinary shares (i) if the U.S. holder has not held the ordinary shares
for at least 16 days of the 30 day period beginning on the date which is 15
days before the ex-dividend date with respect to such dividend or (ii) to the
extent the U.S. holder is under an obligation to make related payments with
respect to positions in  substantially
similar or related property.  Any days
during which a U.S. holder has substantially diminished its risk of loss on the
ordinary shares are not counted toward meeting the required 16 day holding
period.  Distributions of current or
accumulated earnings and profits will be foreign source passive income for U.S.
foreign tax credit purposes.

40

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Taxation of the Disposition of Ordinary Shares

Subject
to the discussion below under Tax Consequences if We are a Passive Foreign
Investment Company, upon the sale, exchange or other disposition of our
ordinary shares, a U.S. holder will recognize capital gain or loss in an amount
equal to the difference between the amount realized on the disposition and the
U.S. holders tax basis in the ordinary shares. The gain or loss recognized on
the disposition of the ordinary shares will be long-term capital gain or loss
if the U.S. holder held the ordinary shares for more than one year at the time
of the disposition.  Gain or loss
recognized by a U.S. holder on a sale, exchange or other disposition of
ordinary shares will be treated as U.S. source income or loss for U.S. foreign
tax credit purposes.

A
U.S. holder that uses the cash method of accounting calculates the dollar value
of the proceeds received on the sale as of the date that the sale settles.  However, a U.S. holder that uses the accrual
method of accounting is required to calculate the value of the proceeds of the
sale as of the trade date and may therefore realize foreign currency gain or
loss.  A U.S. holder may avoid realizing
foreign currency gain or loss by electing to use the settlement date to determine
the proceeds of sale for purposes of calculating the foreign currency gain or
loss.  In addition, a U.S. holder that
receives foreign currency upon disposition of ordinary shares and converts the
foreign currency into dollars after the settlement date or trade date
(whichever date the U.S. holder is required to use to calculate the value of
the proceeds of sale) will have foreign exchange gain or loss based on any
appreciation or depreciation in the value of the foreign currency against the
dollar, which will generally be U.S. source ordinary income or loss.

Tax Consequences if We are a Passive Foreign Investment
Company

We
will be a passive foreign investment company, or PFIC, if either (1) 75% or
more of our gross income in a taxable year is passive income; or (2) 50% or more
of the value, determined on the basis of a quarterly average, of our assets in
a taxable year are held for the production of passive income. If we own
(directly or indirectly) at least 25% by value of the stock of another
corporation, we will be treated for purposes of the foregoing tests as owning
our proportionate share of the other corporations assets and as directly
earning our proportionate share of the other corporations income. If we are a
PFIC, a U.S. holder must determine under which of three alternative taxing
regimes it wishes to be taxed:

| | The QEF regime applies
  if the U.S. holder elects to treat us as a 
  qualified electing fund (QEF) for the first taxable year in which
  the U.S. holder owns our ordinary shares or in which we are a PFIC, whichever
  is later, and if we comply with certain reporting requirements.  If the QEF regime applies, then each year
  that we are a PFIC such U.S. holder will include in its gross income a
  proportionate share of our ordinary earnings (which is taxed as ordinary
  income) and net capital gain (which is taxed as long-term capital gain),
  subject to a separate election to defer payment of taxes, which deferral is
  subject to an interest charge.  These
  amounts would be included in income by an electing U.S. holder for its
  taxable year in which our taxable year ends, whether or not such amounts are
  actually distributed to the U.S. holder. 
  A U.S. holders basis in our ordinary shares for which a QEF election
  has been made would be increased to reflect the amount of any taxed but
  undistributed income.  Generally, a
  QEF election allows an electing U.S. holder to treat any gain realized on the
  disposition of his ordinary shares as capital gain.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | Once made, the QEF
  election applies to all subsequent
  taxable years of the U.S. holder in which it holds our ordinary shares and
  for which we are a PFIC and can be revoked only with the consent of the
  Internal Revenue Service.  A
  shareholder makes a QEF election by attaching a completed Internal Revenue Service
  Form 8621, including the PFIC annual information statement, to a timely filed
  United States federal income tax return. 
  Even if a QEF election is not made, a U.S. person who is a shareholder
  in a PFIC must file a completed Internal Revenue Service Form 8621 every
  year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  | If
  a QEF election is made after the first taxable year in which a U.S. holder
  holds our ordinary shares and we are a PFIC, then special rules would apply.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

41

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| | A second regime, the
  mark-to-market regime, may be elected so long as our ordinary shares are
  publicly traded.  Pursuant to this
  regime, an electing U.S. holders ordinary shares are marked-to-market each
  year and the U.S. holder recognizes as
  ordinary income or loss an amount equal to the difference as of the close of the taxable year between the fair market value
  of our ordinary shares and the U.S. holders adjusted tax basis in our
  ordinary shares.  Losses are allowed
  only to the extent of net mark-to-market gain previously included by the U.S.
  holder under the election for prior taxable years.  An electing U.S. holders adjusted basis in our ordinary shares
  is increased by income recognized under the mark-to-market election and
  decreased by the deductions allowed under the election.                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  | Under
  the mark-to-market election, gain on the sale of our ordinary shares is
  treated as ordinary income, and loss on the sale of our ordinary shares, to
  the extent the amount of loss does not exceed the net mark-to-market gain
  previously included, is treated as ordinary loss.  The mark-to-market election applies to the tax year for which
  the election is made and all later tax years, unless the ordinary shares
  cease to be marketable or the Internal Revenue Service consents to the
  revocation of the election.                                                                                                                                                                                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  | If
  the mark-to-market election is made after the first taxable year in which a
  U.S. holder holds our ordinary shares and we are a PFIC, then special rules
  would apply.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | A U.S. holder making
  neither the QEF election nor the mark-to-market election is subject to the
  excess distribution regime.  Under
  this regime, excess distributions are subject to special tax rules.  An excess distribution is either (1) a
  distribution with respect to ordinary shares that is greater than 125% of the
  average distributions received by the U.S. holder from us over the shorter of
  either the preceding three years or such U.S. holders holding period for our
  ordinary shares, or (2) 100% of the gain from the disposition of our ordinary
  shares.                                                                                                                                                                                                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  | Excess
  distributions must be allocated ratably to each day that a U.S. holder has
  held our ordinary shares.  A U.S.
  holder must include amounts allocated to the current taxable year in its
  gross income as ordinary income for that year.  All amounts allocated to prior years of the U.S. holder would
  be taxed at the highest tax rate for each such prior year applicable to
  ordinary income.  The U.S. holder also
  would be liable for interest on the deferred tax liability for each such
  prior year calculated as if such liability had been due with respect to each
  such prior year.  A U.S. holder that
  is an individual is not allowed a deduction for interest on the deferred tax
  liability.  The portions of gains and
  distributions that are not characterized as excess distributions are subject
  to tax in the current year under the normal tax rules of the Code.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  | A U.S. person who
  inherits shares in a foreign corporation that was a PFIC in the hands of the
  decedent (who did not make either of the elections described above), is
  denied the otherwise available step-up in the tax basis of such shares to
  fair market value at the date of death. 
  The U.S. person steps into the shoes of the decedent and will be
  subject to the rules described above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

As
indicated above, we will be a PFIC for any tax year if the average percentage
(by value) of our assets held for the production of, or that produce, passive
income is at least 50 percent.  Based on
our calculations, we believe that we were not a PFIC for our tax year ended
December 31, 2002.  However, there can
be no assurance that the U.S. Internal Revenue Service will not challenge the
calculations we used in determining that we were not a PFIC in 2002.  We currently expect that we will not be a
PFIC in 2003.  However, PFIC status is determined
as of the end of the taxable year and is dependent on a number of factors,
including the value of our assets and the amount and type of our gross
income.  Therefore, there can be no
assurance that we will not become a PFIC for the current fiscal year ending
December 31, 2003 or in a future year. 
We will notify U.S. holders in the event we conclude that we will be
treated as a PFIC for any taxable year to enable U.S. holders to consider
whether or not to elect to treat us as a QEF for U.S. federal income tax
purposes or to mark to market the ordinary shares or to become subject to the
excess distribution regime.

42

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Although
a U.S. Holder normally is not permitted to make a retroactive QEF election, a
retroactive election may be made for a taxable year of the U.S. Holder (the
retroactive election year) if the U.S. Holder (i) reasonably believed that,
as of the date the QEF election was due, the foreign corporation was not a PFIC
for its taxable year that ended during the retroactive election year and (ii)
filed a protective statement with respect to the foreign corporation,
applicable to the retroactive election year, in which the U.S. Holder described
the basis for its reasonable belief and extended the period of limitation on
the assessment of taxes determined under Sections 1291 through 1298 of the Code
with respect to the foreign corporation (PFIC-related taxes) for all taxable
years of the shareholder to which the protective statement applies.  U.S. Holders should consult their tax
advisors regarding the advisability of filing a protective statement.

U.S. holders are urged to consult their tax advisors
regarding the application of the PFIC rules, including eligibility for and the
manner and advisability of making, the QEF election or the mark-to-market
election.

Information Reporting and Backup Withholding

A
U.S. holder generally is subject to information reporting and may be subject to
backup withholding at rate of up to 28% with respect to dividend payments and
receipt of the proceeds from the disposition of the ordinary shares. Backup
withholding will not apply with respect to payments made to exempt recipients,
including corporations and tax-exempt organizations, or if a U.S. holder
provides a correct taxpayer identification number (or certifies that he has
applied for a taxpayer identification number), certifies that such holder is
not subject to backup withholding or otherwise establishes an exemption. Backup
withholding is not an additional tax and may be claimed as a credit against the
U.S. federal income tax liability of a U.S. holder, or alternatively, the U.S.
holder may be eligible for a refund of any excess amounts withheld under the
backup withholding rules, in either case, provided that the required
information is furnished to the Internal Revenue Service.

Non-U.S. holders of Ordinary Shares

Except
as provided below, a non-U.S. holder of ordinary shares (except certain former
U.S. citizens and long-term residents of the United States) will not be subject
to U.S. federal income or withholding tax on the receipt of dividends on, and
the proceeds from the disposition of, an ordinary share, unless that item is
effectively connected with the conduct by the non-U.S. holder of a trade or
business in the United States and, in the case of a resident of a country which
has an income tax treaty with the United States, that item is attributable to a
permanent establishment in the United States or, in the case of an individual,
a fixed place of business in the United States. In addition, gain recognized by
an individual non-U.S. holder will be subject to tax in the United States if
the non-U.S. holder is present in the United States for 183 days or more in the
taxable year of the sale and other conditions are met.

Non-U.S.
holders will not be subject to information reporting or backup withholding with
respect to the payment of dividends on ordinary shares unless the payment is
made through a paying agent, or an office of a paying agent, in the United
States. Non-U.S. holders will be subject to information reporting and backup
withholding at a rate of up to 28% with respect to the payment within the
United States of dividends on the ordinary shares unless the holder provides
its taxpayer identification number, certifies to its foreign status, or
otherwise establishes an exemption.

Non-U.S.
holders will be subject to information reporting and backup withholding at a
rate of up to 28% on the receipt of the proceeds from the disposition of the
ordinary shares to, or through, the United States office of a broker, whether
domestic or foreign, unless the holder provides a taxpayer identification
number, certifies to its foreign status or otherwise establishes an exemption.
Non-U.S. holders will not be subject to information reporting or backup
withholding with respect to the receipt of proceeds from the disposition of the
ordinary shares by a foreign office of a broker; provided, however, that if the
broker is a U.S. person or a U.S. related person, information reporting (but
not backup withholding) will apply unless the broker has documentary evidence
in its records of the non-U.S. holders foreign status or the non-U.S. holder
certifies to its foreign status under penalties of perjury or otherwise
establishes an exemption. For this purpose, a U.S. related person is a broker
or other intermediary that maintains one or more enumerated U.S. relationships.
Backup withholding is not an additional tax and may be claimed as a credit
against the U.S. federal income tax liability of a non-U.S. holder, or
alternatively, the non-U.S. holder may be eligible for a refund of any excess
amounts withheld under the backup withholding rules, in either case, provided
that the required information is furnished to the Internal Revenue Service.

43

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ISRAELI TAXATION

The
following summary describes the current tax structure applicable to companies
in Israel, with special reference to its effect on us. It also discusses
Israeli tax consequences material to persons purchasing our ordinary shares. To
the extent that the summary is based on existing or new tax legislation yet to
be judicially or administratively interpreted, we cannot be sure that the views
expressed will accord with any future interpretation. The summary is not
intended, and should not be construed, as specific professional advice and does
not exhaust all possible tax considerations. Accordingly, you should consult
your tax advisor as to the particular tax consequences of an investment in our
ordinary shares.

The New Tax Reform

On
July 24, 2002, the Israeli legislature enacted an amendment to the Israeli
Income Tax Ordinance (which was further amended on December 17, 2002) thus
adopting comprehensive changes to the tax system. The Tax Reform became
effective on January 1, 2003, and its provisions apply to income derived or
accrued as of that date. The Tax Reform changed the tax basis from a
territorial basis to a personal basis, whereby an Israeli resident is subject
to tax in Israel on income derived and accrued in Israel or abroad and a
non-resident is subject to tax only on income derived and accrued in Israel.
These provisions apply both to individuals and corporations.

The
double taxation tax treaties to which Israel is a party, including the
U.S.-Israel Tax Treaty discussed below, remain in force and are unaffected by
the Tax Reform.

General Corporate Tax Structure

Most
Israeli companies are subject to corporate tax at the rate of 36% of their
taxable income. In our case, the rate is currently effectively reduced, as set
forth below.

Taxation Under Inflationary Conditions

The
Income Tax Law (Inflationary Adjustments), 1985, or the Inflationary
Adjustments Law, is intended to neutralize the erosion of capital investments
and to prevent tax benefits resulting from deduction of inflationary expenses.
This law applies a supplementary set of inflationary adjustments to the normal
taxable profits and losses computed under the regular cost principles. We are
subject to tax under this law.

Under
the Inflationary Adjustments Law, income and loss for tax purposes are adjusted
for inflation on the basis of changes in the Israeli consumer price index. In addition,
subject to limitations regarding depreciation of fixed assets and losses
carried forward are adjusted for inflation on the basis of changes in the
Israeli consumer price index. Under a recent amendment to the Inflationary
Adjustment Law, the Minister of Finance is authorized, with the approval of the
Finance Committee of the Israeli parliament, to suspend the application of the
Inflationary Adjustment Law for any particular year if the rate of inflation
for that year was not higher than 3%. 
In 2001, the Inflationary Adjustment Law was not suspended.

44

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Law for the Encouragement of Capital Investments, 1959

General. The Law for Encouragement of
Capital Investments, 1959 provides that capital investments in a production
facility (or other eligible assets) may, upon approval by the Israel Investment
Center, be designated as an Approved Enterprise. Each certificate of approval
for an Approved Enterprise relates to a specific investment program, delineated
both by the financial scope of the investment and by the physical
characteristics of the facility or the asset. The tax benefits from any such
certificate of approval relate only to taxable profits attributable to the
specific Approved Enterprise. An Approved Enterprise is entitled to benefits,
including Israeli Government cash grants, which are made available if it is
located in a government designated development area, and tax benefits. As
discussed below, our production facilities have been granted Approved
Enterprise status.

Tax Benefits.   Taxable income derived from an Approved Enterprise is subject to
a reduced corporate tax rate of 25% until the earlier of the end of:

- the seven year period (or ten in the case of a Foreign Investment Company as defined below) commencing
in the year in which the Approved Enterprise first generates taxable income;
- the end of the 12-year period from commencement
of production; or
- the end of the 14-year period from the date of
 approval of the Approved Enterprise status.

That
income is eligible for further reductions in tax rates if the company qualifies
as a Foreign Investors Company, or Foreign Investment Company, depending on the
percentage of the foreign ownership of its equity. A Foreign Investment Company
is a company more than 25% of whose share capital (in terms of shares, rights
to profits, voting and appointment of directors) and loan capital is owned by
non-Israeli residents. The tax rate is reduced to 20% if the foreign ownership
of the foreign investment company is 49% or more but less than 74%; 15% if the
foreign ownership of the foreign investment company is 74% or more but less
than 90%; and 10% if the foreign ownership of the foreign investment company is
90% or more. The determination of foreign ownership is made on the basis of the
lowest level of foreign ownership during the tax year.

In
the event that a company is operating under more than one approval, or that not
all of its capital investments are approved, its effective corporate tax rate
is the result of a weighted combination of the various applicable rates.

A
company may elect to forego entitlement to the grants otherwise available under
the Investment Law and, in lieu thereof, participate in an alternative benefits
program, referred to as the Alternative Benefits Program, under which the
undistributed income from the Approved Enterprise is fully exempt from
corporate tax for a period of between two and ten years, depending upon the
location within Israel and the type of the Approved Enterprise. Upon expiration
of the exemption period, the Approved Enterprise is eligible for beneficial tax
rates under the Investment Law for the remainder, if any, of the otherwise
applicable benefits period. We participate in the Alternative Benefits Program.
There can be no assurance that this benefit program will continue to be
available or that we will continue to qualify for benefits under the current
program.

Dividends
paid by a company that owns an Approved Enterprise and that are attributable to
income derived from that Approved Enterprise during the applicable benefits
period, are taxed at a reduced rate of 15%, if the dividends are paid during
the benefit period or no more than twelve years thereafter; or, if the Company
qualifies as a foreign investment company without any time limitations. This
tax must be withheld at source by the company paying the dividend. A dividend
paid from income derived from an enterprise owned by a company that has elected
the Alternative Benefits Program during the period in which it is exempt from
tax is also subject to tax at a 15% rate but causes the company to be liable
for corporate tax on the amount distributed which for this purpose includes the
amount of the corporate tax at the rate that would have been applicable had the
company not elected the Alternative Benefits Program of up to 25%.

Our
production facilities are the subject of several investment programs that
have been granted Approved Enterprise status under the Investment Law. We
participate in the Alternative Benefits Program and, accordingly, income from
our first Approved Enterprise will be tax exempt for 10 years due to the fact
that we operate in Zone A. This tax exempt status commences in the year in
which our Approved Enterprise first generates taxable income. The period of
benefits expired in December 1999 for our first Approved Enterprise and will
expire in 2008 for our latest Approved Enterprise.

45

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Since
we participate in the Alternative Benefits Program, in the event we distribute
a cash dividend from income that is tax exempt, as described above, we would have
to pay corporate tax at the rate of up to 25% on an amount equal to the amount
distributed and the corporate tax thereon.

The
benefits available to an Approved Enterprise are conditioned upon terms
stipulated in the Investment Law and the regulations thereunder and the criteria
set forth in the applicable certificate of approval. These conditions include
the filing of periodic reports and a requirement that minimum proportions of
our paid-up capital be 30% of our fixed assets. In the event that we do not
fulfill these conditions in whole or in part, the benefits can be canceled and
we may be required to refund the amount of the benefits, with the addition of
the Israeli consumer price index linkage differences and interest. We believe
that our Approved Enterprises currently operate in compliance with all
applicable conditions and criteria, but there can be no assurance that they
will continue to do so.  These programs
and tax benefits may not be continued in the future at their current levels or
at any level or our requests for future participation in these programs may not
be approved.

The
Tax Reform did not reduce the benefits we receive as a result of our Approved
Enterprise status under the Law for Encouragement of Capital Investments. The
law for Encouragement of Capital Investments expires on December 31, 2003 and
based on currently available information, the expiration of this law should not
impact on the status of Approved Enterprises already approved before December
31, 2003, and thus should not affect our existing approved enterprises.

Law for the Encouragement of Industry
(Taxes), 1969

We
believe that we currently qualify as an Industrial Company within the meaning
of the Law for the Encouragement of Industry (Taxes), 1969, or the Industry
Encouragement Law. According to the Industry Encouragement Law, an Industrial
Company is a company resident in Israel, 90% or more of the income of which in
any tax year, other than of income from defense 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.

The following corporate tax benefits are available to Industrial Companies:

- amortization of the cost of purchased know-how and patents over an eight-year period for tax
purposes;
- amortization of expenses incurred in some cases in connection with a public issuance of
securities over a three-year period;
- an election to file consolidated tax returns with additional related Israeli Industrial
Companies; and
- accelerated depreciation rates on equipment and buildings.

Eligibility
for the benefits under the Industry Encouragement Law is not subject to receipt
of prior approval from any governmental authority. No assurance can be given
that we qualify or will continue to qualify as an Industrial Company or that
the benefits described above will be available in the future. See notes to the
consolidated financial statements.

Law for the Encouragement of Industrial Research and
Development, 1984

Under
the Law for the Encouragement of Industrial Research and Development, 1984,
research and development programs approved by a governmental committee of the
Office of the Chief Scientist are eligible for grants, in exchange for payment
of royalties from revenues generated by the products developed in accordance with
the program. Once a project is approved, the Office of the Chief Scientist will
award grants up to 50% of the projects cost, in exchange for royalties at a
rate of 2% to 6%, depending on the date of approval of the project, of the
proceeds from the sales of the products that are developed from projects funded
by the Office of the Chief Scientist. These royalties must be paid beginning
with the commencement of sales of those products and ending when 100% of the
dollar value of the grant was repaid or, for projects approved after January 1,
1999, the dollar amount of the grant plus interest at the rate LIBOR for dollar
deposits in a twelve-month period.

46

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The
terms of this Israeli governmental participation also require that the products
developed with government grants be manufactured in Israel, unless a special
governmental committee, in its discretion consents to manufacturing abroad. In
addition, in the event that any of the manufacturing rights are transferred out
of Israel, if approved by the special governmental committee, we may be
required to pay royalties at a higher rate and be liable to an increased
aggregate pay back amount in proportion to manufacturing performed outside of
Israel, up to a maximum of 300% of the dollar amount of the grant, or of the
dollar amount plus interest, as applicable. The technology developed pursuant
to the terms of these grants may not be transferred outside of Israel, and may
be transferred to third parties within Israel only with the prior approval of
the governmental committee. This approval is not required for the export of any
products resulting from that research development. Approval of the transfer of
technology within Israel may be granted only if the recipient abides by all of
the provisions of this law and the regulations promulgated thereunder,
including the restrictions on the transfer of know-how and the obligation to
pay royalties in an amount that may be increased. There can be no assurance
that this consent, if requested, will be granted. An amendment to this law was
enacted in November 2002 and became effective on April 1, 2003.  However, the amendment did not provide any
relief with respect to the foregoing restrictions.

Each
application to the Office of the Chief Scientist is reviewed separately, and
grants are based on the program approved by the research committee of the
Office of the Chief Scientist. Expenditures supported under other incentive
programs of the State of Israel are not eligible for Office of the Chief
Scientist grants.

In March 2001, we reached an arrangement
with the Chief Scientist whereby we have to repay the outstanding balance of
the grants we received, not including grants received by Inspectech prior to
its merger into us, at a quarterly rate equal to 4.5% of the revenues derived
in connection with products we develop as a result of research and development
funded by Chief Scientist participations, up to a maximum amount of $250,000
per quarter.  We have not received any
additional grants from the Office of the Chief Scientist since 2000. As of
December 31, 2002, the outstanding balance of the grants was approximately
$1.08 million, of which $950,000 was due as of such dates, including grants
received by Inspectech prior to its merger into us.  As of December 31, 2002, the maximum royalty payable by us on
future sales was approximately $136,000. Our annual repayments were $956,000 in
1999, $2.4 million in 2000 and $1.1 million in 2001 and $1 million in 2002.

Taxation of Shareholders Capital Gains Tax

Israeli
law imposes a capital gains tax on the sale of capital assets. The law
distinguishes between the Real Gain and the Inflationary Surplus. The Real
Gain is the difference between the total capital gain and the Inflationary
Surplus. The Inflationary Surplus is computed on the basis of the difference
between the Israeli consumer price index in the month of sale and the month of
purchase. Regarding Israeli residents, the Inflationary Surplus accumulated
until December 31, 1993 is taxed at a rate of 10%, whereas the Inflationary
Surplus accumulated after January 1, 1994 is exempt from capital gains tax. The
tax rate used for the Inflationary Surplus is reduced to zero for nonresidents
if calculated according to the exchange rate of the foreign currency lawfully
invested in shares of the Israeli resident company, instead of the Israeli
consumer price index.   Following the
Tax Reform, real gains accrued after January 1, 2003 are subject to capital
gains tax of 25%, whereas assets acquired before January 1, 2003 are subject to
a blended tax rate based on the relative periods of time that the assets were
held before and after January 1, 2003. 
Real gains derived on or after January 1, 2003 from the sale of ordinary
shares traded on the Tel Aviv Stock Exchange or on a foreign stock exchange
recognized by the Israeli Ministry of Finance, are subject to capital gains tax
of 15%; however, non-residents are generally exempt from tax on gains from the
sale of such shares.   Under current
law, sales of our ordinary shares by anyone who is not a dealer in securities
in Israel and is not a company that is subject to the Inflationary Adjustments
Law are exempt from Israeli capital gains tax so long as the ordinary shares
are traded on the Tel Aviv Stock Exchange, and, provided we continue to qualify
as an Industrial Company or industrial holding company, so long as they are
listed on the Nasdaq SmallCap Market or on another stock exchange recognized by
the Israeli Ministry of Finance. There can be no assurance that we will
maintain this listing or qualification. See Law for Encouragement of Industry
(Taxes), 1969. If the tax reform recommendations adopted in principle by the
Israeli government in June 2002 are legislated into law, foreign residents will
be exempt from capital gains tax on sales of securities traded on Israeli stock
exchanges and Israeli residents may become subject to capital gains tax at
different rates.  We cannot be certain,
however, if tax reform recommendations will be adopted, when they will be
adopted and what form any reform may take.

47

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Application of the U.S.-Israel Tax Treaty to Capital Gains
Tax

Subject
to the U.S.-Israel Tax Treaty, the sale, exchange or disposition of the
ordinary shares by a person who qualifies as a resident of the United States
and who is entitled to claim the benefits afforded to that resident, which is
called a Treaty U.S. Resident, will not be subject to Israeli capital gains tax
unless that Treaty U.S. Resident held, directly or indirectly, shares
representing 10% or more of our voting power during any part of the 12-month
period preceding the sale, exchange or disposition. A sale, exchange or
disposition of the ordinary shares by a Treaty U.S. Resident who held, directly
or indirectly, shares representing 10% or more of our voting power at any time
during the 12-month period preceding the sale, exchange or disposition will be
subject to Israeli capital gains tax, to the extent applicable. However, under
the U.S.-Israel Tax Treaty, this Treaty U.S. Resident would be  permitted to claim credit for these taxes
against U.S. income tax imposed with respect to such sale, exchange or
disposition, subject to the limitations set in U.S. laws applicable to foreign
tax credits.

Taxation of Non-Residents on Receipt of Dividends

Nonresidents
of Israel are subject to Israeli income tax on the receipt of dividends paid on
the ordinary shares at the rate of 25%, which tax will be withheld at source,
unless the dividends are paid from income derived from an approved enterprise
during the applicable benefit period, or a different rate is provided in a
treaty between Israel and the shareholders country of residence. Under the
U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of the
ordinary shares who is a Treaty U.S. Resident will be 25%. However, when
dividends are paid from income derived during any period for which the Israeli
company is not entitled to the reduced tax rate applicable to an approved
enterprise under Israels Law for the Encouragement of Capital Investments,
1959, the maximum tax will be 12.5% if the holder is a company holding shares
representing 10% or more of the voting power during the part of the taxable year
preceding the date of payment of dividends and during the whole of its prior
taxable year, if any. When dividends are paid from income derived during any
period for which the Israeli company is entitled to the reduced tax rate
applicable to an approved enterprise, then the tax will be 15%.

F.          Dividends and Paying Agents.

Not
applicable.

G.          Statement by Experts.

Not
applicable.

H.          Documents on Display.

We
have filed this annual report with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended.  Statements made in this annual report as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete.  With respect to each such
contract, agreement or other document filed as an exhibit to this annual
report, reference is made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.

We
are subject to the informational requirements of the Securities Exchange Act of
1934, as amended, and file reports and other information with the Securities
and Exchange Commission.  Reports and
other information which we file with the Securities and Exchange Commission,
including this annual report, may be inspected and copied at the public reference
facilities of the Securities and Exchange Commission at:

| | 450 Fifth Street N.W.  |  | 500 West Madison Street 
| | ---------------------- |  | ------------------------
| | Room 1024              |  | Suite 1400              
| | Washington D.C.  20549 |  | Chicago, Illinois  60661

Copies
of this material can also be obtained by mail from the Public Reference Section
of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington,
D.C.  20549, at prescribed rates.  Additionally, copies of this material may
also be obtained from the Securities and Exchange Commissions Internet site at
http://www.sec.gov.  The Commissions
telephone number is 1-800-SEC-0330. 
Documents filed in Canada are available at the website of the Canadian
System for Election and Document Analysis and Retrieval (SEDAR) at
http://www.sedar.com.

48

---

---

I.          Subsidiary Information.

Not
applicable.

Item 11.Quantitative and Qualitative Disclosures About Market
Risk

Interest Rate Risk

We
currently do not hold or invest in derivative financial instruments for trading
or other purposes and, as of December 31, 2002, we had no outstanding
derivative financial instruments of any kind. We have no material market risk
exposure of the type contemplated by Item 11, and, therefore, no quantitative
tabular disclosures are required.

Our
non-NIS denominated loans bear interest based on the LIBOR, and our NIS
denominated loans are based on the Israeli prime interest rate. From time to
time, we use short-term loans. As of December 31, 2001, our short-term loans
were mainly NIS denominated.

Most
of our investments are in highly rated corporate bonds for terms of up to 18
months and bear fixed interest rates. We generally hold these bonds to the date
of maturity, and, therefore, financial income from these investments are not
sensitive to interest changes over the holding period of the bonds.

Foreign Currency Rate Fluctuations

Our
production facility is located in Israel, and most of our manufacturing and
other headquarter expenses are in NIS. 
An evaluation of the NIS against the U.S. dollar, our reporting
currency, will expose us to higher expenses in U.S. dollars and may influence
our profitability. A significant portion of our sales are derived from East
Asia and from Europe and are primarily denominated in U.S. dollars. A
devaluation of the local currency against the U.S. dollar may cause our product
to become less competitive and may lead to a reduction of prices. Our
experience shows that these influences are not material, and, therefore, no
quantitative tabular disclosures are required.

Our
balance sheet exposure to fluctuations in the exchange rate between the U.S.
dollar and other currencies are primarily from NIS denominated balances. As of
December 31, 2002, we had net liabilities of approximately $2.5 million,
denominated in NIS.

Any
fluctuation in the exchange rate between the NIS and the U.S. dollar of 1% will
cause us expenses of $ 25,000 or income for the same amount in case of
evaluation or devaluation, respectively.

As
of December 31, 2002, we had no interest rate or foreign currencies derivative
financial instruments outstanding.

Item 12.Description of Securities Other than Equity
Securities.

Not
applicable.

49

---

---

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

None.

Item 14.Material Modifications to the Rights of Security
Holders and Use of Proceeds.

Use of Proceeds

The
effective date of the registration statement for which the information is being
disclosed is July 28, 2000 (File No. 333-12292) (the Registration Statement).
The following table sets forth, with respect to the ordinary shares registered,
the amount of securities registered, the aggregate offering price of amount
registered, the amount sold (including 235,000 shares sold pursuant to the
over-allotment option) and the aggregate offering price of the amount sold, for
the account of our company.

|                                                | For the account of the
  company
|----------------------------------------------- | --------------------------------
|Number of ordinary shares
  registered          |                                 
|Aggregate offering price
  of shares registered |                                 
|Number of ordinary shares
  sold                |                                 
|Aggregate offering price
  of shares sold       |                                 

The following table sets
forth the expenses incurred by us in connection with our public offering during
the period commencing the effective date of the Registration Statement and
ending December 31, 2000. None of such expenses were paid directly or indirectly to directors,
officers, persons owning 10% or more of any class of equity securities of our
company or to our affiliates.

|1. Purpose                               | Direct or indirect payments to persons other than
  affiliated persons |   |           | 
|---------------------------------------- | ---------------------------------------------------------------------- | - | --------- | 
|                                         |                                                                        |   |           | 
|Underwriting
  discounts and commissions |                                                                        | $ | 2,859,150 | 
|Other
  expenses                         |                                                                        | $ | 2,256,850 | 
|                                         |                                                                        |   |           | 
|Total
  expenses                         |                                                                        | $ | 5,116,000 | 
|                                         |                                                                        |   |           | 

The net public offering
proceeds to us, after deducting the total expenses (set forth in the table above),
were approximately $35,700,000.

The
following table sets forth the amount of net public offering proceeds used by
us for the purposes listed below. None of such payments were paid directly or indirectly to directors,
officers, persons owning 10% or more of any class of our equity securities or
to our affiliates.

|Purpose                                                | Direct or indirect payments to persons other than to
  affiliated persons | 
|------------------------------------------------------ | ------------------------------------------------------------------------- | 
|                                                       |                                                                           | 
|Acquisition of other
  companies and business(es)      | 2,250,000                                                                 | 
|                                                       |                                                                           | 
|Construction of plant,
  building and facilities..     | 6,500,000                                                                 | 
|Purchase and installation
  of machinery and equipment | N/A                                                                       | 
|                                                       |                                                                           | 
|Purchase of real estate                                | N/A                                                                       | 
|Repayment of indebtedness                              | 9,000,000                                                                 | 
|Working capital                                        | N/A                                                                       | 
|Temporary investments                                  | N/A                                                                       | 
|Other purposes                                         | N/A                                                                       | 

50

---

---

Item 15. Controls and Procedures

Within
the 90-day period prior to the filing of this report, an evaluation was carried
out under the supervision of and with the participation of the Companys
management, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO) of the effectiveness of our disclosure controls and
procedures.  Based on that evaluation,
the CEO and CFO have concluded that the Companys disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Securities and
Exchange Act of 1934, as amended is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms.  Subsequent
to the date of their evaluation, there were no significant changes in the
Companys internal controls or in other factors that could significantly effect
the disclosure controls, including any corrective actions with regard to
significant deficiencies and material weaknesses.

Item 16A. Audit Committee Financial Expert

Not
yet applicable to registrant.

Item 16B. Code of Ethics

Not yet applicable to registrant.

Item 16C. Principal Accounting Fees and Services

Not yet applicable to registrant.

51

---

---

PART III

Item 17.Consolidated Financial Statements.

The
Company has elected to furnish financial statements and related information
specified in Item 18.

Item 18.Consolidated Financial Statements.

|Report of
  Independent Public Accountants                     | F-2
|-------------------------------------------------------------- | ---
|Consolidated
  Balance Sheets as of December 31, 2001 and 2002 | F-3
|Consolidated
  Statements of Operations for the years ended    |    
|December 31,
  2000, 2001 and 2002                             | F-4
|Consolidated
  Statements of Shareholders Equity for the      |    
|years ended
  December 31, 2000, 2001 and 2002                 | F-5
|Consolidated
  Statements of Cash Flows for the years ended    |    
|December 31,
  2000, 2001 and 2002                             | F-6
|Notes to
  Consolidated Financial Statements                   | F-7

Item 19.Exhibits.

|Exhibit Number | Name of
  Document                                                                                                                                
|-------------- | --------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                   
|3.1            | Memorandum of Association
  of Registrant(1)                                                                                                      
|3.2            | Articles of Registrant(2)                                                                                                                         
|4.1            | Specimen of Certificate
  for Ordinary Shares(3)                                                                                                  
|10.1           | Employee Share Option
  Plan (4)                                                                                                                  
|10.2           | Subsidiary Employee Share
  Option Plan (formerly, the Employee Share Option Plan --United States).(5)                                            
|10.3           | Employee Share Option
  Plan--Europe.(6)                                                                                                          
|               | Executive Share Option
  Plan                                                                                                                     
|10.4           | The amended share option
  plan (Employee share option plan), which complies with the new Israeli tax
  legislation                               
|10.5           | Lease Agreement between
  the Company and PCB Ltd. (currently Priortech Ltd.), dated 1, 1998, as
  amended on January 1, 2000(7)                  
|10.6           | Services Agreement
  between the Company and PCB Ltd. (currently Priortech Ltd.), dated January (9)                                               
|10.7           | Management Services
  Agreement between the Company and PCB Ltd. (currently Priortech Ltd.), dated
  January 1, 1998.(10)                         
|10.8           | Loan Agreement between
  the Company and PCB Ltd. (currently Priortech Ltd.), dated January 1, 1998(11                                            
|10.9           | Royalty Agreement between
  the Company and PCB Ltd. (currently Priortech Ltd.), dated January 1988(12)                                           
|10.10          | Termination Agreement
  between the Company and PCB Ltd. (currently Priortech Ltd.), dated May 21,
  1998                                         
|10.11          | Form of Indemnification
  Agreement(13)                                                                                                           
|21.1           | Subsidiaries of the
  Registrant(14)                                                                                                              
|23.2           | Consent of Eisner, LLP
  and Goldstein Sabo Tevet.                                                                                                
|24.1           | Power of attorney
  (included in signature page, which has been previously filed)                                                                 
|99.1           | Certificate of Chief
  Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002
|99.2           | Certificate of Chief
  Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002

52

---

---

---

(1)          Incorporated
by reference from Exhibit 3.1 to Amendment No. 1 to the Companys Registration
Statement on Form F-1, File No. 333-12292, filed with the Securities and
Exchange Commission on July 21, 2000.
(2)          Incorporated
by reference from Exhibit 3.1 to Amendment No. 1 to the Companys Registration
Statement on Form F-1, File No. 333-12292, filed with the Securities and
Exchange Commission on July 21, 2000.
(3)          Incorporated
by reference from Exhibit 4.1 to Amendment No. 1 to the Companys Registration
Statement on Form F-1, File No. 333-12292, filed with the Securities and
Exchange Commission on July 21, 2000.
(4)          Incorporated
by reference from Exhibit 10.1 to Amendment No. 1 to the Companys Registration
Statement on Form F-1, File No. 333-12292, filed with the Securities and
Exchange Commission on July 21, 2000.
(5)          Incorporated
by reference from Exhibit 10.2 to Amendment No. 1 to the Companys Registration
Statement on Form F-1, File No. 333-12292, filed with the Securities and
Exchange Commission on July 21, 2000.
(6)          Incorporated
by reference from Exhibit 10.3 to the Companys Registration Statement on Form
F-1, File No. 333-12292, filed with the Securities and Exchange Commission on
July 31, 2000.
(7)          Incorporated
by reference from Exhibit 10.4 to the Companys Registration Statement on Form
F-1, File No. 333-12292, filed with the Securities and Exchange Commission on
July 31, 2000.
(8)          Incorporated
by reference from Exhibit 10.5 to the Companys Registration Statement on Form
F-1, File No. 333-12292, filed with the Securities and Exchange Commission on
July 31, 2000.
(9)          Incorporated
by reference from Exhibit 10.6 to the Companys Registration Statement on Form
F-1, File No. 333-12292, filed with the Securities and Exchange Commission on
July 31, 2000.
(10)        Incorporated
by reference from Exhibit 10.7 to Amendment No. 2 to the Companys Registration
Statement on Form F-1, File No. 333-12292, filed with the Securities and
Exchange Commission on July 21, 2000.
(11)        Incorporated
by reference from Exhibit 10.8 to Amendment No. 2 to the Companys Registration
Statement on Form F-1, File No. 333-12292, filed with the Securities and
Exchange Commission on July 21, 2000.
(12)        Incorporated
by reference from Exhibit 10.9 to Amendment No. 2 to the Companys Registration
Statement on Form F-1, File No. 333-12292, filed with the Securities and
Exchange Commission on July 21, 2000.
(13)        Incorporated
by reference from Exhibit 10.10 to Amendment No. 2 to the Companys Registration
Statement on Form F-1, File No. 333-12292, filed with the Securities and
Exchange Commission on July 21, 2000.
(14)        Incorporated
by reference from Exhibit 10.11 to Amendment No. 2 to the Companys
Registration Statement on Form F-1, File No. 333-12292, filed with the
Securities and Exchange Commission on July 21, 2000.

53

---

---

SIGNATURES

The
Company 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.

| | CAMTEK
  LTD. |                        
| | ------------- | -----------------------
| |               |                        
| | By:           | /s/ Rafi Amit          
| |               |                        
| |               | Rafi Amit              
| |               | Chief Executive Officer

Date: June 29, 2003

54

---

---

I,
Rafi Amit, certify that:

1.
I have reviewed this annual report on Form 20-F of Camtek Ltd.;

2.
Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;

3.
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.
The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)
Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b)
Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the Evaluation Date); and

c)
Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.
The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):

a)
All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal controls; and

6.
The registrants other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:
June 29, 2003

| | By:    | /s/ Rafi Amit             | 
| | ------ | ------------------------- | 
| |        |                           | 
| | Name:  | Rafi Amit                 | 
| | Title: | Chief
  Executive Officer | 
| |        |                           | 

55

---

---

I,
Moshe Amit, certify that:

1.
I have reviewed this annual report on Form 20-F of Camtek Ltd.;

2.
Based on my knowledge, this annual report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this annual report;

3.
Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.
The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)
Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;

b)
Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and

c)
Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5.
The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrants board of directors (or persons performing the equivalent
function):

a)
All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrants internal controls; and

6.
The registrants other certifying officers and I have indicated in this annual
report whether or not there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  June 29, 2003

| | By:                                                              | /s/ Moshe
  Amit | 
| | ---------------------------------------------------------------- | ---------------- | 
| |                                                                  |                  | 
| | Name:  Moshe Amit                                                |                 
| | Title:    Executive Vice President and Chief
  Financial Officer |                 

56

---

---

INDEPENDENT
AUDITORS REPORT

To the Shareholders and
Board of Directors
Camtek Ltd.
Migdal Haemek, Israel

We have audited the
accompanying consolidated balance sheets of Camtek Ltd. and subsidiaries as of
December31, 2002 and 2001, and the related consolidated statements of
operations, changes in shareholders equity and cash flows for each of the
three years in the period ended December31, 2002.  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 auditing standards generally accepted in the United States
of America.  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Camtek Ltd. and subsidiaries
as of December31, 2002 and 2001, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

|Eisner LLP         | Goldstein Sabo Tevet               
|------------------ | -----------------------------------
|                   | Certified Public Accountants (Isr.)
|New York, New York | Tel-Aviv, Israel                   
|March 11, 2003     |                                    

F-2

---

---

CAMTEK
LTD.

Consolidated
Balance Sheets(in thousands, except share data)

|                                                                                |                                                                      | December
  31,
|------------------------------------------------------------------------------- | -------------------------------------------------------------------- | --------------
|                                                                                |                                                                      |               
|                                                                                |                                                                      | 2001          
|                                                                                |                                                                      |               
|ASSETS                                                                          |                                                                      |               
|Current assets:                                                                 |                                                                      |               
|                                                                                | Cash and cash equivalents                                            |               
|                                                                                | Marketable securities                                                |               
|                                                                                | Accounts receivable - trade, net of allowance of
  $1,135 and $2,387 |               
|                                                                                | Inventories                                                          |               
|                                                                                | Due from affiliates                                                  |               
|                                                                                | Other current assets                                                 |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                | Total current assets                                                 |               
|                                                                                |                                                                      |               
|Fixed assets, net                                                               |                                                                      |               
|Deferred taxes                                                                  |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      | $             
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|LIABILITIES                                                                     |                                                                      |               
|Current liabilities:                                                            |                                                                      |               
|                                                                                | Short-term bank credit                                               |               
|                                                                                | Accounts payable                                                     |               
|                                                                                | Due to Priortech Ltd.                                                |               
|                                                                                | Other current liabilities                                            |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                | Total current liabilities                                            |               
|                                                                                |                                                                      |               
|Long term loans                                                                 |                                                                      |               
|Accrued severance pay, net of amounts funded                                    |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|Commitments and contingent liability (Note 10)                                  |                                                                      |               
|                                                                                |                                                                      |               
|SHAREHOLDERS EQUITY                                                            |                                                                      |               
|Ordinary shares NIS 0.01 par value, authorized
  100,000,000 shares,            |                                                                      |               
|                                                                                | issued 22,130,798 shares in 2001 and 28,065,038
  shares in 2002     |               
|Additional paid-in capital                                                      |                                                                      |               
|Unearned compensation                                                           |                                                                      |               
|Accumulated other comprehensive income (loss):                                  |                                                                      |               
|Unrealized holding gain (loss) on marketable
  securities                       |                                                                      |               
|Retained earnings (deficit)                                                     |                                                                      |               
|Treasury stock, at cost (250,000 shares in 2001 and
  1,011,619 shares in 2002) |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               
|                                                                                |                                                                      | $             
|                                                                                |                                                                      |               
|                                                                                |                                                                      |               

See
notes to consolidated financial statements

F-3

---

---

CAMTEK
LTD.

Consolidated
Statements of Operations(in thousands, except per share data)

|                                                        |                                                                                        | Year
  Ended December 31,
|------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------------------
|                                                        |                                                                                        |                          
|                                                        |                                                                                        | 2000                     
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|Revenues:                                               |                                                                                        |                          
|                                                        | Sales of products                                                                      |                          
|                                                        | Service fees                                                                           |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|Cost of revenues:                                       |                                                                                        |                          
|                                                        | Cost of products sold (including provision for
  inventory writedownof $1,805 in 2002) |                          
|                                                        | Cost of services                                                                       |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|Gross profit                                            |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|Research and development costs:                         |                                                                                        |                          
|                                                        | Expenses                                                                               |                          
|                                                        | Less royalty-bearing participations from the
  Government of Israel                    |                          
|                                                        | Acquired in-process research and development                                           |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        | Research and development costs, net                                                    |                          
|                                                        |                                                                                        |                          
|Selling, general and administrative expenses            |                                                                                        |                          
|Restructuring expenses                                  |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|Operating expenses                                      |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|Operating income (loss)                                 |                                                                                        |                          
|Financial and other income, net                         |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|Income (loss) before income taxes                       |                                                                                        |                          
|Provision for income taxes                              |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|Net income (loss)                                       |                                                                                        | $                        
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|Net income (loss) per ordinary share:                   |                                                                                        |                          
|                                                        | Basic                                                                                  |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        | Diluted                                                                                |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|Weighted average number of ordinary shares
outstanding: |                                                                                        |                          
|                                                        | Basic                                                                                  |                          
|                                                        |                                                                                        |                          
|                                                        |                                                                                        |                          
|                                                        | Diluted                                                                                |                          
|                                                        |                                                                                        |                          

See notes to consolidated financial
statements

F-4

---

---

CAMTEK
LTD.

Consolidated
Statements of Changes in Shareholders Equity(in
thousands)

|                                                             |  | Ordinary A         |        |            |  |          |     |               |  |               |        | Accumulated |  |       |      |       |  |                |      |   |  |   |         |   |  |   |      |  
|------------------------------------------------------------ |  | ------------------ | ------ | ---------- |  | -------- | --- | ------------- |  | ------------- | ------ | ----------- |  | ----- | ---- | ----- |  | -------------- | ---- | - |  | - | ------- | - |  | - | ---- | -
|                                                             |  | NIS 0.01 Par Value |        | Additional |  |          |     | Other         |  | Retained      |        |             |  |       |      |       |  |                |      |   |  |  
|                                                             |  |                    |        | Paid-in    |  | Unearned |     | Comprehensive |  | Earnings      |        | Treasury    |  |       |      |       |  | Comprehensive 
|                                                             |  | Shares             |        | Amount     |  | Capital  |     | Compensation  |  | (Loss) Income |        | (Deficit)   |  | Stock |      | Total |  | Income/ (Loss)
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |               
|Balance -
  January1, 2000                                   |  |                    | 16,261 |            |  | $        | 98  |               |  | $             | 1,240  |             |  | $     | (108 | )     |  |                | -    |   |  | $ | 2,159   |   |  |   | -    |  
|Cancellation of share
  options                              |  |                    | -      |            |  |          | -   |               |  |               | (7     | )           |  |       | 7    |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Amortization of share
  options                              |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | 32   |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Issuance of common shares,
  net                             |  |                    | 5,835  |            |  |          | 14  |               |  |               | 35,697 |             |  |       | -    |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Unrealized holding loss onmarketable securities              |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  | $              | (253 | ) |  |   | -       |   |  |   | -    |  
|Net income                                                   |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  |                | -    |   |  |   | 10,891  |   |  |   | -    |  
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |                |      |   |  |   |         |   |  |   | -    |  
|Comprehensive income                                         |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |                |      |   |  |   |         |   |  |   |      |  
|Balance -
  December31, 2000                                 |  |                    | 22,096 |            |  |          | 112 |               |  |               | 36,930 |             |  |       | (69  | )     |  |                | (253 | ) |  |   | 13,050  |   |  |   | -    |  
|Cancellation of share
  options                              |  |                    | -      |            |  |          | -   |               |  |               | (3     | )           |  |       | 3    |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Exercise of share options                                    |  |                    | 35     |            |  |          | -   |               |  |               | 46     |             |  |       | -    |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Grant of warrant                                             |  |                    | -      |            |  |          | -   |               |  |               | 324    |             |  |       | (324 | )     |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Amortization of share
  options                              |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | 228  |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Additional share issuance expense,net of tax benefits of $13 |  |                    | -      |            |  |          | -   |               |  |               | (101   | )           |  |       | -    |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Unrealized holding gain onmarketable securities              |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  |                | 381  |   |  |   | -       |   |  |   | -    |  
|Net loss                                                     |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  |                | -    |   |  |   | (3,711  | ) |  |   | -    |  
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |                |      |   |  |   |         |   |  |   | -    |  
|Comprehensive loss                                           |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |                |      |   |  |   |         |   |  |   | -    |  
|Purchase of 250 treasury
  shares                            |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  |                | -    |   |  |   | -       |   |  | $ | (592 | )
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |                |      |   |  |   |         |   |  |   |      |  
|Balance -
  December31, 2001                                 |  |                    | 22,131 |            |  |          | 112 |               |  |               | 37,196 |             |  |       | (162 | )     |  |                | 128  |   |  |   | 9,339   |   |  |   | (592 | )
|Exercise of share options                                    |  |                    | 7      |            |  |          | -   |               |  |               | 10     |             |  |       | -    |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Amortization of share
  options                              |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | 41   |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Issuance of common shares,
  net                             |  |                    | 5,927  |            |  |          | 13  |               |  |               | 6,060  |             |  |       | -    |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|Unrealized holding loss onmarketable securities              |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  |                | (136 | ) |  |   | -       |   |  |   | -    |  
|Net loss                                                     |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  |                | -    |   |  |   | (11,292 | ) |  |   | -    |  
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |                |      |   |  |   |         |   |  |   |      |  
|Comprehensive loss                                           |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  |                | -    |   |  |   | -       |   |  |   | -    |  
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |                |      |   |  |   |         |   |  |   |      |  
|Purchase of 762 treasury
  shares                            |  |                    | -      |            |  |          | -   |               |  |               | -      |             |  |       | -    |       |  |                | -    |   |  |   | -       |   |  |   | (401 | )
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |                |      |   |  |   |         |   |  |   |      |  
|Balance -
  December31, 2002                                 |  |                    | 28,065 |            |  | $        | 125 |               |  | $             | 43,266 |             |  | $     | (121 | )     |  | $              | (8   | ) |  | $ | (1,953  | ) |  | $ | (993 | )
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |                |      |   |  |   |         |   |  |   |      |  
|                                                             |  |                    |        |            |  |          |     |               |  |               |        |             |  |       |      |       |  |                |      |   |  |   |         |   |  |   |      |  

See notes to consolidated financial
statements

F-5

---

---

CAMTEK
LTD.

Consolidated
Statements of Cash Flows(in thousands)

|                                                       |                                                                      | Year
  Ended December 31,
|------------------------------------------------------ | -------------------------------------------------------------------- | -------------------------
|                                                       |                                                                      |                          
|                                                       |                                                                      | 2000                     
|                                                       |                                                                      |                          
|                                                       |                                                                      |                          
|Cash flows from operating
  activities:                |                                                                      |                          
|                                                       | Net income (loss)                                                    |                          
|                                                       | Adjustments to reconcile net income (loss) to net
  cash provided by |                          
|                                                       | (used in) operating activities:                                      |                          
|                                                       | Depreciation and amortization                                        |                          
|                                                       | Purchased research and development                                   |                          
|                                                       | Loss on disposal of fixed assets                                     |                          
|                                                       | Amortization of unearned compensation                                |                          
|                                                       | Changes in operating assets and liabilities, net of
  effects from   |                          
|                                                       | acquisition in 2001:                                                 |                          
|                                                       | Accounts receivable                                                  |                          
|                                                       | Inventories                                                          |                          
|                                                       | Due (from) to Priortech Ltd. and affiliates                          |                          
|                                                       | Other current assets                                                 |                          
|                                                       | Deferred taxes                                                       |                          
|                                                       | Accounts payable                                                     |                          
|                                                       | Other current liabilities                                            |                          
|                                                       | Accrued severance pay                                                |                          
|                                                       |                                                                      |                          
|                                                       |                                                                      |                          
|                                                       | Net cash provided by (used in) operating activities                  |                          
|                                                       |                                                                      |                          
|                                                       |                                                                      |                          
|Cash flows from investing
  activities:                |                                                                      |                          
|                                                       | Purchase of marketable securities                                    |                          
|                                                       | Redemption of marketable securities                                  |                          
|                                                       | Acquisition of subsidiary, net of $1,159 cash
  acquired             |                          
|                                                       | Construction of building and purchase of other fixed
  assets        |                          
|                                                       | Proceeds from disposal of fixed assets                               |                          
|                                                       |                                                                      |                          
|                                                       |                                                                      |                          
|                                                       | Net cash (used in) provided by investing activities                  |                          
|                                                       |                                                                      |                          
|                                                       |                                                                      |                          
|Cash flows from financing
  activities:                |                                                                      |                          
|                                                       | Proceeds from issuance of common shares, net                         |                          
|                                                       | Increase (decrease) in short-term bank credit                        |                          
|                                                       | Decrease in due to Priortech Ltd. and affiliates                     |                          
|                                                       | Exercise of share options                                            |                          
|                                                       | Payment of long-term loans                                           |                          
|                                                       | Purchase of treasury shares                                          |                          
|                                                       | Payments for registration costs of common shares                     |                          
|                                                       |                                                                      |                          
|                                                       |                                                                      |                          
|                                                       | Net cash provided by financing activities                            |                          
|                                                       |                                                                      |                          
|                                                       |                                                                      |                          
|Net increase (decrease) in cash and
  cash equivalents |                                                                      |                          
|Cash and cash equivalents at beginning of period       |                                                                      |                          
|                                                       |                                                                      |                          
|                                                       |                                                                      |                          
|Cash and cash equivalents at end of
  period           |                                                                      | $                        
|                                                       |                                                                      |                          
|                                                       |                                                                      |                          
|Supplemental disclosure of cash
  flow information:    |                                                                      |                          
|                                                       | Cash paid for interest                                               |                          
|                                                       |                                                                      |                          

See notes to consolidated financial
statements

F-6

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 1 - BUSINESS

Camtek Ltd. (Camtek),
an Israeli company, is a majority owned (75%) subsidiary of Priortech Ltd., an
Israeli company that is listed on the Tel-Aviv Stock Exchange.  Camtek designs, develops, manufactures and
markets intelligent optical inspection systems and related products for the
printed circuit board, semiconductor packaging and microelectronics industries
used to enhance yields and processes in these industries.  Camteks activities are conducted in one
reportable business segment.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

|(a) | Basis of preparation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The consolidated financial statements, which include
  the accounts of Camtek and its subsidiaries (collectively the Company), are
  prepared in accordance with accounting principles generally accepted in the
  United States of America.  All
  material intercompany balances and transactions have been eliminated.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(b) | Estimates:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The preparation of financial statements in
  conformity with accounting principles generally accepted in the United States
  of America requires management to make estimates and assumptions that affect
  the reported amounts of assets and liabilities and disclosure of contingent
  assets and liabilities at the date of the financial statements and the
  reported amounts of revenues and expenses during the reporting period.  Actual results may differ from those
  estimates.                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(c) | Foreign currency transactions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The functional currency of the Company is the U.S.
  dollar.  Substantially all revenues
  generated by the Company are from outside Israel and a majority thereof are
  received in U.S. dollars.  In
  addition, most salaries, materials and components purchased and marketing
  expenses incurred are either paid for in U.S. dollars or in New Israeli
  Shekels (NIS) where cost is linked to changes in the dollar/NIS exchange
  rate.  A significant portion of the
  Companys expenses are incurred in Israel and paid for in NIS.  Foreign currency gains included in
  financial and other income, net resulting from transactions not denominated
  in U.S. dollars amounted to $130, $187 and $112 in 2000, 2001 and 2002,
  respectively.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(d) | Cash equivalents:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | All highly liquid investments purchased with a
  maturity of three months or less are considered to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(e) | Marketable securities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Marketable securities consist of corporate bonds
  which have strong credit ratings and maturities greater than three months and
  up to 18 months at the time of purchase. 
  These securities, which are classified as available-for-sale, are
  carried at fair value, with unrealized gains and losses, net of any tax
  effect, reported in shareholders equity as accumulated other comprehensive
  income (loss).  Amortization of
  premiums and discounts are included in interest income and are not material.                                                                                                                                                                                                                                   

F-7

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

|(f) | Inventories:                                                                                                                                                                                 
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                              
|    | Inventories consist of completed AOI systems, AOI
  systems partially completed and components, and are recorded at the lower of
  cost, determined on a first-in first-out basis, or market.
|    |                                                                                                                                                                                              
|(g) | Fixed assets:                                                                                                                                                                                
|    |                                                                                                                                                                                              
|    | Fixed assets are stated at cost less accumulated
  depreciation and are depreciated over their estimated useful lives on a
  straight-line basis.                                            
|    |                                                                                                                                                                                              
|    | Annual rates of depreciation are as follows:                                                                                                                                                 

| | Building                       | 2%        | 
| | ------------------------------ | --------- | 
| | Machinery and equipment        | 10% - 33% | 
| | Office furniture and equipment | 6% - 20%  | 
| | Automobiles                    | 15%       | 

|(h) | Fair values of financial
  instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The carrying amounts for cash and cash equivalents,
  accounts receivable, accounts payable and accrued expenses and amounts due
  from affiliates approximate fair value because of the short-term duration of
  those items.  Marketable securities
  are carried at quoted market prices which represent fair value.  The carrying amounts of short-term bank
  credit and amounts due to or from Priortech Ltd. approximate fair value
  because the interest rates on such debt approximate the market rate.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(i) | Recognition of revenue:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company recognizes revenue from sales of its
  products upon acceptance by the customer which, in general, occurs no earlier
  than at the time the Company installs the AOI system at the customers
  premises.                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Service fees are recognized at the time the service
  is provided or over the life of the service contract on a straight-line
  basis.                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(j) | Warranty:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | Estimated warranty obligations are charged to
  operations in the period in which the related sale is recognized.  AOI systems are generally sold with a
  twelve month warranty.                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|(k) | Income taxes:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company uses the liability method of accounting
  for income taxes.  Deferred taxes,
  which may arise as a result of temporary differences between the reported
  amount of an asset or a liability in the balance sheet and its tax basis, are
  recognized at their statutory rate.  A
  valuation allowance may reduce any resulting deferred tax asset to the amount
  that is more likely than not to be realized.                                                                                     

F-8

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

|(l) | Research and development:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Research and development costs are expensed as
  incurred.  Grants received from the
  Government of Israel through the Ministry of Industry and Trade, Office of
  the Chief Scientist (the Chief Scientist), for approved research and
  development programs are recognized upon the later of the time the costs
  related to a particular project are incurred and the time such project
  receives approval from the Chief Scientist. 
  See Note3 for accounting for acquired in-process research and
  development.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(m) | Long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Long-lived assets are reviewed for impairment
  whenever events or changes in circumstances indicate that the carrying amount
  of the asset may not be recoverable. 
  If an evaluation is required, the estimated future undiscounted cash
  flows associated with the asset would be compared to the assets carrying
  amount to determine if a writedown to market value or discounted cash flow
  value is required.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(n) | Earnings (loss) per ordinary share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Basic earnings (loss) per share are calculated
  utilizing only weighted average ordinary shares outstanding.  Diluted earnings per share for the year
  ended December31, 2000 gives effect to dilutive potential ordinary
  shares outstanding during the year. 
  Such dilutive shares consist of incremental shares, utilizing the
  treasury stock method, from assumed exercise of share options.  The effect of the exercise of outstanding
  stock options and warrants would be anti-dilutive for the years ended
  December31, 2001 and 2002 and have not been included in computing
  dilutive loss per ordinary share. 
  Potentially dilutive options and warrants to purchase an aggregate of
  1,719,204 and 1,285,160 common shares were outstanding at December31,
  2001 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(o) | Comprehensive income (loss):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The changes in shareholders equity from all sources
  during the year other than those resulting from investments by shareholders
  are shown as comprehensive income (loss) in the consolidated statements of
  changes in shareholders equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|(p) | Stock-based compensation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | At December31, 2002, the Company had four
  stock-based employees compensation plans which are described more fully in Note
  12(c).  The Company accounts for these
  plans under the recognition and measurement principles of Accounting
  Principles Board Opinion No. 25 (APB 5) and related interpretations and,
  accordingly, recognizes compensation expense for the difference between the
  quoted market price of the underlying ordinary shares and the exercise price
  of the option at the date of grant. 
  Statement of Financial Accounting Standards No. 123, Accounting for
  Stock-Based Compensation (SFAS 123), issued in October 1995, requires the
  use of the fair value based method of accounting for stock options.  Under this method, compensation cost is
  measured at the grant date based on the fair value of the options granted and
  is recognized over the vesting period. 
  SFAS 123, however, allows the Company to continue to measure the
  compensation cost of employees in accordance with APB 25, but requires the
  Company to disclose pro forma information regarding net income (loss) and per
  share data determined as if the Company had accounted for its employee share
  options under the fair value method of that statement.

F-9

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES  (CONTINUED)

|(p) | Stock-based compensation:  (continued)                                                                                                                          
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                 
|    | The following table illustrates the effect on net
  income (loss) and earnings (loss) per share if the fair value based method
  had been applied to all awards.

| |                                                    |                                                               | Year
  Ended December31,
| | -------------------------------------------------- | ------------------------------------------------------------- | ------------------------
| |                                                    |                                                               |                         
| |                                                    |                                                               | 2000                    
| |                                                    |                                                               |                         
| |                                                    |                                                               |                         
| | Net income (loss), as reported                     |                                                               | $                       
| | Stock-based employee compensation expense included |                                                               |                         
| |                                                    | in reported net increase (loss), net of related tax
  effects |                         
| | Stock-based employee compensation determined under |                                                               |                         
| |                                                    | the fair value based method, net of related tax
  effects     |                         
| |                                                    |                                                               |                         
| |                                                    |                                                               |                         
| |                                                    |                                                               |                         
| | Pro forma net income (loss)                        |                                                               |                         
| |                                                    |                                                               |                         
| | Earnings (loss) per share:                         |                                                               |                         
| |                                                    | Basic - as reported                                           |                         
| |                                                    |                                                               |                         
| |                                                    | Basic - pro forma                                             |                         
| |                                                    |                                                               |                         
| |                                                    | Diluted - as reported                                         |                         
| |                                                    |                                                               |                         
| |                                                    | Diluted - pro forma                                           |                         
| |                                                    |                                                               |                         

| | The weighed average fair value of the options
  granted during 2000, 2001 and 2002 in applying the fair value method was
  estimated at $4.83, $2.91 and $2.32, respectively, using the Black-Scholes
  pricing model with the following assumptions:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                         |  | 2000
  Grant  |  | 2001
  Grant  |  | 2002
  Grant |  |  |  | 
| | ----------------------- |  | ------------- |  | ------------- |  | ------------ |  |  |  | 
| |                         |  |               |  |               |  |              |  |  |  | 
| |                         |  |               |  |               |  |              |  |  |  | 
| | Dividend yield          |  | 0             |  | 0             |  | 0            |  |  |  | 
| | Volatility              |  | 93%           |  | 83%           |  | 91%          |  |  |  | 
| | Risk-free interest rate |  | 5.71% - 6.54% |  | 3.90% - 4.86% |  | 4.74%        |  |  |  | 
| | Expected life           |  | 4             |  | 4             |  | 4            |  |  |  | 

NOTE 3 - ACQUISITION OFINSPECTECH LTD.

In
September 2001, the Company acquired all of the outstanding shares of
Inspectech Ltd. (Inspectech) for $2,350 in cash, including $100 in legal and
other acquisition costs.  The results of
operations of Inspectech have been included in the consolidated financial
statements since that date.  Inspectech,
which was merged into Camtek in December 2001, is an Israel-based developer and
producer of products for the inspection of wafers to serve the microelectronics
industry.  The acquisition allows the
Company to develop a new line of inspection systems which are complimentary to
its existing product lines.

F-10

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 3 - ACQUISITION OFINSPECTECH LTD.  (CONTINUED)

The
following summarizes the fair values of the assets acquired and the liabilities
assumed at the date of acquisition:

| | Cash                                                 |  | $ | 1,159 |  |  |  | 
| | ---------------------------------------------------- |  | - | ----- |  |  |  | 
| | Inventory                                            |  |   | 1,053 |  |  |  | 
| | Fixed assets                                         |  |   | 684   |  |  |  | 
| | In-process research and
  development                |  |   | 3,634 |  |  |  | 
| |                                                      |  |   |       |  |  |  | 
| |                                                      |  |   |       |  |  |  | 
| | Total assets acquired                                |  |   | 6,530 |  |  |  | 
| |                                                      |  |   |       |  |  |  | 
| |                                                      |  |   |       |  |  |  | 
| | Current liabilities, including
  loan payable of $55 |  |   | 3,002 |  |  |  | 
| | Loans payable, non-current                           |  |   | 1,085 |  |  |  | 
| | Accrued severance pay                                |  |   | 93    |  |  |  | 
| |                                                      |  |   |       |  |  |  | 
| |                                                      |  |   |       |  |  |  | 
| | Total liabilities assumed                            |  |   | 4,180 |  |  |  | 
| |                                                      |  |   |       |  |  |  | 
| |                                                      |  |   |       |  |  |  | 
| | Net assets acquired                                  |  | $ | 2,350 |  |  |  | 
| |                                                      |  |   |       |  |  |  | 

The value assigned to in-process research and
development was determined pursuant to a third-party valuation.  Such amount was written off at the date of
acquisition because technological feasibility had not been established and no
future alternative uses existed.

The
following unaudited pro forma summary presents the consolidated results of operations
of the Company as if the above acquisition had occurred at the beginning of the
2000 year.  The results of operations in
both years excludes the amounts assigned to research and development assets
that were written off at the date of acquisition.

| |                                   |  | Year Ended December 31, |       
| | --------------------------------- |  | ----------------------- | ------
| |                                   |  |                         |       
| |                                   |  | 2000                    |       
| |                                   |  |                         |       
| |                                   |  |                         |       
| | Revenue                           |  | $                       | 55,439
| | Operating income (loss)           |  |                         | 9,513 
| | Net income (loss)                 |  |                         | 8,614 
| | Basic income (loss) per share     |  |                         | 0.46  
| | Diluted income (loss) per
  share |  |                         | 0.45  

The Company granted a warrant to acquire 104,374
ordinary shares at an exercise price of $.01 to Inspectechs principal owner
who continues to be employed by the Company. 
The Company recorded unearned compensation of $324 related to the
grant.  The warrant vests 50% on date of
grant, 25% on the third anniversary of employment and 25% after the fourth
anniversary of employment.  Accordingly,
based on the percentage vested, the Company amortized $162 and $41 of unearned
compensation for the years ended December31, 2001 and 2002, respectively,
which is included in selling, general and administrative expenses in the
accompanying consolidated statements of operations.

F-11

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 4 - INVENTORIES

| |                                                                               |  | December
  31, |       
| | ----------------------------------------------------------------------------- |  | -------------- | ------
| |                                                                               |  |                |       
| |                                                                               |  | 2001           |       
| |                                                                               |  |                |       
| |                                                                               |  |                |       
| | Components                                                                    |  | $              | 4,530 
| | Systems partially completed                                                   |  |                | 2,113 
| | Completed systems, including systems not yet
  purchasedat customer locations |  |                | 5,396 
| |                                                                               |  |                |       
| |                                                                               |  |                |       
| |                                                                               |  | $              | 12,039
| |                                                                               |  |                |       

NOTE 5 - OTHER CURRENT ASSETS

| |                                                          |  | December
  31, |      
| | -------------------------------------------------------- |  | -------------- | -----
| |                                                          |  |                |      
| |                                                          |  | 2001           |      
| |                                                          |  |                |      
| |                                                          |  |                |      
| | Due from Government of Israel departments and
  agencies |  | $              | 1,311
| | Due from employees                                       |  |                | 150  
| | Income receivable                                        |  |                | 146  
| | Deferred taxes                                           |  |                | 244  
| | Other                                                    |  |                | 704  
| |                                                          |  |                |      
| |                                                          |  |                |      
| |                                                          |  | $              | 2,555
| |                                                          |  |                |      

NOTE 6 - FIXED ASSETS

| |                                |  | December
  31, |       
| | ------------------------------ |  | -------------- | ------
| |                                |  |                |       
| |                                |  | 2001           |       
| |                                |  |                |       
| |                                |  |                |       
| | Land                           |  | $              | 624   
| | Building                       |  |                | 7,556 
| | Machinery and equipment        |  |                | 2,557 
| | Office furniture and equipment |  |                | 1,600 
| | Automobiles                    |  |                | 490   
| |                                |  |                |       
| |                                |  |                |       
| |                                |  |                | 12,827
| | Less accumulated depreciation  |  |                | 1,602 
| |                                |  |                |       
| |                                |  |                |       
| |                                |  | $              | 11,225
| |                                |  |                |       

In September 1998, the Company entered into a lease
for a building in Israel to be built by the lessor and also acquired an option
to purchase the building and underlying land from the lessor.  The lease payments and the option price
equal the cost of constructing the building, plus financing costs and $595 for
the land.  If the option is exercised,
the option price is reduced for any payments made under the lease.  The lease is for a term of 23 years and 8
months and commenced upon completion of construction in October 2001.  The Company has until September 2003 to
exercise the option and intends to exercise the option.  As the Company provided construction
financing, it is being treated as the owner of the land and building.

Depreciation and
amortization expense related to fixed assets totaled $522, $618, and $800 for
the years ended December31, 2000, 2001 and 2002, respectively.

F-12

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 7 - SHORT-TERM BANK CREDIT

| |                                                             |  | December
  31, |      
| | ----------------------------------------------------------- |  | -------------- | -----
| |                                                             |  |                |      
| |                                                             |  | 2001           |      
| |                                                             |  |                |      
| |                                                             |  |                |      
| | Revolving bank loan denominated in Euro, interest at
  4.5% |  | $              | 1,770
| | Loan payable denominated in NIS, interest at 4.4%           |  |                | 2,717
| | Other                                                       |  |                | 329  
| |                                                             |  |                |      
| |                                                             |  |                |      
| |                                                             |  | $              | 4,816
| |                                                             |  |                |      

Borrowings under the bank loans are collateralized by
all of the assets of the Company.

NOTE 8 - OTHER CURRENT LIABILITIES

| |                                                                            |  | December
  31, |      
| | -------------------------------------------------------------------------- |  | -------------- | -----
| |                                                                            |  |                |      
| |                                                                            |  | 2001           |      
| |                                                                            |  |                |      
| |                                                                            |  |                |      
| | Accrued compensation and related benefits                                  |  | $              | 2,027
| | Government of Israel departments and agencies(substantially for royalties) |  |                | 715  
| | Accrued warranty costs                                                     |  |                | 942  
| | Commissions                                                                |  |                | 1,285
| | Advances from customers and deferred revenues                              |  |                | 338  
| | Other                                                                      |  |                | 777  
| |                                                                            |  |                |      
| |                                                                            |  |                |      
| |                                                                            |  | $              | 6,084
| |                                                                            |  |                |      

NOTE 9 - SEVERANCE PAY

Israeli law requires
payment of severance pay in certain circumstances.  The Companys severance pay liability to its Israeli employees,
based upon the number of years of service and the latest monthly salary, is
partly covered by regular deposits with severance pay funds, recognized pension
funds and by purchase of managers insurance policies.

The amounts accrued and
the portions funded with severance pay funds and by purchase of insurance
policies are composed as follows:

| |                       |  | December
  31, |    
| | --------------------- |  | -------------- | ---
| |                       |  |                |    
| |                       |  | 2001           |    
| |                       |  |                |    
| |                       |  |                |    
| | Accrued severance pay |  | $              | 471
| | Less amounts funded   |  |                | 164
| |                       |  |                |    
| |                       |  |                |    
| | Unfunded balance      |  | $              | 307
| |                       |  |                |    

The Company may only make withdrawals from the funds
for the purpose of paying severance pay.

F-13

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 9 - SEVERANCE PAY  (CONTINUED)

The severance pay
liabilities covered by the pension funds are not reflected in the above
amounts, as the severance pay liabilities have been irrevocably transferred to
the pension funds.

Severance pay expense was
$353, $720 and $578 in 2000, 2001 and 2002, respectively.

NOTE 10 - COMMITMENTS, CONTINGENT LIABILITY ANDOTHER

|(a) | Royalties:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Company is committed to pay royalties to the
  Government of Israel on sales of products and service fees in which the
  Government participates by way of research and development grants, up to the
  amount of the grants received for certain projects.  According to an agreement entered into in 2001 with the Office
  of the Chief Scientist, Camteks royalty payments are based on 4.5% of
  revenues and will not exceed $250 per quarter.  The maximum royalty payable by the Company on future revenues,
  including royalties related to grants received by Inspectech prior to
  acquisition, approximates $130 at December31, 2002.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Royalty expense totaled $2,391, $1,000 and $1,000 in
  2000, 2001 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(b) | Operating leases:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | The Companys subsidiaries have entered into various
  operating lease agreements, principally for office space.  As of December31, 2002, minimum
  future rental payments under these leases amount to $954.  In October 2000, the Company entered into
  an operating lease for vehicles for a period of 44 months.  As of December31, 2002, the minimum
  future rental payments are approximately $535.                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | At December31, 2002, minimum future rental
  payments under such noncancelable operating leases are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| | Year
  Ending
  December 31, |  |   |       |  | 
| | ---------------------------- |  | - | ----- |  | 
| |                              |  |   |       |  | 
| |                              |  |   |       |  | 
| | 2003                         |  | $ | 710   |  | 
| | 2004                         |  |   | 602   |  | 
| | 2005                         |  |   | 115   |  | 
| | 2006                         |  |   | 41    |  | 
| | 2007                         |  |   | 21    |  | 
| |                              |  |   |       |  | 
| |                              |  |   |       |  | 
| |                              |  | $ | 1,489 |  | 
| |                              |  |   |       |  | 

|    | Aggregate rent expense amounted to $317, $451 and
  $414 in 2000, 2001 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(c) | Patent infringement allegation:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | On July21, 1998, the Company received a letter
  from Orbotech Ltd., a principal competitor, alleging, among other things,
  infringement of an Israeli patent and unjust enrichment due to
  misappropriation of confidential information by the Company with respect to
  certain technologies used in the manufacture and design of certain of the
  Companys products.  Management
  believes that Orbotech Ltd.s allegations are without merit; nevertheless, a
  final judicial decision adverse to the Company with respect to these
  allegations could have a material adverse effect on the Companys business,
  financial condition and results of operations.  Any litigation could involve substantial expenditures by the
  Company and diversion of managements attention.

F-14

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 10 - COMMITMENTS, CONTINGENT LIABILITY ANDOTHER  (CONTINUED)

|(d) | Valuation and qualifying accounts:                                                                                                  
|--- | ------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                     
|    | The following is a summary of the allowance for
  doubtful accounts related to accounts receivable for the years ended
  December31:

| |      |  | Balance
  at
  Beginning of
  Period |        | Charged
  Costs and
  Expenses |  | Deductions |        | Balance at
  End of
  Period | 
| | ---- |  | ------------------------------------ | ------ | ------------------------------ |  | ---------- | ------ | ---------------------------- | 
| |      |  |                                      |        |                                |  |            |        |                              | 
| |      |  |                                      |        |                                |  |            |        |                              | 
| | 2000 |  | $                                    | (551   | )                              |  | $          | (226   | )                            | 
| | 2001 |  | $                                    | (655   | )                              |  | $          | (716   | )                            | 
| | 2002 |  | $                                    | (1,135 | )                              |  | $          | (1,568 | )                            | 

NOTE 11 - CONCENTRATION OFRISK

During the years ended
December31, 2000, 2001 and 2002, no customer accounted for 10% or more of
the Companys revenue.

At December31,
2001, accounts receivable from one customer approximated $1,853. At
December31, 2002, accounts receivable from one customer approximated
$2,217.

NOTE 12 - SHAREHOLDERS EQUITY

|(a) | Initial public offering:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | In February2000, the Company changed its
  designation of ordinary A shares to ordinary shares.  In July2000, the Board of Directors
  approved a 2 for 1 ordinary share split. 
  Shares and per share amounts in the accompanying 2000 consolidated
  financial statements give retroactive effect to the split.                                                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | In July 2000, the Company sold 5,835,000 shares of
  its common stock in an initial public offering (IPO).  In connection therewith, the Company
  received proceeds of $34,957, net of offering costs of $5,875 including $114
  recorded in 2001.  In addition, $653
  of tax benefits, including $13 recorded in 2001, related to the offering
  costs have been credited to additional paid-in capital.                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(b) | Issuance of rights:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    | On August 8, 2002 the Company offered to existing
  shareholders rights to purchase a total of 8,571,429 ordinary shares. Each
  shareholder was able to subscribe for rights to purchase one ordinary share
  for each 2.5536 ordinary shares held of record by that holder. The exercise
  price of the right was $1.05 per share. 
  Upon exercise of the rights, the Company issued 5,926,730 new shares
  for $6,073, net of $150 of offering costs. 
  Such shares were principally purchased by Priortech Ltd., which
  increased its ownership interest in the Company from 68% to 75%.

F-15

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands except per share information)

NOTE 12 - SHAREHOLDERSEQUITY  (CONTINUED)

|(c) | Share options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | In September1997, the Companys Board of
  Directors adopted three share option plans for key employees, one of which
  covers employees in Israel and the others cover employees in the United
  States, Europe and Asia.  Options
  granted under those plans are vested up to 50% after two years of continued
  employment with an additional 25% vesting after each of years three and four,
  unless otherwise determined by the Board of Directors.  Vested options are exercisable for two
  years beginning on the later of July28, 2000, the date the Companys
  shares began trading on NASDAQ or the date of vesting.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | In November 2000, the Board of Directors adopted a
  fourth option plan.  Options granted
  under the plan for officers and directors are vested up to 25% after one year
  and the remaining 75% are proportionally vested on a monthly basis during the
  following three-year period, unless otherwise determined by the Board of
  Directors.  Vested options are exercisable
  for five years.                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | During 2001, the Board of Directors increased by
  700,000 the shares issuable upon exercise of options under the share option
  plan.  As of December31, 2002,
  options to purchase an aggregate of 2,173,128 ordinary shares may be granted
  under these plans, of which 1,327,466 options have been granted through
  December31, 2002.  The exercise
  price of options granted during 2000, 2001 and 2002 was at or above the
  estimated fair value or, after the Companys IPO, quoted market price of the
  Companys common stock at the date of grant.                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | In August 2000, the Company granted an aggregate of
  200,000 share options to two executive officers of the Company at an exercise
  price equal to the quoted market price on the date of grant.  These options were granted outside the
  above mentioned plans.                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Share option activity during the years is as
  follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| |                                                                                           |  | Year
  Ended December31,
| | ----------------------------------------------------------------------------------------- |  | ------------------------
| |                                                                                           |  |                         
| |                                                                                           |  | 2000                    
| |                                                                                           |  |                         
| |                                                                                           |  | Number
  of
  Shares    
| |                                                                                           |  |                         
| |                                                                                           |  |                         
| | Outstanding at January 1                                                                  |  |                         
| | Granted                                                                                   |  |                         
| | Cancelled                                                                                 |  |                         
| | Exercised                                                                                 |  |                         
| |                                                                                           |  |                         
| | Outstanding at year end                                                                   |  |                         
| |                                                                                           |  |                         
| | Exercisable at year end                                                                   |  |                         
| |                                                                                           |  |                         
| |                                                                                          
| | *Includes warrant for 104,374 common shares
  exercisable at $.01 per share (see Note 3).

F-16

---

---

CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands except per share information)

NOTE 12 - SHAREHOLDERSEQUITY  (CONTINUED)

|(c) | Share options:  (continued)                                                          
|--- | -------------------------------------------------------------------------------------
|    |                                                                                      
|    | The following table summarizes information about
  stock options at December31, 2002:

| | Range
  of
  Exercise Price |  | Number
  Outstanding |           | Weighted
  Average
  Remaining
  Contractual
  Life
  in Years |  | Weighted
  Average
  Exercise
  Price |      | Number
  Exercisable |  | Weighted
  Average
  Exercise
  Price |     
| | --------------------------- |  | -------------------- | --------- | -------------------------------------------------------------- |  | ------------------------------------- | ---- | -------------------- |  | ------------------------------------- | ----
| |                             |  |                      |           |                                                                |  |                                       |      |                      |  |                                       |     
| |                             |  |                      |           |                                                                |  |                                       |      |                      |  |                                       |     
| | $0.01                       |  |                      | 83,137    |                                                                |  |                                       | 0.53 |                      |  | $                                     | 0.01
| | $1.33                       |  |                      | 63,023    |                                                                |  |                                       | 1.39 |                      |  | $                                     | 1.33
| | $2.66 to $3.29              |  |                      | 564,012   |                                                                |  |                                       | 2.92 |                      |  | $                                     | 3.07
| | $5.97 to $8.00              |  |                      | 574,988   |                                                                |  |                                       | 2.04 |                      |  | $                                     | 7.16
| |                             |  |                      |           |                                                                |  |                                       |      |                      |  |                                       |     
| |                             |  |                      |           |                                                                |  |                                       |      |                      |  |                                       |     
| |                             |  |                      | 1,285,160 |                                                                |  |                                       |      |                      |  | $                                     | 4.62
| |                             |  |                      |           |                                                                |  |                                       |      |                      |  |                                       |     

|(d) | Treasury stock:                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | On September17, 2001, the Company announced
  that the Board of Directors authorized a share repurchase program to acquire
  up to $3,000 of the Companys ordinary shares from time to time in open
  market transactions.  During September
  2001, the Company purchased 250,000 ordinary shares at a cost of $592 and
  during 2002 the company purchased 761,619 ordinary shares at a total cost of
  $401 in connection with such program.

NOTE 13 - MONETARY BALANCES INNONDOLLAR CURRENCIES

| |                       |  | December31,           
| | --------------------- |  | ----------------------
| |                       |  |                       
| |                       |  | 2001                  
| |                       |  |                       
| |                       |  | Israeli
  Currency (a)
| |                       |  |                       
| |                       |  | Unlinked              
| |                       |  |                       
| |                       |  |                       
| | Assets - current      |  | $                     
| | Liabilities - current |  |                       

|(a) | The above does not include balances in Israeli currency
  linked to the dollar.
|--- | -------------------------------------------------------------------------------
|(b) | To the Israeli CPI.                                                            

F-17

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CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 14 - GEOGRAPHIC INFORMATION

Substantially all fixed
assets are located in Israel and substantially all revenues are derived from
shipments to other countries.  Revenues
are attributable to geographic areas/countries based upon the destination of
shipment of product as follows:

| |                   |  | Year
  Ended December 31, |       
| | ----------------- |  | ------------------------- | ------
| |                   |  |                           |       
| |                   |  | 2000                      |       
| |                   |  |                           |       
| |                   |  |                           |       
| | United States     |  | $                         | 10,940
| | Europe            |  |                           | 8,788 
| | Japan             |  |                           | 4,791 
| | Taiwan            |  |                           | 6,372 
| | China             |  |                           | 9,589 
| | Korea             |  |                           | 5,045 
| | Singapore         |  |                           | 3,718 
| | Canada            |  |                           | 2,416 
| | Other Asia        |  |                           | 540   
| | Rest of the world |  |                           | 926   
| |                   |  |                           |       
| |                   |  |                           |       
| |                   |  | $                         | 53,125
| |                   |  |                           |       

NOTE 15 - SELECTED INCOME STATEMENT DATA

|(a) | Selling, general and administrative expenses:
|--- | ---------------------------------------------

| |                            |  | Year
  Ended December 31, |       
| | -------------------------- |  | ------------------------- | ------
| |                            |  |                           |       
| |                            |  | 2000                      |       
| |                            |  |                           |       
| |                            |  |                           |       
| | Selling                    |  | $                         | 9,982 
| | General and administrative |  |                           | 2,328 
| |                            |  |                           |       
| |                            |  |                           |       
| |                            |  | $                         | 12,310
| |                            |  |                           |       

|(b) | Financial and other income
  (expense), net:                                                                                                                                                                                                                                                                                                                
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                             
|    | Financial and other income (expense), net includes
  interest income of $896 (2000), $1,784 (2001) and $529 (2002) and interest
  expense of $816 (2000), $365 (2001) and $340 (2002).                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                             
|(c) | Restructuring expenses:                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                             
|    | Restructuring expenses in 2001 consist principally
  of payments aggregating $314 to terminated employees resulting from
  implementation of a plan to reduce costs due to a reduction in sales and
  expenses of $146 related to a leased facility vacated by the Company in
  connection with relocating its operations to its newly constructed facility.

F-18

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CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 16 - TAXES ON INCOME

|(a) | Tax benefits under the Law for
  Encouragement of Capital Investments, 1959:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The Companys production facilities have been
  granted approved enterprise status under the above law.  The Company participates in the
  Alternative Benefits Program and, accordingly, income from its approved
  enterprises will be tax exempt for a period of 10 years (limited to 12 years
  from commencement of production or 14 years from the date of approval,
  whichever is earlier), commencing in the first year in which the approved
  enterprise first generates taxable income due to the fact that the Company
  operates in ZoneA in Israel.                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The period of benefits relating to the recent approved
  enterprise production facilities will expire in 2008.  The tax benefits with regard to the first
  approved enterprise production facilities expired on December31,
  1999.  In the event of distribution of
  cash dividends from tax-exempt income, the Company would have to pay the 25%
  tax in respect of the amount distributed (the amount distributed for this
  purpose includes the amount of the Companys tax that applies as a result of
  the distribution).  The Company has
  decided to reinvest the amount of the tax-exempt income, and not to
  distribute such income as cash dividends. 
  Accordingly, no deferred income tax has been provided with respect to
  the tax-exempt income.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Undistributed taxable earnings in Israel, for which
  taxes have not been provided, aggregated $16,670 at December31,
  2002.  The amount of tax that would be
  owed if such amounts were distributed would be approximately $4,200 at
  December31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The entitlement to the above benefits is conditional
  upon the Companys fulfilling the conditions stipulated by the above law,
  regulations published thereunder and the certificate 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, with the addition of linkage
  differences to the Israeli CPI and interest.                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(b) | Measurement of results for tax
  purposes under the Income Tax (Inflationary Adjustments) Law, 1985 (the
  Inflationary Adjustments Law):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Under this law, results for tax purposes are
  measured on a real basis - adjusted to the increase in the Israeli CPI.  These financial statements are presented
  in dollars.  The difference between
  the change in the Israeli CPI and in the exchange rate of the dollar, both on
  annual and cumulative bases, will cause a difference between taxable income
  and income reflected in these financial statements.                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(c) | Tax benefits under the Law for the
  Encouragement of Industry (Taxes), 1969:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | The Company is an industrial company as defined by
  this law and as such is entitled to certain tax benefits, mainly accelerated
  depreciation as prescribed by regulations published under the Inflationary
  Adjustments Law and the right to claim public issuance expenses as a
  deduction for tax purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(d) | Loss of non-Israeli subsidiaries:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    | Non-Israeli subsidiaries are taxed according to tax
  laws in their countries of residence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-19

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CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 16 - TAXES ONINCOME  (CONTINUED)

|(e) | Taxes on income included in the
  income statements:                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                  
|    | The following is a reconciliation of the theoretical
  tax expense (benefit), assuming all income is taxed at the regular tax rate
  applicable to Israeli companies, and the actual tax expense:

| |                                                                  |                                                                                                                                                                    | Year
  Ended December 31,
| | ---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------
| |                                                                  |                                                                                                                                                                    |                          
| |                                                                  |                                                                                                                                                                    | 2000                     
| |                                                                  |                                                                                                                                                                    |                          
| |                                                                  |                                                                                                                                                                    |                          
| | Income (loss) before income taxes (a)                            |                                                                                                                                                                    | $                        
| |                                                                  |                                                                                                                                                                    |                          
| |                                                                  |                                                                                                                                                                    |                          
| | Theoretical tax provision (benefit) on the above
  amount at 36% |                                                                                                                                                                    | $                        
| |                                                                  |                                                                                                                                                                    |                          
| | Tax benefits arising from approved enterprises                 |                                                                                                                                                                    |                          
| |                                                                  |                                                                                                                                                                    |                          
| |                                                                  |                                                                                                                                                                    |                          
| |                                                                  |                                                                                                                                                                    |                          
| | Increase (decrease) in taxes resulting from:                     |                                                                                                                                                                    |                          
| |                                                                  | Losses of for which no tax benefit hasbeen recognized                                                                                                              |                          
| |                                                                  | Permanent differences, including difference betweenIsraeli CPI-adjusted tax returns and dollar-adjusted
  financialstatements - net                                |                          
| |                                                                  | Other                                                                                                                                                              |                          
| |                                                                  | Acquired in-process research and development
  expense,not deductible for tax purposes                                                                             |                          
| |                                                                  | Nondeductible expenses                                                                                                                                             |                          
| |                                                                  | Interest income not subject to tax                                                                                                                                 |                          
| |                                                                  | Increase in valuation allowance related to deferred
  tax assetbalance at beginning of year                                                                        |                          
| |                                                                  | Decrease in taxes resulting from utilization of
  carryforward taxlosses in the United States for which deferred tax
  benefitswere not provided in previous years |                          
| |                                                                  |                                                                                                                                                                    |                          
| |                                                                  |                                                                                                                                                                    |                          
| | Actual tax expense (benefit)                                     |                                                                                                                                                                    | $                        
| |                                                                  |                                                                                                                                                                    |                          
| | (a) Consists of income (loss) as follows:                        |                                                                                                                                                                    |                          
| |                                                                  | Israel                                                                                                                                                             |                          
| |                                                                  | Outside of Israel                                                                                                                                                  |                          
| |                                                                  |                                                                                                                                                                    |                          
| |                                                                  |                                                                                                                                                                    |                          
| |                                                                  |                                                                                                                                                                    | $                        
| |                                                                  |                                                                                                                                                                    |                          
| |                                                                  |                                                                                                                                                                    |                          
| | Per share effect of tax benefits from approved
  enterprises:  |                                                                                                                                                                    |                          
| |                                                                  | Basic                                                                                                                                                              |                          
| |                                                                  | Diluted                                                                                                                                                            |                          
| |                                                                  |                                                                                                                                                                    |                          

F-20

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CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002(Dollars in thousands)

NOTE 16 - TAXES ON INCOME  (CONTINUED)

|(e) | Taxes on income included in the income
  statements:  (continued)
|--- | -----------------------------------------------------------------
|    |                                                                  
|    | Deferred tax assets consist of the following at
  December31:    

| |            |                                              | 2001 |       | 2002   |  
| | ---------- | -------------------------------------------- | ---- | ----- | ------ | -
| |            |                                              |      |       |        |  
| | Current:   |                                              |      |       |        |  
| |            | Provision for doubtful accounts              |      | $     | 240    |  
| |            | Accrued warranty                             |      |       | 161    |  
| |            | Unearned revenue                             |      |       | 158    |  
| |            | Net operating losses carryforwards           |      |       | 2,106  |  
| |            | Accrued vacation                             |      |       | 45     |  
| |            |                                              |      |       |        |  
| |            |                                              |      |       |        |  
| |            |                                              |      | 2,710 |        |  
| |            | Valuation allowance                          |      |       | (2,466 | )
| |            |                                              |      |       |        |  
| |            |                                              |      |       |        |  
| |            | Current deferred tax asset, net of allowance |      |       | 244    |  
| |            |                                              |      |       |        |  
| | Long-term: |                                              |      |       |        |  
| |            | Offering costs                               |      |       | 256    |  
| |            | Other                                        |      |       | 50     |  
| |            |                                              |      |       |        |  
| |            |                                              |      |       |        |  
| |            |                                              |      | 306   |        |  
| |            | Valuation allowance                          |      |       | -      |  
| |            |                                              |      |       |        |  
| |            |                                              |      |       |        |  
| |            |                                              |      | 306   |        |  
| |            |                                              |      |       |        |  
| |            |                                              |      |       |        |  
| |            |                                              | $    | 550   |        |  
| |            |                                              |      |       |        |  

| | During 2002, as a result of losses accrued, the
  Company has increased the valuation allowance to fully offset the deferred
  tax assets.  The valuation allowance
  decreased by $120 in 2000, increased by $1,554 in 2001 and increased
  by$3,376 in 2002.                                                                                                                                                                                                                       
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | As of December31, 2002, the Company has net
  operating loss (NOL) carryovers for Israeli tax purposes of approximately
  $17,600, which is available, subject to
  annual limitations.  Such NOL has no
  expiration date.  In addition, foreign
  subsidiaries have NOL carryovers aggregating approximately $6,700, of which
  approximately $2,700 expires from 2004 to 2007, approximately $2,200 expires
  from 2021 to 2022 and approximately $1,800 has no expiration date.

NOTE 17 - TRANSACTIONS WITH RELATED PARTIES

| |                                                              |  | Year
  Ended December 31,
| | ------------------------------------------------------------ |  | -------------------------
| |                                                              |  |                          
| |                                                              |  | 2000                     
| |                                                              |  |                          
| |                                                              |  |                          
| | Rent expense to Priortech Ltd. (Note 10(b))                  |  | $                        
| | Purchases from Priortech Ltd.                                |  |                          
| | Interest expense to Priortech Ltd.                           |  |                          
| | Participation of Priortech Ltd. in expenses of the
  Company |  |                          
| | Sales to Priortech Ltd.                                      |  |                          

F-21

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CAMTEK LTD.

Notes to Consolidated Financial Statements
December 31, 2001 and 2002
(Dollars in thousands)

NOTE 17 - TRANSACTIONS WITH RELATED PARTIES  (CONTINUED)

On January1, 1998,
the Company and Priortech Ltd. entered into a Management Services Agreement
under which the Company provides to Priortech Ltd. management services of Rafi
Amit and Yotam Stern, Chief Executive Officer and Executive Vice President,
Business and Strategy and former Chief Financial Officer of the Company,
respectively.  Priortech shall pay
monthly to the Company a portion of compensation costs with respect to Mr.
Amits and Mr. Sterns employment, which portion shall be calculated on the
basis of the actual amount of time spent in rendering such services in relation
to the Companys total monthly compensation costs with respect to Mr. Amits
and Mr. Sterns employment.  Effective
January 2001, the Management Services Agreement was terminated and Priortech
Ltd. employs these individuals in a part time position.

On January1, 1998, the Company entered into a loan agreement with
Priortech Ltd. with respect to the repayment of loans granted to the Company,
beginning in 1995.  On December31,
1998, amounts previously owed to affiliates were assumed by Priortech Ltd. and
were also to be repaid pursuant to the terms of the loan agreement.  The $1,685 outstanding principal amount of
the loan as of December31, 1999 was linked to the Israeli CPI since
January1, 2000 and provided for annual interest of 4%.  Since June 2000 the loan was linked to the
differences between the U.S. dollar and the NIS currency exchange rate and
provided for annual interest of 6.5%.
According to the agreement, the loan was repaid after completion of the
Companys initial public offering in 2000.

F-22

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