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UNITED STATESSECURITIES AND EXCHANGE
 COMMISSION

Washington, D.C. 20549

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Form 20-F

(Mark One)

| | o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR
| | - | -------------------------------------------------------------------------------------------------
| |   |                                                                                                  
| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR          
| |   |                                                                                                  

| | For the fiscal year ended December 31, 2003
| | -------------------------------------------
| |                                            

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

| | For the transition period from __________ to _____________
| | ----------------------------------------------------------
| |                                                           

Commission File Number 0-26498

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

ISRAEL(Jurisdiction of incorporation or organization)

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

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

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

ordinary shares,NIS 1.0 par value

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Title of Class

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

ordinary shares,NIS 1.0 par value

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Title of Class

Indicate
 the number of outstanding shares of each of the issuers classes of capital or common stock as of December
 31, 2003:

|ordinary shares, NIS 1.0 par value, 17,414,281 shares
|-----------------------------------------------------
|                                                     
|Title of Class              Number of Shares         

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

Indicate
 by check mark which financial statement item the registrant has elected to follow. Item 17oItem 18x

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Table of Contents

|                                 |   |                                                                                  | **Page**             | 
|-------------------------------- | - | -------------------------------------------------------------------------------- | -------------------- | 
|Forward-Looking
      Statements | 4 |                                                                                 
|                                 |   |                                                                                  |                      | 
|**Part
      I**                 |   |                                                                                  |                      | 
|                                 |   |                                                                                  |                      | 
|Item 1:                          |   | Identity of Directors,
      Senior Management and Advisers                      | Not
      applicable | 
|                                 |   |                                                                                  |                      | 
|Item 2:                          |   | Offer Statistics and
      Expected Timetable                                    | Not
      applicable | 
|                                 |   |                                                                                  |                      | 
|Item 3:                          |   | Key Information                                                                  | 4                    | 
|                                 |   | Selected Financial
      Data                                                    | 4                    | 
|                                 |   | Risk Factors                                                                     | 7                    | 
|                                 |   |                                                                                  |                      | 
|Item 4:                          |   | Information on NUR                                                               | 12                   | 
|                                 |   | History and Development
      of NUR                                             | 12                   | 
|                                 |   | Business Overview                                                                | 15                   | 
|                                 |   | Organizational Structure                                                         | 30                   | 
|                                 |   | Property, Plants and
      Equipment                                             | 30                   | 
|                                 |   |                                                                                  |                      | 
|Item 5:                          |   | Operating and Financial
      Review and Prospects                               | 32                   | 
|                                 |   | Operating Results                                                                | 32                   | 
|                                 |   | Liquidity and Capital
      Resources                                            | 40                   | 
|                                 |   | Research and Development,
      Patents and Licenses                             | 42                   | 
|                                 |   | Trend Information                                                                | 43                   | 
|                                 |   | Off-balance Sheet
      Arrangements                                             | 44                   | 
|                                 |   | Contractual obligations                                                          | 44                   | 
|                                 |   |                                                                                  |                      | 
|Item 6:                          |   | Directors, Senior
      Management and Employees                                 | 45                   | 
|                                 |   | Directors and Senior
      Management                                            | 45                   | 
|                                 |   | Compensation of Officers
      and Directors                                     | 48                   | 
|                                 |   | Board Practices                                                                  | 53                   | 
|                                 |   | Employees Share Ownership                                                        | 55                   | 
|                                 |   | Share Ownership                                                                  | 55                   | 
|                                 |   |                                                                                  |                      | 
|Item 7:                          |   | Major Shareholders
      and Related Party Transactions                          | 56                   | 
|                                 |   |                                                                                  |                      | 
|Item 8:                          |   | Financial Information                                                            | Not
      applicable | 
|                                 |   |                                                                                  |                      | 
|Item 9:                          |   | The Offer and Listing                                                            | 58                   | 
|                                 |   |                                                                                  |                      | 
|Item 10:                         |   | Additional Information                                                           | 59                   | 
|                                 |   | Share Capital                                                                    | 59                   | 
|                                 |   | Memorandum of Association
      and Amended and Restated Articles of Association | 59                   | 
|                                 |   | Material Contracts                                                               | 62                   | 
|                                 |   | Exchange Controls                                                                | 63                   | 
|                                 |   | Taxation                                                                         | 64                   | 
|                                 |   | Dividends and paying
      agents                                                | Not
      applicable | 

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|             |  |                                                                                    |                      | 
|------------ |  | ---------------------------------------------------------------------------------- | -------------------- | 
|             |  | Statement by experts                                                               | Not
      applicable | 
|             |  | Documents on display                                                               | 74                   | 
|             |  | Subsidiary Information                                                             | 74                   | 
|             |  |                                                                                    |                      | 
|Item 11:     |  | Quantitative and Qualitative
      Disclosures about Market Risk                   | 75                   | 
|             |  |                                                                                    |                      | 
|Item 12:     |  | Description of Securities
      Other than Equity Securities                       | Not
      applicable | 
|             |  |                                                                                    |                      | 
|**Part II**  |  |                                                                                    |                      | 
|             |  |                                                                                    |                      | 
|Item 13:     |  | Defaults, Dividend
      Arrearages and Delinquencies                              | 75                   | 
|             |  |                                                                                    |                      | 
|Item 14:     |  | Material Modifications
      to the Rights of Security Holders and Use of Proceeds | 76                   | 
|             |  |                                                                                    |                      | 
|Item 15:     |  | Controls and Procedures                                                            | 76                   | 
|             |  |                                                                                    |                      | 
|Item 16:     |  | [Reserved]                                                                         | 76                   | 
|             |  |                                                                                    |                      | 
|Item 16A:    |  | Audit Committee Financial
      Expert                                             | 76                   | 
|Item 16B:    |  | Code of Ethics                                                                     | 76                   | 
|Item 16C:    |  | Principal Accountant
      Fees and Services                                       | 77                   | 
|Item 16D:    |  | Exemptions from the
      Listing Standards for Audit Committees                   | Not
      applicable | 
|Item 16E:    |  | Purchase of Equity
      Securities by the Company and Affiliated Purchasers       | Not
      applicable | 
|             |  |                                                                                    |                      | 
|**Part III** |  |                                                                                    |                      | 
|             |  |                                                                                    |                      | 
|Item 17:     |  | Financial Statements                                                               | Not
      applicable | 
|Item 18:     |  | Financial Statements                                                               | 78                   | 
|Item 19:     |  | Exhibits                                                                           | 79                   | 
|             |  |                                                                                    |                      | 

3

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In
 addition to historical information, this annual report on Form 20-F contains forward-looking statements.
 The forward-looking statements contained herein are subject to certain risks and uncertainties that
 could cause actual results to differ materially from those reflected in the forward-looking statements.
 Factors that might cause such difference include, but are not limited to, those discussed in ITEM 3:
 Key Information - Risk Factors and ITEM 5: Operating and Financial Review and Prospects. Readers
 are cautioned not to place undue reliance on these forward-looking statements, which reflect managements
 analysis as of the date hereof. We undertake no obligation to publicly revise these forward-looking
 statements to reflect events or circumstances that arise after the date hereof. In addition to the disclosure
 contained herein, readers should carefully review any disclosure of risks and uncertainties contained
 in other documents that we file from time to time with the Securities and Exchange Commission.

PART I

ITEM 1: Identity of Directors, Senior Management
 and Advisors

| | Not Applicable.
| | ---------------

ITEM 2: Offer Statistics and Expected Timetable

| | Not Applicable.
| | ---------------

ITEM 3: Key Information

| | Not Applicable except ITEMS 3.A and 3.D, which are detailed below.
| | ------------------------------------------------------------------

A.           
 Selected Financial Data

The
 following selected consolidated statement of income data for the years ended December 31, 2001, 2002
 and 2003, and the selected consolidated balance sheet data as of December 31, 2002 and 2003, have been
 derived from the audited consolidated financial statements of NUR Macroprinters Ltd., together with
 its subsidiaries. These financial statements have been prepared in accordance with generally accepted
 accounting principles in the United States. The selected consolidated statement of income data for the
 years ended December 31, 1999 and 2000 and the selected consolidated balance sheet data as of December
 31, 1999, 2000 and 2001 have been derived from the NURs audited consolidated financial statements not
 included in this Form 20-F and have also been prepared in accordance with generally accepted accounting
 principles in the United States. The selected consolidated financial statements set forth below should
 be read in conjunction with and are qualified by reference to NURs consolidated financial statements
 and the related notes as well as ITEM 5: Operating and Financial Review and Prospects included elsewhere
 in this Form 20-F.

4

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

|                                                    | Year ended December 31, |            |   |   |            |   |  
|--------------------------------------------------- | ----------------------- | ---------- | - | - | ---------- | - | -
|
|                                                    |                         |            |   |   |           
|Revenues:                                           |                         |            |   |   |            |   |  
|Sales of printers and related                      
|products                                            | $                       | 60,719     |   | $ | 121,924    |   | $
|                                                    |                         |            |   |   |            |   |  
|Total revenues                                      |                         | 60,719     |   |   | 121,924    |   |  
|                                                    |                         |            |   |   |            |   |  
|Cost of revenues:                                   |                         |            |   |   |            |   |  
|Cost of sales of printers and related products      |                         | 31,784     |   |   | 64,107     |   |  
|Inventory write-off                                 |                         | -          |   |   | -          |   |  
|                                                    |                         |            |   |   |            |   |  
|Total cost of revenues                              |                         | 31,784     |   |   | 64,107     |   |  
|                                                    |                         |            |   |   |            |   |  
|Gross profit                                        |                         | 28,935     |   |   | 57,817     |   |  
|                                                    |                         |            |   |   |            |   |  
|Operating expenses                                  |                         |            |   |   |            |   |  
|                                                    |                         |            |   |   |            |   |  
|Research and development                            |                         | 5,530      |   |   | 15,077     |   |  
|Less royalty-bearing grants                         |                         | 721        |   |   | 451        |   |  
|                                                    |                         |            |   |   |            |   |  
|Research and development expenses, net              |                         | 4,809      |   |   | 14,626     |   |  
|                                                    |                         |            |   |   |            |   |  
|Selling and marketing, net                          |                         | 9,485      |   |   | 17,385     |   |  
|General and administrative:                        
|Ongoing expenses                                    |                         | 6,275      |   |   | 12,765     |   |  
|Doubtful debt expenses resulting from relocation of
|operations                                          |                         | -          |   |   | -          |   |  
|Amortization and impairment of goodwill            
|                                                    |                         | -          |   |   | 265        |   |  
|Amortization and impairment of technology and other
|intangible assets                                  
|                                                    |                         | -          |   |   | 1,187      |   |  
|Restructuring charges                               |                         | -          |   |   | -          |   |  
|                                                    |                         |            |   |   |            |   |  
|Total operating expenses                            |                         | 15,760     |   |   | 31,602     |   |  
|                                                    |                         |            |   |   |            |   |  
|Operating income (loss)                             |                         | 8,366      |   |   | 11,589     |   |  
|Financial expenses, net                             |                         | (616       | ) |   | (1,423     | ) |  
|Other income (expenses), net                        |                         | 176        |   |   | 25         |   |  
|                                                    |                         |            |   |   |            |   |  
|Income (loss) before taxes on income                |                         | 7,926      |   |   | 10,191     |   |  
|Taxes on income (tax benefit)                       |                         | 798        |   |   | 1,244      |   |  
|                                                    |                         |            |   |   |            |   |  
|Income (loss) after taxes on income                 |                         | 7,128      |   |   | 8,947      |   |  
|Minority interest in earnings of a subsidiary       |                         | (28        | ) |   | -          |   |  
|Equity in gains (losses) of affiliates, net (5)     |                         | 75         |   |   | (454       | ) |  
|                                                    |                         |            |   |   |            |   |  
|Net income (loss)                                   | $                       | 7,175      |   | $ | 8,493      |   | $
|                                                    |                         |            |   |   |            |   |  
|Basic net earnings (loss) per share                 | $                       | 0.64       |   | $ | 0.65       |   | $
|                                                    |                         |            |   |   |            |   |  
|Diluted net earnings (loss) per share               | $                       | 0.56       |   | $ | 0.57       |   | $
|                                                    |                         |            |   |   |            |   |  
|Weighted average number of shares used in computing |                         |            |   |   |            |   |  
|basic net earnings (loss) per share                 |                         | 11,181,137 |   |   | 13,150,110 |   |  
|                                                    |                         |            |   |   |            |   |  
|Weighted average number of shares used in computing |                         |            |   |   |            |   |  
|diluted net earnings (loss) per share               |                         | 12,722,600 |   |   | 14,793,327 |   |  
|                                                    |                         |            |   |   |            |   |  

5

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| |  | _______________________
| |  | -----------------------
| |  |                        

| | (1) | Represents
      financial information for NUR together with our subsidiaries NUR Media Solutions,
      NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific and NUR Germany
      (first six months). We owned 84% of NUR Germany; this subsidiary was sold
      during the third quarter of 1999.                                                                    
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                             
| | (2) | Represents
      financial information for NUR together with our subsidiaries NUR Media Solutions,
      NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers,
      NUR Hungary Trading and Software Licensing Limited Liability Company, NUR
      DO Brazil Ltda., Encre Consumables B.V, and NUR Japan.                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                             
| | (3) | In July 2000,
      we purchased substantially all of the assets and assumed specified liabilities
      of Salsa Digital, Ltd. and related entities. As part of the asset purchase
      transaction, we also acquired all of the outstanding capital stock of NUR
      Japan.                                                                                            
| |     |                                                                                                                                                                                                                                                                                                                                                                             
| | (4) | Represents
      financial information for NUR together with our subsidiaries NUR Media Solutions,
      NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers,
      NUR Hungary Trading and Software Licensing Limited Liability Company, NUR
      DO Brazil Ltda., Encre Consumables B.V, NUR Japan and Stillachem (last eight
      months). 
| |     |                                                                                                                                                                                                                                                                                                                                                                             
| | (5) | Represents
      equity in Stillachem and NUR Pro Engineering. In May 2001, we purchased
      the remaining 49.9% of Stillachem. We previously owned 50.1% of this subsidiary.
      Stillachems activities have been merged into the operations of NUR.
      Stillachem was dissolved in March 2003.                                                                    
| |     |                                                                                                                                                                                                                                                                                                                                                                             
| | (6) | Represents
      financial information for NUR together with our subsidiaries NUR Media Solutions,
      NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers,
      NUR Hungary Trading and Software Licensing Limited Liability Company, NUR
      DO Brazil Ltda., Encre Consumables B.V, NUR Japan and Stillachem.                           
| |     |                                                                                                                                                                                                                                                                                                                                                                             
| | (7) | Represents
      financial information for NUR together with our subsidiaries NUR Media Solutions,
      NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers,
      NUR Hungary Trading and Software Licensing Limited Liability Company, NUR
      DO Brazil Ltda., Encre Consumables B.V, NUR Japan and Stillachem (first
      three months).

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

|                                        | At December 31, |  |   |       
|--------------------------------------- | --------------- |  | - | ------
|
|                                        |                 |  |   |       
|Working capital                         |                 |  | $ | 15,791
|Total assets                            |                 |  |   | 39,648
|Total liabilities                       |                 |  |   | 21,785
|Total shareholders' equity (deficiency) |                 |  | $ | 17,863

| |  | ______________________________
| |  | ------------------------------
| |  |                               

| | (1) | Represents
      financial information for NUR together with our subsidiaries NUR Media Solutions,
      NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific and NUR Germany
      (first 6 months). We owned 84% of NUR Germany; this subsidiary was sold
      during the third quarter of 1999.                                                                       
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Represents
      financial information for NUR together with our subsidiaries NUR Media Solutions,
      NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers,
      NUR Hungary Trading and Software Licensing Limited Liability Company, NUR
      DO Brazil Ltda., Encre Consumables B.V and NUR Japan.                                        
| | (3) | In July 2000,
      we purchased substantially all of the assets and assumed specified liabilities
      of Salsa Digital, Ltd. and related entities. As part of the transaction,
      we also acquired all of the outstanding capital stock of NUR Japan.                                                                                                                  
| | (4) | Represents
      financial information for NUR together with our subsidiaries NUR Media Solutions,
      NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers,
      NUR Hungary Trading and Software Licensing Limited Liability Company, NUR
      DO Brazil Ltda., Encre Consumables B.V., NUR Japan and Stillachem (last
      eight months). 
| | (5) | In May 2001,
      we purchased the remaining 49.9% of Stillachem. We previously owned 50.1%
      of this subsidiary. Stillachems activities have been merged into NUR.
      Stillachem was dissolved in March 2003.                                                                                                                                                      
| | (6) | Represents
      financial information for NUR together with our subsidiaries NUR Media Solutions,
      NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers,
      NUR Hungary Trading and Software Licensing Limited Liability Company, NUR
      DO Brazil Ltda., Encre Consumables B.V., NUR Japan and Stillachem.                           
| | (7) | Represents
      financial information for NUR together with our subsidiaries NUR Media Solutions,
      NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers,
      NUR Hungary Trading and Software Licensing Limited Liability Company, NUR
      DO Brazil Ltda., Encre Consumables B.V., NUR Japan and Stillachem (first
      three months).
| |     |                                                                                                                                                                                                                                                                                                                                                                              

6

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D.           
 Risk Factors

Investing
 in our securities is very risky. You should be able to bear a complete loss of your investment. To understand
 the level of risk, you should carefully consider the following risk factors, as well as the other information
 found in this form.

We
 depend on a few key products in a business subject to rapid technological change.   We
 are highly dependent upon the sale of our principal products - the NUR Fresco printers, the NUR Ultima
 printers and the NUR Tempo printers and upon the sale of ink products. Rapid changes in technology,
 customer preferences and evolving industry standards continue to characterize the market for our printers.
 Our future financial performance will depend upon our ability to update our current products and develop
 and market new products to keep pace with technological advances in the industry. During 2001, 2002
 and 2003, we invested approximately $10.9 million, $9.2 million and $7.2 million, respectively, in research
 and development projects. Although we plan to continue to invest in research and development, our business
 could seriously suffer if we fail to anticipate or respond adequately to changes in technology and customer
 preferences, or if our products are delayed in their development or introduction. We cannot assure you
 that we will successfully develop any new products. If our competitors introduce new products, the sales
 of our existing products and our financial results could be harmed.

We
 currently have no commitments for additional financing.   We have incurred operating losses
 during the last several quarters. We may need additional funds if we seek to expand our operations or
 if we do not meet our expected revenues in future quarters. If we are unable to raise funds through
 public or private financing of debt or equity, we will be unable to increase expenditures that could
 ultimately improve our financial results, such as research and development or the production and marketing
 of our products. The amount of money we may need depends on numerous factors, including the success
 of our marketing and customer service efforts, our research and development activities and the demand
 for our products and services. Other than an amount of $1.5 million that NUR can draw down under a convertible
 loan commitment that was secured by NUR on July 2003 from several investors, we currently have no commitments
 for additional financing. We cannot guarantee that additional financing will be available or that, if
 available, will be obtained on terms we find favorable.

We
 must comply with covenants concerning our bank loans.If we do not meet certain covenants provided
 for in our loan agreements with Bank Hapoalim B.M (Bank Hapoalim), Bank Leumi Le Israel Ltd. (Bank
 Leumi) and Israel Discount Bank Ltd. (Bank Discount), we may be required by the banks to immediately
 repay our debts. In July 2003, we amended the financial ratios governing our loan agreements with Bank
 Hapoalim, Bank Leumi and Bank Discount. During 2003, we failed to meet some of these financial ratios.
 The banks have agreed in writing not to act upon their contractual rights pursuant to our default. Those
 financial ratios were further amended on February 2004. There can be no assurance that we will be able
 to comply with the bank covenants in the future. Our failure to comply with the bank agreements could
 have a material adverse effect on our business and financial results. For more information see ITEM
 10.C: Material Contracts.

7

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We
 depend on sole source suppliers for the inkjet printheads for our printers.   We currently
 purchase all of the inkjet printheads used in our NUR Fresco, NUR Ultima and NUR Tempo printers from
 sole suppliers. If any of these sole suppliers experience problems that result in production delays,
 our sales to new customers and existing customers that rely on our inkjet components to operate their
 printers could be hurt. Production delays could result from fire, flood or other casualty, work stoppages,
 production problems or other unforeseen circumstances. Although we have not experienced any major production
 delays to date, there can be no assurance that such delays will not occur in the future. Because the
 success of our business depends on the sale of our printers, supply problems could have a material adverse
 effect on our financial results. Also, if any of our sole suppliers reduce or change the credit or payment
 terms they extend to us, our business could also be harmed.

We
 rely on subcontractors to help us manufacture our products.   We employ a limited number
 of unaffiliated subcontractors to manufacture components for our printers. To date, we have been able
 to obtain adequate supplies of the components and raw materials necessary to produce our printers and
 we have not had any material supply problems with our subcontractors. Because we rely on subcontractors,
 however, we cannot be sure that we will be able to maintain an adequate supply of components or products.
 Moreover, we cannot be sure that any of the components we purchase will satisfy our quality standards
 and be delivered on time. Our business could suffer if we fail to maintain our relationships with our
 subcontractors or fail to develop alternative sources for our printer components. We cannot guarantee
 that we will develop alternative sources of production for our products.

The
 market for our printers is very competitive.   The printing equipment industry is extremely
 competitive and many of our competitors may have greater management, financial, technical, manufacturing,
 marketing, sales, distribution and other resources than we do. We compete against several companies
 that market digital printing systems based on electrostatic, drop-on-demand and continuous drop-on-demand
 inkjet, and other technologies. Three of our principal competitors in the wide format digital printing
 arena are Vutek, Scitex Vision Ltd. and Gandi Innovations. These companies have introduced products
 that compete with the NUR Fresco and NUR Ultima printers, and in certain cases with the NUR Tempo. In
 the market for printers utilizing UV curable ink our main competitors are Durst Phototechnik, Inca Digital
 Printers, 3M Image Graphics Scitex Vision and Vutek. These companies have introduced products that compete
 with the NUR Tempo printer. We have also witnessed continued growth of a local Chinese market where
 approximately 15 local competitors are developing, manufacturing and selling inexpensive printers, mainly
 to the local Chinese market, but these Chinese manufacturers have also begun penetrating the international
 market. Our ability to compete depends on factors both within and outside of our control, including
 the performance and acceptance of our current printers and any products we develop in the future. We
 also face competition from existing conventional wide format and super wide format printing methods,
 including hand painting, screen printing and offset printing. Our competitors could develop new products,
 with existing or new technology, that could be more competitive in our market than our printers. We
 cannot assure you that we can compete effectively with any such products.

We
 face strong competition in the market for printing supplies.   We also compete with independent
 manufacturers in the market for printer supplies. In 2001, 2002 and 2003, ink sales accounted for 26.1%,
 25.7% and 26.9% of our total revenues, respectively. We cannot guarantee that we will be able to remain
 the exclusive or even principal ink manufacturer for our printers. We cannot assure you that we will
 be able to compete effectively or achieve significant revenues in the ink business. During 2003, we
 discontinued our operations in the substrate business, a highly competitive market and characterized
 by a large number of suppliers worldwide. In 2001, 2002 and 2003 substrate revenues accounted for 10.4%,
 12.2% and 3.5% of our total sales, respectively.

8

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We
 depend on our executive officers and other key employees.   Our success depends to a significant
 extent upon the contributions of key personnel, and especially our executive officers. Our senior management
 has recently undergone significant changes. On April 1, 2003, Erez Shachar, our former President and
 Chief Executive Officer resigned his position and was replaced by David Amir. On October 1, 2003, David
 Seligman joined NUR as Chief Financial Officer succeeding Hilel Kremer. During the second and third
 quarters of 2003, new managing directors were appointed for NUR Asia Pacific and NUR Europe and the
 former managing director of NUR Europe relocated to New Jersey to serve as the President of NUR America.
 On December 25, 2003, Roni Zomber joined NUR as VP Operations succeeding Michael Dayan. Our business
 could seriously suffer if one or more of our key personnel were to leave our company. In addition, we
 do not have, and do not contemplate getting, key-man life insurance for any of our key employees.
 Our future success will also depend in part on our continuing ability to attract highly qualified employees.
 We cannot assure our continued success in attracting or retaining highly qualified personnel.

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

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

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We
 benefit from government grants, tax benefits and other funding from third parties.   We
 benefit from certain Israeli and Belgian Government programs and tax legislation principally related
 to research and development grants and capital investment incentives. Our operations could be adversely
 affected if these funding programs and tax benefits are reduced or eliminated and not replaced with
 equivalent benefits, or if our ability to meet the conditions to benefit from such funding programs
 and tax benefits were significantly reduced. We cannot assure you that favorable tax legislation will
 continue in the future or that the available benefits will not be reduced. In addition, to receive such
 grants and tax benefits, we must comply with a number of conditions. If we fail to comply with these
 conditions, the grants and tax benefits that we receive could be partially or fully canceled and we
 would be forced to refund the amount of the canceled benefits received, in whole or in part, adjusted
 for inflation and interest. We are now near completion of the transfer of a substantial portion of the
 research and development activities conducted by NUR Media Solutions from Belgium to Israel. In addition,
 until recently, NUR supplied substrates for use with our printers and ink through our wholly owned subsidiary
 in Belgium, NUR Media Solutions. In July 2003 we announced our decision to exit the substrate business.
 We believe that prior to and following the cessation of operation of NUR Media Solutions we have operated
 and will continue to operate in compliance with the required conditions mentioned above, although we
 cannot be sure.

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

You
 may have difficulty enforcing U.S. judgments against us in Israel.   We are organized
 under the laws of Israel and our headquarters are in Israel. Most of our officers and directors reside
 outside of the United States. Therefore, you may not be able to enforce any judgment obtained in the
 U.S. against us or any of such persons. You may not be able to enforce civil actions under U.S. securities
 laws if you file a lawsuit in Israel. However, we have been advised by our Israeli counsel that subject
 to certain limitations, Israeli courts may enforce a final judgment of a U.S. court for liquidated amounts
 in civil matters after a hearing in Israel. If a foreign judgment is enforced by an Israeli court, it
 will be payable in Israeli currency.

Our
 operating results fluctuate from period-to-period.   The results of our operations for
 any quarter are not necessarily indicative of results to be expected in future periods. Our operating
 results have in the past been, and will continue to be, subject to quarterly fluctuations as a result
 of factors such as the integration of people, operations and products from acquired businesses and/or
 technologies, increased competition in the printing equipment and ink industry, the introduction and
 market acceptance of new technologies and standards, changes in general economic conditions and changes
 in economic conditions specific to our industry. Further, our revenues may vary significantly from quarter
 to quarter as a result of, among other factors, the timing of new product announcements and releases
 by our competitors and us. We do not typically have a material backlog of orders at the beginning of
 each quarter. We generally ship and record a significant portion of our revenues for orders placed within
 the same quarter, primarily in the last month of the quarter. We may not learn of shortfalls in sales
 until late in, or shortly after the end of, such fiscal period. As a result, our quarterly earnings
 may be subject to significant variations.

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Our
 business is subject to risks from international operations.   We conduct business globally.
 Accordingly, our future results could be materially adversely affected by a variety of uncontrollable
 and changing factors including, among others, foreign currency exchange rates, regulatory, political,
 or economic conditions in a specific country or region, trade protection measures and other regulatory
 requirements, business and government spending patterns, and natural disasters. Any or all of these
 factors could have a material adverse impact on our future international business.

Currency
 fluctuations are a risk we face on a daily basis.   Because we generate revenues and expenses
 in various currencies, including the U.S. dollar, the NIS and the Euro, our financial results are subject
 to the effects of fluctuations of currency exchange rates. We cannot predict, however, when exchange
 or price controls or other restrictions on the conversion of foreign currencies could impact our business.
 Currency fluctuations could hurt our profitability.

Our
 stock price may be volatile.   Our ordinary shares have experienced substantial price
 volatility, particularly as a result of variations between our anticipated and actual financial results,
 the published expectations of analysts, and announcements by our competitors and us. In addition, the
 stock market has experienced extreme price and volume fluctuations that have negatively affected the
 market price of many technology and manufacturing companies, in particular, and that have often been
 unrelated to the operating performance of these companies. These factors, as well as general economic
 and political conditions, may materially adversely affect the market price of our ordinary shares in
 the future. Additionally, volatility or a lack of positive performance in our stock price may adversely
 affect our ability to retain key employees, all of whom have been granted stock options.

We
 may not comply with The Nasdaq SmallCap Market standards.  On March 24, 2004, we received a
 compliance notice from The Nasdaq Stock Market, Inc., stating that we are not in compliance with Marketplace
 Rule 4310(c)(2). The continued listing requirements of The Nasdaq SmallCap Market, Marketplace Rule
 4310(c)(2), require listed companies to meet one of the following three standards to remain listed on
 The Nasdaq SmallCap Market: (i) stockholders equity equal to a minimum of $2.5 million; (ii) market
 value of listed securities to equal a minimum of $35 million; or (iii) net income from continuing operations
 (in the latest fiscal year or two of the last three fiscal years) to equal a minimum of $500,000. In
 previous years we have fulfilled this requirement because we had stockholders equity in excess of $2.5
 million. As of December 31, 2003, we have negative stockholders equity of $1.5 million. We have been
 asked to provide a plan to The Nasdaq Stock Market, Inc. by April 7, 2004 setting
 forth how we intend to achieve and sustain compliance with The Nasdaq SmallCap Market listing requirements.
 NUR is currently preparing such a plan. If we continue to fail to meet the continued listing
 requirements, any trading in our ordinary shares will be conducted in the over-the-counter market on
 the NASDs OTC Electronic Bulletin Board or in the pink sheets.

As
 a result of our ordinary shares being removed from quotation on The Nasdaq SmallCap Market, the liquidity
 of our ordinary shares and the coverage of our ordinary shares by securities analysts and the media
 could be reduced, which could result in lower prices for the ordinary shares than might otherwise prevail
 and larger spreads between the bid and asked prices for our ordinary shares. Additionally, certain investors
 will not purchase securities that are not quoted on The Nasdaq SmallCap Market, which could materially
 impair our ability to raise funds through the issuance of our ordinary shares.

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If
 our ordinary shares are removed from quotation on Nasdaq and the trading price of our ordinary shares
 is less than $5.00 per share, trading in our ordinary shares would also be subject to the requirements
 of Rule 15g-9 promulgated under the Securities Exchange Act of 1934, as amended. Pursuant to Rule 15g-9,
 brokers and dealers who recommend such low-priced securities to persons other than established customers
 and accredited investors must satisfy special sales practice requirements, including a requirement that
 they make an individualized written suitability determination for the purchaser and receive the purchasers
 written consent prior to the transaction.

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

There
 can be no assurance that we can meet the continued listing requirements of The Nasdaq SmallCap Market.
 If we fail to meet such requirements our ordinary shares may be removed from quotation on Nasdaq or
 treated as a penny stock.

ITEM 4: Information on NUR

A.           
 History and Development of NUR

Our
 legal and commercial name is NUR Macroprinters Ltd. The main office is located at 12 Abba Hillel Silver
 Street, P.O. Box 1281, Lod 71111, Israel. The telephone number is (011) 972-8-914-5555. NURs registered
 agent in the United States is Continental Stock Transfer & Trust Company, 17 Battery Place New York,
 New York 10004.

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

Our
 ordinary shares were traded on the Nasdaq National Market between October 1995 and July 2003. During
 2002, our ordinary shares closed for a period of 30 consecutive trading days below the minimum bid price
 of $1.00 per share as required for continued listing on The Nasdaq National Market. Accordingly, in
 July 2003, we transferred our securities to the Nasdaq SmallCap Market, whereby we were granted an extension
 of 180 days to meet the minimum requirement of $1.00 per share. NUR regained compliance with this requirement
 in October 2003. Our ordinary shares are currently traded under the symbol NURM.

NUR
 is a leading supplier of wide format and super wide format digital printing systems worldwide. Some
 of NURs significant developments are set forth below.

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In
 July 2000, we acquired substantially all of the assets and assumed specified liabilities of Salsa Digital,
 Ltd. and related entities, previously one of our competitors in the digital printing market. Under the
 terms of our agreement, we acquired the assets for $30 million, which consisted of $20 million in cash
 and 666,667 ordinary shares valued at approximately $10 million, based upon the closing price of the
 ordinary shares on the Nasdaq National Market on May 15, 2000. In 1998 and 1999, the business we acquired
 from Salsa Digital had revenues of $25 million and $33 million, respectively, compared with our revenues
 during the same periods of  $36 million and $61 million.

In
 December 2000, we relocated our main facilities in Israel to a building consisting of approximately
 50,000 square feet in a high-tech industrial zone in Lod, Israel. We use this facility as our headquarters
 and for research and development. We have invested a total of approximately $2 million in building out
 these facilities. The initial five-year lease of the Lod facility, which commenced November 20, 2000,
 provides for monthly rent of approximately $63,000. The lease agreement grants NUR an option to continue
 the lease term for two consecutive periods of 2.5 years each.

During
 2001, we consolidated our U.S. operations. NUR America, Inc. in Boston, Massachusetts and Salsa Digital
 Printers Ltd. in San Antonio, Texas were integrated into a single facility in San Antonio, Texas. We
 further consolidated and streamlined our ink manufacturing operations. Our ink research and development
 operations, then located in Israel, Belgium and San Antonio, Texas were consolidated into a single facility
 in Louvain-la-Neuve, Belgium. Total restructuring costs in 2001 amounted to $3.2 million. In addition,
 we incurred one-time inventory write-offs of approximately $4.0 million in the first quarter of 2001.
 We associate the inventory write-offs with more efficient product rationalization, such as, among other
 things, the decrease of spare parts inventory.

In
 January 2002, we raised $7 million through the private placement of 2,333,333 of our ordinary shares
 to the Investment Corp. of United Mizrahi Bank Ltd. at a price of $3.00 per share. The Investment Corp.
 of United Mizrahi Bank Ltd. also received warrants to purchase an additional 612,500 ordinary shares
 at an exercise price of $4.50 per warrant share, exercisable until January 17, 2006.

On
 May 17, 2002, we filed a tender offer with the Securities and Exchange Commission pursuant to which
 option holders had the right to cancel and exchange certain options granted to them under NURs 2000
 Stock Option Plan, 1997 Stock Option Plan and 1995 Israel Stock Option Plan. Pursuant to the terms and
 conditions of the tender offer, the new options were to be granted six months and one day from the date
 the old options were canceled, at an exercise price equal to the market price on the date of the new
 grant. In order to receive the new options, option holders were required to continue to have a service
 relationship with NUR or any of its subsidiaries until the new grant date. 2,027,166 ordinary shares,
 representing 93% of the outstanding options under NURs 2000 Stock Option Plan, 1997 Stock Option Plan
 and 1995 Israel Stock Option Plan, were available for exchange under the tender offer. The tender offer
 expired on June 15, 2002 and resulted in the cancellation of 1,245,316 options with varying exercise
 prices. On December 17, 2002 we fulfilled our obligation to the participants in the tender offer and
 granted 1,219,584 options to purchase our ordinary shares at an exercise price of $0.72 per share.

In
 November 2002, we appointed the Computer And Sign Technology Co. Ltd (CAST) as our exclusive distributor
 for the NUR Fresco product line in the Peoples Republic of China. Based in Shanghai, CAST is one of
 the largest suppliers of sign materials and digital printing systems in China. As our exclusive distributor
 in China, CAST was responsible for sales and support of the NUR Fresco product line to new customers
 throughout the Chinese market. At the time we appointed CAST, we also transferred our Asia Pacific headquarters
 to Hong Kong consolidating the Shanghai operations into our new headquarters in Hong Kong. This restructuring
 process resulted in the termination of approximately twenty employees, mainly in Shanghai. In year 2003
 we ceased our operations in the Chinese market and the engagement of CAST as an exclusive distributor
 in China was terminated.

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On
 April 1, 2003, Erez Shachar resigned his position as President and Chief Executive Officer of NUR. David
 Amir, who has been working with NUR as a consultant for over a year, and was responsible for the restructuring
 of our service and support organizations, replaced Erez Shachar. Prior to joining NUR, David Amir served
 in various senior executive positions with Scitex, including Corporate Vice-President for Business Development;
 Vice-President Customer Services of Scitex Europe; and Manager of International Customer Support.

In
 May 2003, we signed an agreement to acquire the remaining 50% shares of NUR Pro Engineering, our subcontractor
 for the assembly and manufacturing of our printers, from Ogen Dialogix Ltd., for the price of $0.85
 million. Under the terms of the agreement the transfer of the shares will become effective on March
 31, 2004. As of March 2004 the parties fulfilled their material commitments and undertakings under the
 agreement. Upon completion of the transaction, NUR Pro Engineering will become a wholly owned subsidiary
 of NUR. During the third quarter of 2003, we completed a consolidation process of our global machinery
 manufacturing operations of the Salsa Printers in San Antonio, Texas with those of all other NUR printers
 in NUR Pro Engineering, into a single large manufacturing facility in Rosh HaAyin, Israel. For more
 information see ITEM 10.C: Material Contracts.

In
 July 2003 we announced our decision to exit the substrate business. As the digital wide format printers
 have become more widespread, substrates have become a low margin commodity that is no longer profitable
 for NUR to resell. We believe terminating this business will allow us to more strongly focus on our
 proprietary specialty inks.

On
 October 1, 2003, David Seligman joined NUR as Chief Financial Officer succeeding Hilel Kremer. Prior
 to joining NUR, David Seligman served as Chief Financial Officer for RADVISION Ltd. (Nasdaq: RVSN) and
 LanOptics Ltd. (Nasdaq: LNOP).

On
 July 30, 2003, NUR secured a convertible loan commitment from several investors according to which the
 investors have undertaken to provide NUR with a convertible loan in the aggregate amount of $3.5 million.
 NURs chairman and largest shareholder, Dan Purjes, provided $1.3 million of the loan. Under the terms
 of the loan agreement, the loan is convertible at any time into ordinary shares of NUR at a conversion
 rate of $0.62 per share. In consideration for the loan undertaking, NUR agreed to pay a cash commitment
 fee and issue to the investors warrants to purchase ordinary shares of NUR equal to 15% of the loan
 at an exercise price of $0.52 per share exercisable over a five-year period. In the event of a draw
 down of the loan, NUR will issue to the investors additional warrants to purchase ordinary shares in
 the amount equal to 15% of the draw down amount, at an exercise price of $0.52 per share, and exercisable
 for a period of five years from the date of the draw down. On December 31, 2003, the investors elected
 to convert $2 million of the loan into ordinary shares of NUR at the conversion rate of $0.62 per ordinary
 share.

In
 September 2003, NUR completed its consolidation process of the machinery manufacturing facilities in
 San Antonio, Texas and Rosh HaAyin, Israel. NUR now manufactures all of its printers in a single plant
 located in Rosh HaAyin Israel. The Ink manufacturing facilities, also previously located in San Antonio,
 Texas were relocated to a new manufacturing plant in Ashkelon, Israel. We now produce all of our solvent-based
 inks in a single manufacturing facility in Ashkelon, Israel. We are now near completion of the transfer
 of a substantial portion of the research and development activities from Belgium to Israel.

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In
 October 2003, NUR announced the opening of its new North American headquarters and training center in
 Moonachie, New Jersey. The 11,000 square feet facility replaces NURs former facility in San Antonio,
 Texas. The new headquarters houses NURs North American sales, marketing, administrative, and support
 staff and includes a fully equipped training center and demo site.

For
 a historical view of our financing activities, including capital expenditures and divestitures, please
 refer to ITEM 5: Operating and Financial Review and Prospects.

B.           
 Business Overview

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

NUR
 consists of three research and development centers, including facilities for research and development
 of printing equipment in Lod, Israel and a facility for the development of inks in Louvain-la-Neuve,
 Belgium and in Ashkelon, Israel. We are now near completion of the transfer of a substantial portion
 of the research and development activities from Belgium to Israel. We have worldwide marketing, sales
 and service subsidiaries in Europe, North America, South America and the Asia Pacific region.

In
 the super wide category we offer the NUR Ultima 5000, commercially released In July 2003. The NUR Ultima
 medium volume production printing printers are designed to provide high levels of productivity while
 offering simplified maintenance procedures and improved ease-of-use. They are also designed to provide
 reduced ink consumption to ensure low operating expenses in high speed printing modes. The Ultima printers
 use piezo drop-on-demand inkjet technology to produce photorealistic quality. The Ultima printers feature
 apparent print resolution up to 600 dpi and are capable of speeds up to 810 square feet (76 square meters)
 per hour. The NUR Ultima 5000 outputs in widths of up to 5 meters (or approximately 16 feet wide).

Our
 wide format printers are headed by the NUR Fresco family of wide format printers. The NUR Fresco printer
 was commercially released in February 2000. The NUR Fresco printers are designed to provide a digital
 alternative to conventional screen printing on short and medium run jobs. The NUR Fresco printers use
 piezo continuous drop-on-demand inkjet technology to produce high quality graphics for a wide range
 of applications. These include, among other things, point-of-purchase displays, banners, billboards,
 bus shelter graphics, posters, shopping mall displays and airport terminal displays.

The
 NUR Fresco printers print on a wide variety of substrates in roll-to-roll or roll-to-sheet modes  the
 1800 model outputs in widths up to 1.83 meters (approximately 6 feet); the 3200 model outputs in widths
 up to 3.2 meters (approximately 10 feet).

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

The
 NUR Ultima printer described above is also available in a wide format, the NUR Ultima HiQ 3200 (3.2
 meters or approximately 10 feet wide).

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

The
 NUR Fresco, the NUR Ultima and the NUR Tempo printers are sometimes referred to collectively herein
 as the NUR Printers.

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

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

Industry Background

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

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

Traditional Wide Format and Super Wide Format
 Printing Methods

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

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

Screen
 Printing.  The screen-printing process is distinguished by its ability to print finely detailed
 images on practically any surface, including paper, plastics, metals and three-dimensional surfaces.
 However, the process requires significant set-up time and investment in materials before the image can
 be sent to press. This cost constrains the minimum number of copies the screen printer can produce economically.
 As screen-printing is a highly labor-intensive process, it is best suited for run lengths between 20
 to 400 copies. Hence, this market is a clear target in which we believe our digital printers can be
 highly competitive.

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

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Wide Format and Super Wide Format Digital Printing

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

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

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

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

Airbrush
 Printing.   Airbrush printing is accomplished by forcing a low viscosity colored fluid
 through small aperture nozzles, thus creating a spray jet. Computer driven modulation of the spray jets
 causes an image-wise colored layer to be deposited onto the substrate. The strongest feature of airbrush
 technology is the printers ability to cover large areas with uniform color. One manufacturer of airbrush
 printers produces a printer that can simultaneously print on both sides of a poster, which is important
 for signs that are rear-illuminated.

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

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Piezo
 Drop-On-Demand Inkjet Printing.   Drop-on-demand technology involves the intermittent
 firing of ink drops when needed on the substrate. It provides high resolution and enables use of a variety
 of inks for home, office and industrial use. To address the needs of the wide format market for higher
 resolution images for use with shorter viewing distances, we utilize continuous drop-on-demand technology
 in the NUR Fresco printers and drop-on-demand inkjet technology in the NUR Ultima and NUR Tempo printers.

Drop-on-demand
 technology was primarily developed for office use and is characterized by a relatively higher resolution
 and a selected range of substrates. In comparison, continuous inkjet printing technology was developed
 mainly for use in industrial applications, and, therefore, shows a more uniform and stable color output,
 and the ability to print on a wide selection of substrates.

We
 believe that although the NUR Fresco is not the only continuous drop-on-demand printer available in
 the wide format market, its productivity makes it particularly attractive to screen printers. Our NUR
 Ultima printers complement our product line by offering a full-range of printers at entry-level prices.
 The NUR Tempo was designed as a digital alternative to screen printing presses to handle diverse
 applications, especially short to medium, on-demand print runs that are not cost effective using traditional
 screen printing methods. In operation, it is designed to eliminate the extra steps and costs of finishing
  laminating and cutting/trimming processes  common to other traditional methods of printing graphics
 on rigid surfaces. We believe that the NUR Printers have been designed and engineered to fit the overall
 needs of their respective wide format and super wide format printing markets.

NURs
 strategy is to:

| |  | strengthen our position as a world leader in the wide format and super wide format digital printing markets by supplying the most productive and cost-effective wide format and super wide format digital printers and totally digitally-based printing solutions for the out-of-home advertising market;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                          
| |  | enable the printers to produce digitally a large portion of the graphics currently produced with screen printing processes;                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                          
| |  | be our customers vendor of choice for their ink needs;                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                          
| |  | enable our customers to develop new ways to profit from our printing systems; and                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                          
| |  | provide our customers with highly responsive and capable support, service and supplies.                                                                                                                                                                                                                  

Products

NURs
 revenues are derived primarily from the sale and service of the NUR Printers and the sale of inks used
 with the NUR Printers. See ITEM 5: Operating and Financial Review and ProspectsGeographic Breakdown
 of Revenues for more information on the breakdown of revenues by category of activity and into geographic
 markets.

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Printers

Super Wide Format Digital Printers

In
 July 2002, we commercially released the latest version of the NUR Salsa product line, the NUR Ultima
 HiQ. The NUR Ultima printers use piezo drop-on-demand inkjet technology. The NUR Ultima medium
 volume production printing printers are designed to provide high levels of productivity while offering
 simplified maintenance procedures and improved ease-of-use. They are also designed to reduce ink consumption,
 which ensures low operating expenses in high speed printing modes. The NUR Ultima features apparent
 print resolution up to 600 dpi for high quality and are capable of speeds up to up to 76 square meters
 (or approximately 810 square feet) per hour. They also include productivity enhancing features like
 true white-skip, which enables the printer to skip white areas of the printed image, thus minimizing
 the net printed area. The NUR Ultima 5000 prints on a variety of substrates 5 meters wide (or approximately
 16 feet wide). The NUR Ultima 5000 printers are available both as an upgrade to existing NUR Salsa series
 and as a new product delivered from the manufacturer.

Wide Format Digital Printers

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

The
 NUR Fresco printers print on a wide variety of substrates in roll-to-roll or roll-to-sheet modes. The
 1800 model outputs in widths up to 1.83 meters (6 feet). The 3200 models output in widths up to 3.2
 meters (approximately 10 feet).

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

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

The
 NUR Ultima printers are also available in a wide format, the NUR Ultima HiQ 3200 (3.2 meters or approximately
 10 feet wide).

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Flatbed Digital Printers

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

The NUR Printers - General

The
 NUR Printers can be operated in a stand-alone mode or in conjunction with pre-press and desktop publishing
 systems. When configured with a pre-press system, the pre-press workstation prepares the digital file
 containing the specifications for the output to be produced. The NUR Printers require little operator
 supervision, enabling one operator to run several machines at once. While an operator must be specifically
 trained in the operation of a printer, no special color mixing skills are required unlike conventional
 methods such as offset printing.

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

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

During
 the years ended December 31, 2001, 2002 and 2003, sales of the NUR Printers accounted for approximately
 54%, 51% and 55%, respectively, of NURs total consolidated revenues. Sales of spare parts used in the
 NUR Printers accounted for approximately 5%, 6% and 5% of total sales in the years ended December 31,
 2001, 2002 and 2003 respectively. Currently, the retail prices of the NUR Printers generally range from
 $185,000 to $550,000 per machine.

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Consumables

Inks

The
 NUR Tempo printers use specialized UV curable inks designed for the needs of the wide format market.
 The ink is resistant to water and ultraviolet rays, making it fairly durable and thus well suited for
 outdoor conditions. The NUR Tempo, through the utilization of the ink, can print on almost an unlimited
 variety of substrates, including corrugated board, foam-core paperboard, acrylic sheets, PVC, polycarbonate,
 fluted polypropylene, glass, wood and standard rolled media. The ink enables the output of the NUR Tempo
 to be used both for indoor and outdoor advertising with out additional lamination. The ink for use with
 the NUR Tempo is manufactured, exclusively for NUR under the NUR brand name, by SunJet, a division of
 Sun Chemical Limited.

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

Until
 recently, our ink research and development operations were carried out by our wholly owned subsidiary
 NUR Media Solutions in its facilities at Louvain-la-Neuve, Belgium and our wholly owned subsidiary Salsa
 Digital Printers in San Antonio, Texas carried out production of our solvent-based inks. As of September
 2003, we manufacture all of our solvent-based ink in our new plant in Ashkelon, Israel and we are now
 near completion of the transfer of a substantial portion of the research and development activities
 from Belgium to Israel.

During
 the years ended December 31, 2001, 2002 and 2003, sales of ink accounted for approximately 26%, 26%
 and 27%, respectively, of NURs total consolidated revenues.

Substrates

Until
 recently, NUR supplied substrates for use with our printers and ink through our wholly owned subsidiary
 in Belgium, NUR Media Solutions. In July 2003 we announced our decision to exit the substrate business.
 As the digital wide format printers have become more widespread, substrates have become a low margin
 commodity that is no longer profitable for NUR to resell. We believe terminating this business will
 allow us to more strongly focus on our proprietary specialty inks. Following the completion of the transfer
 of substantial portion of the ink research and development activities from NUR Media Solutions in Belgium
 to NURs main research and development center in Israel, NUR Media Solutions will become a dormant company.

Sales and Marketing

We
 distribute and sell our products through the following wholly owned subsidiaries: NUR Europe (including
 the Middle East & Africa division), NUR America, NUR Asia Pacific, NUR DO Brazil Ltda. and NUR Japan.

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In
 July 2000, we purchased substantially all of the assets and specified liabilities of Salsa Digital,
 Ltd. and related entities, previously one of our competitors in the digital printing market. We have
 fully integrated the former Salsa Digital sales and marketing force into our own existing marketing,
 sales and service subsidiaries in Europe, North America, South America and the Asia Pacific regions.
 Our marketing activities include participating in relevant tradeshows worldwide, advertising in trade
 publications, marketing directly to a target base, as well as publishing our own newsletters, participating
 in services and industry forums and maintaining an internet site.

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

The
 Israeli Government, through the Fund for the Encouragement of Marketing Activities of the Ministry of
 Industry and Trade (the Marketing Fund), awards participation grants for marketing expenses incurred
 overseas. As of December 31, 2003, we had received $1.27 million for the promotion of our printers.
 NUR is no longer eligible for support from the Marketing Fund due to its reaching the maximum allowed
 export revenues. NUR is obligated to pay a royalty of 3-4% of the export added value to the Marketing
 Fund until 100% of the grants have been repaid. The value of the grants received (including grants received
 in previous years), are linked to the U.S. dollar. As of December 31, 2003, we had made or accrued to
 make royalty payments in respect of such grants to the Marketing Fund totaling approximately $0.757
 million.

Production and Sources of Supply

NUR
 manufactures and assembles all the NUR Printers through NUR Pro Engineering, a 50% owned affiliate of
 NUR. In May 2003, NUR signed an agreement to acquire the remaining 50% shares of NUR Pro Engineering,
 from Ogen Dialogix Ltd. for the price of $850,000. Under the terms of the agreement the transfer of the
 shares will become effective on March 31, 2004. As of March 2004 the parties fulfilled their material
 commitments and undertakings under the agreement. Upon completion of the transaction, NUR Pro Engineering
 will become a wholly owned subsidiary of NUR. During the third quarter of 2003, we completed a consolidation
 process of our global machinery manufacturing operations of Salsa Digital Printers in San Antonio, Texas
 with those of NUR Pro Engineering, into a single large manufacturing facility in Rosh HaAyin, Israel.
 During the first quarter of 2004, we have transferred all manufacturing capabilities from NUR Pro Engineering
 to NUR, leaving NUR Pro Engineering as a dormant company upon completion of the transaction. For more
 information see ITEM 10.C: Material Contracts.

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

We
 believe that, if increases in sales occur, we can expand our production capabilities or engage subcontractors
 to carry out certain of the manufacturing or the assembly of our printers. Most of the components used
 for the assembly of the NUR Printers are available from several sources; however, the printheads used
 in each series of printers are purchased from single suppliers.

To
 date, we have been able to obtain adequate supplies of the components and raw materials necessary to
 produce our printers and have not had any serious problems with our subcontractors. If our business
 grows, however, we will need to purchase greater quantities of components on a timely basis. Any delay
 in supply could ultimately hurt our business.

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As
 of September 2003, we manufacture the NUR Fresco and the NUR Ultima inks at our plant in Ashkelon, Israel.
 The ink for use with the NUR Blueboard is manufactured, exclusively for NUR under the NUR brand name,
 by several ink manufacturers. The ink for use with the NUR Tempo is manufactured, exclusively for NUR
 under the NUR brand name, by SunJet, a division of Sun Chemical Limited, a company incorporated in England.

Service and Support

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

Research and Development

NURs
 research and development efforts, which currently engage approximately 50 employees, are focused on
 developing new products and technologies, enhancing the quality and performance relative to price of
 our existing products, reducing manufacturing costs, upgrading and expanding our product line through
 the development of additional features and improving functionality in response to market demand.

Until
 recently, we had two research and development facilities, including a facility located at our headquarters
 in Lod, Israel and a facility located in Louvain-la-Neuve, Belgium. We are now near completion of the
 transfer of a substantial portion of the research and development activities from Belgium to Israel.

Total
 research and development expenses, before royalty bearing grants, were approximately  $10.9million,
 $9.2 million and $7.2 million in the years ended December 31, 2001, 2002 and 2003, respectively.

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

In
 July 2000, we purchased all of the assets and assumed specified liabilities of Salsa Digital Ltd. and
 related entities, previously one of our competitors in the digital printing market. The Salsa Digital
 asset purchase transaction resulted in the recognition by us of a one-time write-off of $4.3 million
 assigned to in-process research and development.

Between
 December 1997 and March 1999, NUR Europe, one of our subsidiaries, received a grant from local authorities
 in Belgium for reimbursement of up to 70% of its total research and development investment, which it
 carries out in Belgium, up to approximately $0.6 million. NUR Media Solutions markets and sells the
 products developed under the grant, and reimburses the Belgium authorities at a rate of 3% of the revenue
 generated from the sale of the products. NUR Media Solutions has reimbursed the Belgium authorities
 for approximately $0.27 million as of December 31, 2003. NUR Media Solutions has also established a
 research and development center in Belgium dedicated to the research and development of print substrates
 and inks for use with the NUR Printers. Following the completion of the transfer of substantial portion
 of the ink research and development activities from NUR Media Solutions in Belgium to the NURs main
 research and development center in Israel, NUR Media Solutions will become a dormant company.

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Between
 May 1999 and April 2000, NUR Media Solutions received a grant from the Belgium authorities for reimbursement
 of up to 50% of its total research and development investment, which it carries out in Belgium, up to
 approximately $0.3 million. NUR Media Solutions reimburses the grant at a rate of 6% of the revenue
 generated from the products developed under the grant. As of December 31, 2003, NUR Media Solutions
 had a contingent obligation to pay royalties in the amount of $0.07 million.

In
 addition, between June 2001 and January 2004, NUR Media Solutions received a grant from the Belgium
 authorities for reimbursement of up to 50% of its total research and development investment, which it
 carries out in Belgium; such number will total up to approximately $1.5 million. NUR Media Solutions
 will reimburse the grant at a rate of 4% of the revenue generated from the products developed under
 the grant. NUR Media Solutions received 0.725 million under the grant in January 2003 and additional
 0.669 million in January 2004.

In
 the past, NUR has received grants from the Government of Israel, through the Office of the Chief Scientist
 (the OCS), for the development of our systems and products. NUR received approximately $0.26 in the
 year ended December 31, 2000, but has not received research and development grants from the OCS in the
 years ended December 31, 2001, December 31, 2002 and December 31, 2003. The OCS awards grants of up
 to 50% (and in certain circumstances up to 66%) of a projects approved expenditures in return for royalties.
 Under the terms of funding, royalties are payable generally at a rate of 2% to 3% on sales of products
 developed from the funded project and ending when 100% to 150% of the dollar value of the grant is repaid.
 During 2001, we made royalty payments of $0.2 million in respect of such grants to the OCS. As of December
 31, 2003, we had a contingent liability to pay $0.39 million in future royalty payments. On February
 2004, NUR received a demand letter from the OCS claiming that NUR outstanding liability for royalties
 to the OCS in connection with the sale of NUR Fresco printers aggregates to $0.75 million, of which
 $0.36 million is disputed by NUR. NUR responded to the demand letter by denying the OCS claims with
 respect to the disputed amount, and it is currently trying to settle the differences between the parties
 out-of-court. NUR royalty payments to the Office of the Chief Scientist are in respect of sales of the
 NUR Fresco printers. The terms of the grants prohibit the manufacture of products developed with government
 grants outside of Israel or the transfer out of Israel of the technology developed pursuant to these
 grants without the prior consent of the Office of the Chief Scientist. These restrictions do not bar
 exports from Israel of products developed with such technologies. In addition, the know-how from the
 research and development that is used to produce the product may not be transferred to third parties
 or out of Israel without the approval of the OCS.

Competition

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

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Our
 main competitors in the super wide format arena are Vutek, Scitex Vision and Gandi Innovations. Said
 companies have introduced products that directly compete with the NUR Ultima super wide printer. In
 the wide format market, the main competitors are Scitex, through its subsidiary, Scitex Vision Ltd.,
 3M Image Graphics, Vutek, Gandi Innovations and Raster Graphics Inc. These companies have introduced
 products that compete with the NUR Fresco and NUR Ultima printers. In the market for Flatbed printers
 utilizing UV curable ink, the main competitors are Durst Phototechnik, Inca Digital Printers, 3M Image
 Graphics, Scitex Vision and Vutek. These companies have introduced products that compete with the NUR
 Tempo. We have also witnessed continued growth of a local Chinese market where approximately 15 local
 competitors are developing, manufacturing and selling inexpensive printers. Recently, these Chinese
 manufacturers have begun penetrating the international market.

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

Trade Secrets, Patents and Proprietary Rights

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

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

Employees and Labor Relations

As
 of December 31, 2003, we employed 322 persons worldwide, including independent contractors, about 16%
 of which work in research and development. Approximately 60% of these employees are employed by NUR
 in Israel and the remainder are employed by our subsidiaries worldwide. All of NURs employees who have
 access to confidential information are required to sign a non-disclosure agreement covering all of our
 confidential information that they might possess or to which they might have access.

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

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

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

During
 the fourth quarter of 2002, we completed a restructuring process of our operations in the Asia Pacific
 region consisting of, among other things, appointing Computer and Sign Technology Co., Ltd. to market
 and support the NUR Fresco product line in China and moving the Asia Pacific headquarters from Shanghai
 to a new facility located in Hong Kong. The restructuring process resulted in the termination of approximately
 twenty employees. In year 2003 we ceased our operations in the Chinese market and the engagement of
 CAST as an exclusive distributor in China was terminated.

During the third quarter of 2003, we completed the
 consolidation of our manufacturing facilities, transferring the machinery and ink manufacturing plants
 from San Antonio, Texas to Israel. We have also relocated our North American headquarters from San Antonio,
 Texas to New Jersey in the third quarter of 2003. The consolidation and relocation of operations resulted
 in the termination of approximately 100 employees in San Antonio, Texas.

We
 are now near completion of the transfer of a substantial portion of the research and development activities
 previously conducted by NUR Media Solutions in Belgium to Israel. Until recently, NUR supplied substrates
 for use with the NUR Printers and ink through our wholly owned subsidiary in Belgium, NUR Media Solutions.
 In July 2003 we announced our decision to exit the substrate business. Following the completion of the
 transfer of substantial portion of the ink research and development activities from NUR Media Solutions
 in Belgium to NURs main research and development center in Israel, NUR Media Solutions will become
 a dormant company.

Insurance

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

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Legal Proceedings

In
 December 1999, Poalim Capital Markets Ltd., an Israeli company engaged in the business of mediation
 and assistance in securities transactions, filed a suit in the District Court of Tel Aviv, Israel, against
 NUR and Isal Amlat Investments (1993) Ltd. Poalim Capital Markets claimed that NUR, in executing a private
 placement agreement with Isal Amlat Investments (1993) Ltd. and Dovrat & Co. Ltd. in September 1999,
 breached an agency agreement with Poalim Capital Markets. Poalim Capital Markets sought enforcement
 and monetary relief up to approximately $0.33 million. In November 2002, the parties reached an out-of-court
 settlement whereby NUR  undertook to issue to Poalim Capital Markets a warrant to acquire
 11,000 ordinary shares of NUR at an exercise price of $0.784 per share in consideration for the complete
 and final settlement of this matter. The warrant is exercisable for a period of four years, terminating
 on November 7, 2006.

In
 September 2000, Abudi Signage Industry Ltd., an Israeli company, and Abudi Printing Technology Ltd.,
 a wholly owned subsidiary of Abudi Signage Industry Ltd. (collectively, the Abudi Parties), filed
 suit in the District Court of Tel Aviv, Israel, against Meital Technologies Ltd., Kobi Markovitz (the
 major shareholder of Meital), who is currently a consultant to NUR in the field of technologies development,
 NUR and Erez Shachar, our former President and Chief Executive Officer. The Abudi Parties claimed that
 Meital, in selling its piezo drop-on demand technology to NUR breached agreements between the Abudi
 Parties and Meital pursuant to which: (i) Meital was to develop, manufacture and sell to the Abudi Parties
 an upgrade for Abudis Vutek airbrush digital printers and Abudi was to receive the exclusive right
 to market, distribute and sell these upgrades, and (ii) Abudi was provided an option to purchase up
 to 20% of Meital shares upon terms and conditions no less favorable than other investors. The Abudi
 Parties claimed that NUR knowingly purchased the Meital technology and therefore caused Meital to breach
 its option agreements with the Abudi Parties. The Abudi Parties sought consequential and indemnification
 monetary damages up to approximately $4.95 million. In May 2002, the parties reached an out-of-court
 settlement whereby NUR undertook to pay the Abudi Parties $0.14 million for the complete and final settlement
 of this matter.

In
 August 2001, Printable B.V., a client of NUR Europe, filed a suit against it in the Commercial Court
 of Brussels. The client claims that the contract between Printable and NUR Europe for the sale of two
 machines is null and void, and it further seeks for damages amounting to approximately 0.92 million.
 We believe that the claim is without merit and NUR Europe is defending itself vigorously against the
 claim.

In
 October 2001, Distrade SL, a client of NUR Europe, filed a suit against NUR Europe in the Commercial
 Court of Brussels, alleging technical defaults in a machine purchased by it. Distrade is seeking reimbursement
 of the purchase price paid by it amounting to approximately $0.23 million, as well as damages of approximately
 0.25 million. The Commercial Court of Brussels appointed an expert in order to hear the parties claims;
 to examine the machine; and provide an opinion regarding the damages suffered by Distrade from the use
 of the machine. We believe that the claim is without merit and NUR Europe is defending itself vigorously
 against the claim.

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

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In
 November 2002, Guangzhou Junhao Printing Limited Company, a client of NUR Asia Pacific, filed a suit
 against NUR Asia Pacific in the Guangzhou Intermediated Court situated in the Peoples Republic of China,
 alleging that the equipment purchased by it from NUR Asia Pacific was of bad quality. Junhao is seeking
 reimbursement of the purchase price paid by it amounting to approximately $0.24 million, as well as
 compensation of approximately $0.16 million. We believe that the claim is without merit and NUR Asia
 Pacific is defending itself vigorously against the claim.

In
 May 2003 Julius Hewinkel GmbH, a former supplier and manufacturer of NUR Media Solutions filed a suit
 against NUR Media Solutions in the Court of Osnabrück, Germany. Hewinkel claims that NUR Media Solutions
 is in breach of an OEM agreement signed between Hewinkel and NUR Media Solutions by failing to purchase
 minimum quantities prescribed under such agreement. Hewinkel seeks damages in approximately the amount
 of 0.94 million. We believe that the claim is without merit and NUR Media Solutions is defending itself
 vigorously against the claim.

In
 August 2003, as a result of our intention to consolidate the manufacturing operation in San Antonio,
 Texas we notified Ram Global Ltd., the landlord under the five-year lease agreement signed between Ram
 Global and Salsa Digital Printers in July 2001, that we intend to terminate the lease agreement prior
 to its predetermined termination date in July 2006. Ram Global filed suit in the in the 288th Judicial
 District, Bexar County, Texas claiming for the rent owed under the lease agreement until its expiration
 in July 2006 and other damages. In September 2003, the parties reached an out-of-court settlement whereby
 the Salsa Digital Printers undertook to pay Ram Global $0.18 million (reflecting six months rent) for
 the complete and final settlement of this matter.

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

We
 are not currently subject to any other material legal proceedings. We may from time to time become a
 party to various legal proceedings in the ordinary course of our business.

29

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C.           
 Organizational Structure

As
 of December 31, 2003, the following chart presents our corporate structure, the jurisdiction of incorporation
 of our significant subsidiaries and the percentage of shares that we hold in those subsidiaries.

|Subsidiaries                                              | Percentage | Jurisdiction
      of Incorporation
|--------------------------------------------------------- | ---------- | -----------------------------------
|Encre Consumables B.V                                     |            |                                    
|NUR America Inc. (NUR America)                            |            |                                    
|NUR Asia Pacific (Hong Kong) Ltd. (NUR Asia Pacific)      |            |                                    
|NUR DO Brazil Ltda                                        |            |                                    
|NUR Europe S.A. (NUR Europe)                              |            |                                    
|NUR Hungary Trading and Software Licensing Limited        |            |                                    
|Liability Company                                         |            |                                    
|NUR Macroprinters (Shanghai) Ltd. (NUR Shanghai)          |            |                                    
|NUR Media Solutions S.A. (NUR Media Solutions)            |            |                                    
|Salsa Digital Printers Ltd. (Salsa Digital Printers)      |            |                                    
|NUR Japan Ltd. (formerly Signtech Japan Ltd.) (NUR Japan) |            |                                    
|NUR Pro Engineering Ltd. (NUR Pro Engineering)            |            |                                    

| |  | ___________________
| |  | -------------------
| |  |                    

| | *  | Salsa Digital Printers does business as NUR Engineering USA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ** | In May 2003,
      NUR signed an agreement to acquire the remaining 50% shares of NUR Pro Engineering.
      Under the terms of the agreement the transfer of the shares will be effective
      as of March 31, 2004. As of March 2004 the parties fulfilled their material
      commitments and undertakings under the agreement. Upon completion of the
      transaction, NUR Pro Engineering will become a wholly owned subsidiary of
      NUR. During the third quarter of 2003, NUR completed a consolidation process
      of its global machinery manufacturing operations of Salsa Digital Printers
      in San Antonio, Texas with those of NUR Pro Engineering, into a single large
      manufacturing facility in Rosh HaAyin.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

D.           
 Property, Plants and Equipment

Israel

NURs
 main facilities are located in the high-tech industrial zone in Lod, Israel, in a building that is approximately
 50,000 square feet. We use this facility as our headquarters and for research and development. We have
 invested a total of approximately $2 million in improving this facility. The initial five-year lease
 of the Lod facility, which commenced November 20, 2000, provides for monthly rent of $63,000. The lease
 agreement grants NUR an option to continue the lease term for two consecutive periods of 2.5 years each.

NUR
 leases approximately 9,117 square feet in Ashkelon, Israel for use as a manufacturing plant for the
 NUR solvent based inks. The Ashkelon lease expires in December 2007.

NUR
 Pro Engineering Ltd., a 50% owned affiliate, leases approximately 28,621 square feet in Rosh HaAyin,
 Israel, for the manufacture and assembly of the NUR Printers. The Rosh HaAyin plant is leased through
 several lease agreement the majority of which expire throughout 2004. In May 2003, we signed an agreement
 to acquire the remaining 50% shares of NUR Pro Engineering. Under the terms of the agreement the closing
 of the transaction will occur on March 31, 2004. As of March 2004 the parties fulfilled their material
 commitments and undertakings under the agreement. Upon completion of the transaction, NUR Pro Engineering
 will become a wholly owned subsidiary of NUR. We are currently negotiating the renewal of the Rosh HaAyin
 lease agreements and the complete assignment of NUR Pro Engineering leases to NUR.

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United States

NUR
 America leases office space in Newton, Massachusetts consisting of 26,500 square feet that it had previously
 used as the subsidiarys headquarters, sales and marketing offices, and demonstration and service center.
 The Newton lease expires in January 2011. NUR America sublets this space to a third party. The sublease
 expires in January 2011. In 2001, we consolidated our U.S. operations. NUR America, Inc. in Boston,
 Massachusetts and Salsa Digital Printers Ltd. in San Antonio, Texas, were integrated into a single
 large facility in San Antonio, Texas.

Salsa
 Digital Printers previously leased 67,250 square feet in San Antonio, Texas for use as its manufacturing
 facility for the Salsa product line and the NUR inks, as well as headquarters for NUR America, NUR Americas
 sales and marketing offices, and NUR Americas training and service center. Pursuant to the consolidation
 of the manufacturing facilities and the relocation of the North American headquarters to New Jersey,
 the San Antonio lease was terminated and a termination fee of $183,649 was paid by Salsa Digital Printers
 in an out-of-court settlement agreement. For more information see ITEM 4: Legal Proceedings. In September
 2003, we relocated our machinery and ink manufacturing facilities from San Antonio, Texas to Israel.
 We now assemble and manufacture all of the NUR Printers in a single plant located in Rosh HaAyin, Israel.
 As of 2003, our solvent-based ink is now manufactured at a new plant in Ashkelon, Israel. An integral
 part of our restructuring process was the transfer of our North American headquarters and training center
 to Moonachie, New Jersey. The 11,000 square feet facility replaces NURs former facility in San Antonio,
 Texas. The new headquarters houses NURs North American sales, marketing, administrative, and support
 staff and includes a fully equipped training center and demo site. The New Jersey lease expires in October
 2008.

Europe

NUR
 Europe leases approximately 1,970 square feet of office space in Louvain-la-Neuve, Belgium for use as
 the subsidiarys headquarters and sales office, demonstration and service center. The Louvain-la-Neuve
 lease expires in March 2011. In 2000, NUR Europe expanded its headquarters space at the above location
 by an additional 12,355 square feet. The lease for the additional space expires in March 2012.

NUR
 Media Solutions leased approximately 1,867 square feet office space in Louvain-la-Neuve, Belgium for
 use as office space. NUR Europe replaced NUR Media Solutions as Lessee and now occupies this office
 space as well. The Louvain-la-Neuve lease expires in November 2009.

Asia Pacific

NUR
 Asia Pacific leases approximately 3,561 square feet for use as office space in Hong Kong. The lease
 for the Hong Kong facility will expire in November 2004.

Japan

NUR
 Japan leases approximately 2,173 square feet of office space in Tokyo. The lease expires August 2005.

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ITEM 5: Operating and Financial Review and Prospects

A.           
 Operating Results

General

NUR
 is a world leader in the market for the sale of wide format and super wide format digital printing systems.
 NUR develops, manufactures, sells and services digital, inkjet color printing systems for on-demand,
 production, wide format and super wide format printing. NUR also supplies inks that are consumable products
 for the operation of the NUR Printers. NURs total revenues declined from $120.4 million in the year
 ended December 31, 2001 to $85.3 million in the year ended December 31, 2002 and to $65.6 million in
 the year ended December 31, 2003.

Revenues
 are derived from the sale of our printers, which include the NUR Fresco printers, the NUR Ultima printers
 and the NUR Tempo printers, and from the sale of inks, spare parts and related services. Until we exited
 the substrate business in July 2003, NUR also had revenues from the sale of substrates for the NUR Printers.

Cost
 of sales of printers and related materials includes materials, labor, overhead, and other direct or
 allocated costs involved in the manufacture, warehousing, delivery, support, and maintenance of products.
 Research and development expenses include mainly labor, materials consumed, expenses by subcontractors,
 consultants, and others. Research and development expenses are carried to the statement of operations
 as incurred. Grants are netted from research and development costs on an accrual basis as the related
 expenses are incurred.

The
 sales and marketing expenses include the costs associated with the staff of the sales and marketing
 force of NUR and our subsidiaries, advertising and promotion of existing and new products, trade shows,
 commissions, and other marketing activities. Grants are netted from sales and marketing costs on an
 accrual basis as the related expenses are incurred. During the past couple of years, NUR has invested
 in the integration of the Salsa Digital and the NUR worldwide sales and service organizations, in order
 to strengthen the service and sales organizations of NUR Europe, (including the Middle East & Africa
 division), NUR America, NUR Asia Pacific, NUR DO Brazil and NUR Japan. NUR has also invested in the
 consolidation process of its printers and ink manufacturing operations into two manufacturing plants
 in Israel and the consolidation of its research and development capabilities into a single facility
 in Israel.

Certain Critical Accounting Policies

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

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NURs
 consolidated financial statements are prepared in accordance with accounting principles generally accepted
 in the United States. These accounting principles require management to make certain estimates, judgments
 and assumptions based upon information available at the time that they are made, historical experience
 and various other factors that are believed to be reasonable under the circumstances. These estimates,
 judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of
 the financial statements, as well as the reported amounts of revenues and expenses during the periods
 presented.

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

NURs
 management believes the significant accounting policies which affect managements more significant judgments
 and estimates used in the preparation of NURs consolidated financial statements and which are the most
 critical to aid in fully understanding and evaluating the NURs reported financial results include Revenue
 Recognition, Allowance for Doubtful Accounts, Inventory valuation, Impairment of long-lived assets,
 Restructuring charges and Income taxes.

Revenue Recognition

We
 derive our revenue primarily from two sources: product revenues and service revenues, which include,
 support and maintenance, installation and training revenue. Revenue related to sales of our products
 is generally recognized when persuasive evidence of an agreement exists; the product has been delivered
 and title and risk of loss have passed to the buyer; the sales price is fixed and determinable, no further
 obligations exist, and collectibility is probable. NUR does not grant right of return.

NUR
 adopted Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.

Revenues
 from services are comprised of installation, maintenance and support arrangements, and training, none
 of which are considered essential to the functionality of the products.

Revenues
 from installation, maintenance and support arrangements are deferred and recognized on a straight-line
 basis over the term of the arrangement and revenues from training and installation are recognized at
 the time the services are rendered. Deferred revenue includes amounts received from customers for which
 revenue has not yet been recognized.

Revenues
 from trade-in transactions of the NUR Printers are recorded at fair value as a discount from revenues
 in accordance with APB 29 Accounting for Non-monetary Transactions and EITF 01-2 Interpretations
 of APB Opinion No. 29, when the cash consideration involved with such transactions is material.

33

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Allowance For Doubtful Accounts

NUR
 maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its
 customers to make required payments, which is included in bad debt expense. NUR determines the adequacy
 of this allowance by regularly reviewing the complexion of its accounts receivable aging and evaluating
 individual customer receivables, considering customers financial condition, credit history and current
 economic conditions. If the financial condition of NURs customers were to deteriorate, resulting in
 an impairment of their ability to make payments, additional allowances may be required in future periods.

On
 occasion, NURs subsidiaries engage in the sale of trade receivables with established commercial banking
 institutions. NUR provides the banking institutions with an unlimited guarantee securing the obligations
 of the subsidiaries under the trade receivables sale agreements. A total of $1.1 million and $9.87 million
 was sold to the banks during the quarters ending December 31, 2003 and December 31, 2002, respectively.

Inventory Valuation

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

Impairment of Long-Lived Assets

Our
 long-lived assets include property, plant and equipment and other intangible assets. In assessing potential
 impairment of these assets, we consider this factor and other pertinent information. We record an asset
 impairment charge when we believe that the asset has experienced a decline in value that is other than
 temporary. During 2003, we recognized $1.0 million of impairment losses related to our property, plant
 and equipment in Boston. As of December 31, 2003, the carrying value of NURs long-lived assets was
 $6.9 million.

In
 assessing the recoverability of our property and equipment and other intangible assets, we must make
 assumptions regarding the estimated future cash flows and other factors to determine the fair value
 of the respective assets. If these estimates or their related assumptions change in the future, we may
 be required to record impairment charges for these assets.

In
 June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards
 No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for
 fiscal years beginning after December 15, 2001. Under these rules, goodwill and intangible assets deemed
 to have indefinite lives will no longer be amortized but will be subject to annual impairment tests
 in accordance with the Statements. NUR has conducted an evaluation of its intangible assets as of December
 31, 2002 and December 31, 2003, which resulted in an impairment of $10.87 million and $0 million of
 NURs intangible assets, respectively. Other intangible assets will continue to be amortized over their
 useful lives.

In
 August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards
 No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (FAS 144), which addresses
 financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes
 SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
 Of and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations
 for a Disposal of a Segment of a Business. FAS 144 is effective for fiscal years beginning after December
 15, 2001, with earlier application encouraged. NURs implementation of FAS 144 has resulted in the impairment
 of most of its intangible assets. See ITEM 18: Financial Statements. During 2003, we recognized $1.0
 million of impairment losses related to our property, plant and equipment in Boston. As of December
 31, 2003, the carrying value of NURs long-lived assets was $6.9 million.

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Deferred Income Taxes

We
 record income taxes using the asset and liability approach. Deferred income tax assets and liabilities
 are recognized for future tax consequences attributable to differences between the financial statement
 carrying amounts of existing assets and liabilities and their respective income tax bases, and net operating
 loss and tax credit carryforwards. Our financial statements contain fully reserved tax assets, which
 have arisen as a result of net operating losses, primarily incurred in 2001, 2002 and 2003, as well
 as other temporary differences between book and tax accounting. Significant management judgment is required
 in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation
 allowance recorded against our net deferred tax assets. We have considered future taxable income, prudent
 and feasible tax planning strategies and other available evidence in determining the need for a valuation
 allowance. We evaluate all of these factors to determine whether it is more likely than not that some
 portion or all of the deferred income tax assets will not be realized. As a result of significant net
 operating losses incurred in 2001, 2002 and 2003 and uncertainty as to the extent and timing of profitability
 in future periods, we have continued to record a valuation allowance, which was approximately $25.7
 million as of December 31, 2003. The establishment and amount of the valuation allowance requires significant
 estimates and judgment and can materially affect our results of operations. If the realization of deferred
 tax assets in the future is considered more likely than not, an adjustment to the deferred tax assets
 would increase net income in the period such determination was made.

Our
 effective tax rate may vary from period to period based on changes in estimated taxable income or loss,
 changes to the valuation allowance, changes to state or foreign tax laws, future expansion into geographic
 areas with varying country, state and local income tax rates, deductibility of certain costs and expenses
 by jurisdiction and as a result of acquisitions, divestitures and reorganizations.

Restructuring

During
 the first and fourth quarters of 2001, the second and fourth quarters of 2002 and the second quarter
 of 2003 NUR decided to perform a series of strategic initiatives intending to further reduce costs and
 increase efficiency. As a result, approximately 60, 72 and 58 employee positions were eliminated by
 NUR in 2001, 2002 and 2003, respectively. In July 2002, the Financial Accounting Standards Board issued
 SFAS No. 146 Accounting for Costs Associated with Exit or Disposal Activities, SFAS No. 146 requires
 that a liability for a cost that is associated with an exit activity be recognized only when the liability
 is incurred. It supersedes the guidance in EITF 94-3. In SFAS No. 146, an entitys commitment to a plan
 does not, by itself, create a present obligation to other parties that meets the definition of a liability
 and establishes that fair value is the objective for the initial measurement of the liability.

In
 the event that we redefine our strategic direction and/or difficult economic conditions continue to
 prevail, we may be required to implement further restructuring measures. We are not currently able to
 determine whether or to what extent such circumstances may continue or worsen.

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Geographic Breakdown of Revenues

We
 sell our products and services throughout the world. Revenues are generally attributed to the location
 of the sale of the product or service to the end-user. The tables below shows the breakdown of revenues
 by categories of activities and into geographic markets in the years ended December 31, 2003, 2002 and
 2001. The Others category, below, includes, among other things, revenues generated by the service
 of the NUR Printers.

|                     | Year Ended December 31,       
|-------------------- | ------------------------------
|
|
|                     | (In thousands of U.S. dollars)
|                     |                               
|Middle-East & Africa | $                             
|Asia (except China)  | $                             
|China                | $                             
|Europe               | $                             
|America              | $                             
|                     |                               
|Total Revenues       | $                             
|                     |                               



|               | Year Ended December 31,
|-------------- | -----------------------
|
|
|               |                        
|CATEGORY       |                        
|               |                        
|Printers       | $                      
|Ink            | $                      
|Substrates     | $                      
|Others         | $                      
|               |                        
|Total Revenues | $                      
|               |                        

Results of Operations

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

|                                                             |  | 2001(1)(2) | 2002 (3) | 2003(4)
|------------------------------------------------------------ |  | ---------- | -------- | -------
|
|*Revenues*                                                   |  | 100        | %        | 100    
|Cost of sales of printers and related products               |  | 59.8       |          | 67.3   
|One time inventory write-off                                 |  | 3.2        |          | 1.1    
|Gross profit                                                 |  | 37.0       |          | 31.6   
|Research and development                                     |  | 9.0        |          | 10.8   
|Research and development, net                                |  | 8.5        |          | 9.1    
|Selling and marketing, net                                   |  | 15.5       |          | 14.9   
|General and administrative ongoing expenses                  |  | 11.1       |          | 14.1   
|General and administrative one time expenses                 |  |           |          | 3.4    
|Amortization and impairment of goodwill and other intangible | 
|assets                                                       |  | 2.4        |          | 15.1   
|Operating loss                                               |  | (3.4       | )        | (26.5  
|Financial expenses, net                                      |  | 2.8        |          | 1.6    
|Other expense, net                                           |  | 0.3        |          | 0.1    
|Taxes on income (tax benefit)                                |  | (0.2       | )        |       
|Minority interest in earnings of a subsidiary                |  |           |          |       
|Equity in earnings (losses) of affiliates, net               |  | 0.1        |          |       
|Net loss                                                     |  | (6.0)      |          | (28.2) 

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| |  | __________________
| |  | ------------------
| |  |                   

| | (1) | Represents financial information for NUR together with our subsidiaries NUR Media Solutions, NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers, NUR Hungary Trading and Software Licensing Limited Liability Company, NUR DO Brazil Ltda., Encre Consumables B.V and NUR Japan and Stillachem (last eight months).                                                                                                                                                                                                                                                                        
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (2) | NUR acquired the remaining outstanding capital stock of Stillachem in May 2001. As a result, Stillachem became a wholly owned subsidiary of NUR. As part of the restructuring and consolidation of our ink research and development and manufacturing operations we have closed the Stillachem operations and have dissolved the company. The ink previously manufactured by Stillachem is now manufactured in Ashkelon, Israel and substantial portion of the ink research and development activities previously transferred to NUR Media Solutions will be continued in our research and development center in Israel.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (3) | Represents financial information for NUR together with our subsidiaries NUR Media Solutions, NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers, NUR Hungary Trading and Software Licensing Limited Liability Company, NUR DO Brazil Ltda., Encre Consumables B.V, NUR Japan and Stillachem.                                                                                                                                                                                                                                                                                               
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (4) | Represents financial information for NUR together with our subsidiaries NUR Media Solutions, NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific, Salsa Digital Printers, NUR Hungary Trading and Software Licensing Limited Liability Company, NUR DO Brazil Ltda., Encre Consumables B.V, NUR Japan and Stillachem (first three months).                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

Year Ended December 31, 2003 Compared with Year
 Ended December 31, 2002

Revenues.
   Revenues were approximately $65.6 million in the year ended December 31, 2003, compared
 to approximately $85.3 million in the year ended December 31, 2002. This decrease was mainly attributable
 to discontinuing sales of substrates as of the second quarter, a weakened macroeconomic environment,
 a slowdown in capital equipment investments by customers, reduced demand for printing consumables, heightened
 competition in our market and price reductions of our products.

Gross
 Profit.   Gross profit was approximately $12.8 million in the year ended December 31,
 2003, compared to $26.9 million in the year ended December 31, 2002. Excluding one-time inventory write-offs
 of $13.1 million and $1.0 million, respectively, the gross profit was approximately $25.9 million in
 the year ended December 31, 2003, compared to $27.9 million in the year ended December 31, 2002. The
 decrease in gross profits in 2003 was primarily due to write-off of inventory and a decline in our sales.
 Excluding the one-time inventory write-offs, the gross profit as a percentage of revenue has increased
 from 33% in the year ended December 31, 2002 to 40% in the year ended December 31, 2003. This increase
 is mainly attributed to the discontinuing sales of substrates as of the second quarter of 2003, which
 had a negative to no effect on the gross profit. It is also attributed to the organizational changes
 implemented during 2003, including consolidating all manufacturing activities in Israel.

Expenses.
  Research and development costs, net of government grants, were approximately $6.5 million in the
 year ended December 31, 2003, compared to $7.7 million in the year ended December 31, 2002. NUR expects
 to continue to invest significant resources in research and development programs for new products and
 enhancements of existing products.

Selling
 and marketing expenses were approximately $11.3 million in the year ended December 31, 2003, compared
 to approximately $12.7 million in the year ended December 31, 2002. The majority of sales and marketing
 expenses were incurred by our distribution subsidiaries NUR Europe, NUR America, NUR Shanghai and NUR
 Asia Pacific. The decrease of expenses is mostly attributed to organizational changes implemented during
 2003, including the appointment of local senior management in USA and Asia and a more focused marketing
 activities. As of December 31, 2002, NUR had received $1.27 million from the Marketing Fund for selling
 and marketing expenses. NUR is no longer eligible, however, for support from the Marketing Fund due
 to its reaching the maximum allowed export revenues.

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General
 and administrative expenses were approximately $19.9 million for the year ended December 31, 2003, compared
 to approximately $29 million in the year ended December 31, 2002. The figures for 2003 include amortization
 of goodwill and other intangible assets of $0.1 million and restructuring and other one-time expenses
 of $8.7 million. The figures for 2002 include amortization of goodwill and other intangible assets of
 $12.9 million and restructuring and other one-time expenses of $4.2 million during 2002. Without such
 charges, general and administrative expenses were approximately $11.1 million for the year ended December
 31, 2003, compared to approximately $12.0 million in the year ended December 31, 2002. The restructuring
 efforts in 2003 consisted of a series of strategic initiatives intended to further reduce costs and
 increase efficiency and they include reduction in work force and relocating the US headquarters from
 San Antonio, Texas to New Jersey and the Asia Pacific headquarters from China to Hong-Kong.

Financial
 expenses, net increased to $2.2 million in the year ended December 31, 2003, compared to $1.3 million
 in the year ended December 31, 2002. This increase was mainly due to increase in interest rates paid
 by NUR in respect of bank loans taken to finance the cash portion of the Salsa Digital acquisition in
 2000 and foreign exchange gains and an additional charge in respect of beneficial conversion feature
 related to conversion of the convertible loan in the amount of $0.67 million.

Taxes.
  Taxes on income were $0.2 million in the year ended December 31, 2003, as compared to taxes on
 income of $0.03 million in the year ended December 31, 2002.

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

Revenues.
   Revenues were approximately $85.3 million in the year ended December 31, 2002, compared
 to approximately $120.4 million in the year ended December 31, 2001. This decrease was mainly attributable
 to a weakened macroeconomic environment, a slowdown in capital equipment investments by customers, reduced
 demand for printing consumables, and heightened competition in our market and price reductions of our
 products.

Gross
 Profit.   Gross profit was approximately $26.9 million, and $27.9 million excluding one-time
 inventory write-offs of $1.0 million, in the year ended December 31, 2002, compared to $44.5 million
 in the year ended December 31, 2001. The decrease in gross profits in 2002 was primarily due to a decline
 in our sales. In addition to those factors noted above, we believe the reduction in our sales can be
 attributed to, among other things, heightened competition and pressure on prices in both the printers
 and the consumables markets, and the entry of more local competition.

Expenses.
  Research and development costs, net of government grants, were approximately $7.7 million
 in the year ended December 31, 2002, compared to $10.2 million in the year ended December 31, 2001.
 NUR expects to continue to invest significant resources in research and development programs for new
 products and enhancements of existing products.

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Selling
 and marketing expenses were approximately $12.7 million in the year ended December 31, 2002, compared
 to approximately $18.7 million in the year ended December 31, 2001. As of December 31, 2001, NUR
 had received $1.27 million from the Marketing Fund for selling and marketing expenses. NUR is no longer
 eligible, however, for support from the Marketing Fund due to its reaching the maximum allowed export
 revenues. The majority of sales and marketing expenses were incurred by the following distribution subsidiaries:
 NUR Europe; NUR America; NUR Shanghai; and NUR Asia Pacific.

General
 and administrative expenses were approximately $29.0 million, including amortization of goodwill
 and other intangible assets, impairment of goodwill and other intangible assets of $12.9 million, and
 restructuring and other one-time expenses of $4.2 million, for the year ended December 31, 2002, compared
 to approximately $19.5 million in the year ended December 31, 2001. The restructuring efforts in 2002
 consisted of a series of strategic initiatives intended to further reduce costs and increase efficiency,
 including the following: transfer of NURs headquarters in Asia from Shanghai to Hong Kong; workforce
 reduction; and salary cuts.

Financial
  expenses, net decreased to $1.3 million in the year ended December 31, 2002,
  compared to $3.3 million in the year ended December 31, 2001. This decrease
  was mainly due to decline in interest rates paid by NUR in respect of long-term
  bank loans taken to finance the cash portion of the Salsa Digital acquisition
  in 2000 and foreign exchange gains.

Taxes.
  Taxes on income were $0.03 million in the year ended December 31, 2002, as compared to tax benefit
 of $(0.2) million in the year ended December 31, 2001.

Impact of Inflation, Devaluation and Fluctuation
 of Currencies

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

NUR
 might also be affected by the U.S. dollar exchange rate to the Euro.

The
 annual rate of inflation in Israel was 1.4% in 2001, increased to 6.7% in the year ended December
 31, 2002, and decreased to (1.88)% in the year ended December 31, 2003. The NIS was devalued against
 the U.S. dollar by approximately 9.3% in 2001, by approximately 7.3% in 2002, and by approximately 7.6%
 in 2003. NUR cannot predict whether the rate of devaluation of the NIS against the U.S. dollar will
 continue to exceed the rate of inflation in the future and whether these conditions will have a material
 adverse effect on NUR.

The
 representative dollar exchange rate for converting the NIS to dollars, as reported by the Bank of Israel,
 was NIS 4.379 for one-dollar U.S. on December 31, 2003. The representative dollar exchange rate was
 NIS 4.737 on December 31, 2002 and NIS 4.416 on December 31, 2001.

NURs
 transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar
 transactions and balances have been measured into U.S. dollars in accordance with Statement 52 of the
 FASB. All transaction gains and losses from remeasurement of monetary balance sheet items denominated
 in non-dollar currencies are reflected in the statement of operations as financial income or expenses,
 as appropriate. The average exchange rates during the years ended December 31, 2001, 2002 and 2003 were
 NIS, 4.205, 4.738 and 4.548 for one-dollar U.S., respectively. The exchange rate as of March 29, 2004
 was NIS 4.535 for one dollar.

39

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B.           
 Liquidity and Capital Resources

We
 have historically funded our operations primarily through the private sale of our equity securities,
 commercial bank loans and through cash generated from operations. We invest our excess cash in cash
 and cash equivalents that are highly liquid. At December 31, 2003 we had approximately $10.3 million
 of cash and cash equivalents compared with $10.5 million at December 31, 2002 and $12.4 million at December
 31, 2001.

We
 expect that our working capital will not be sufficient for our requirements during 2004. NUR intends
 to raise additional capital from private investors through one or more equity private placement transaction(s)
 if and when needed to fund the capital requirements of its operations.

As
 of December 31, 2003, NUR does not have material commitments for capital expenditures.

Operating activities

In
 the year ended December 31, 2003, NUR had a net loss of $(27.7) million. Net cash used in operating
 activities was approximately $7.9 million. The main changes in NURs working capital were: (i) a decrease
 of approximately $11.7 million in trade accounts receivable and long-term trade accounts receivables;
 (ii) a decrease of approximately $6.7 million in trade payables; and (iii) a decrease of approximately
 $10.8 million in inventories.

In
 the year ended December 31, 2002, NUR had a net loss of $(24.1) million. Net cash used in operating
 activities was approximately $4.2 million. The main changes in NURs working capital were: (i) a decrease
 of approximately $8.0 million in trade accounts receivable; and (ii) a decrease of approximately $5.1
 million in trade payables.

In
 the year ended December 31, 2001, NUR had net loss of $(7.2) million. Net cash used in operating activities
 was approximately $0.2 million. The main changes in NURs working capital were (i) a decrease of approximately
 $7.0 million in trade accounts receivable, (ii) a decrease of approximately $3.2 million in trade payables
 and accrued expenses.

Investing activities

Net
 cash used in investing activities was approximately $1.1 million in the year ended December 31, 2003,
 consisting mainly of purchase, net of property and equipment. Net cash used in investing activities
 was approximately $2.7 million in the year ended December 31, 2002, consisting mainly of purchase, net
 of property and equipment. Net cash used in investing activities was approximately $8.6 million in the
 year ended December 31, 2001, consisting mainly of purchase, net of property and equipment.

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Financing activities

Net
 cash provided by financing activities in the year ended December 31, 2003 was approximately $10 million,
 deriving primarily from short-term bank credit and short-term loans in the aggregate amount of $9.2
 million and the conversion of a convertible loan commitment secured from several investors in the aggregate
 amount of $1.9 million (net of related issuance expenses). NURs chairman and largest shareholder, Dan
 Purjes, provided approximately $1.3 million of the loan. Under the terms of the loan agreement, the
 loan is convertible at any time into ordinary shares of NUR at a conversion rate of $0.62 per share.
 In consideration for the loan undertaking, NUR agreed to pay a cash commitment fee and issue to the
 investors warrants to purchase ordinary shares of NUR equal to 15% of the loan at an exercise price
 of $0.52 per share exercisable over a five-year period. In the event of a draw down of the loan, NUR
 will issue to the investors additional warrants to purchase ordinary shares in the amount equal to 15%
 of the draw down amount, at an exercise price of $0.52 per share, and exercisable for a period of five
 years from the date of the draw down. On December 31, 2003, the investors elected to convert $2 million
 of the loan into ordinary shares of NUR at the conversion rate of $0.62 per ordinary share.

NUR
 maintained long and short-term credit facilities in an aggregate amount of approximately $45.9 million
 at December 31, 2003. At December 31, 2002, NUR had approximately $37.9 million in long-term loans from
 banks and others. During 2003, NUR refunded approximately $1.23 million on its long-term loans. NURs
 long-term loans are linked to the U.S. dollar and the Euro bearing interest at a rate ranging between
 3.63% and 4.5%. In July 2003 and February 2004, NUR signed an amendment to its long-term loan agreements
 with Bank Hapoalim and Bank Leumi providing for the rescheduling of the repayment dates of the remaining
 long-term loans. Under the rescheduling agreements, NUR undertook, among other things, to maintain four
 financial ratios. During 2003, NUR failed to meet a number of these financial ratios as a result of
 a decrease in NURs revenues. However, the banks agreed in writing not to act upon their contractual
 rights pursuant to the defaults mentioned above. We believe that the amendment of the financial ratios
 that took place on February 2004 will allow a better alignment between the financial ratios and NURs
 current business plan. However, there can be no assurance that NUR will be able to comply with the bank
 covenants. NURs failure to comply with the bank agreements could have a material adverse effect on
 our business and financial results. For more information see ITEM 10.C: Material Contracts.

As
 of December 31, 2003, total current assets of NUR amounted to approximately $51.4 million, out of which
 $10.3 million was in cash and cash equivalents, compared with total current liabilities of approximately
 $32.5 million. The decrease in current assets is attributable primarily to the decrease in trade accounts
 receivable and inventories.

As
 of December 31, 2002, total current assets of NUR amounted to approximately $70.3 million, out of which
 $10.5 million was in cash and cash equivalents, compared with total current liabilities of approximately
 $33.6 million.

Net
 cash provided by financing activities in the year ended December 31, 2002 was approximately $5.8 million
 derived mainly from issuance of shares and warrants.

Net
 cash provided by financing activities in the year ended December 31, 2001 was approximately $2.5 million
 derived mainly in an increase in NURs short-term bank credit.

41

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

Current and Future Capital Needs

As
 a result of decreasing sales, NUR instituted a growth-renewal program in May 2002, which included a
 corporate reorganization plan, a workforce reduction of approximately 15% of our employees and salary
 cuts for most of the remaining employees. In addition, in November 2002, NUR implemented a plan to update
 our operations in the Asia Pacific region, which included the appointment of the Computer And Sign Technology
 Co. Ltd (CAST) as our exclusive distributor for the NUR Fresco product line in China. At the time we
 appointed CAST, we transferred our Asia Pacific headquarters to Hong Kong. This restructuring process
 resulted in the termination of approximately twenty employees, mainly in Shanghai. Total restructuring
 and other one-time expenses in 2002 amounted to $1.3 million. In addition, in 2002, NUR incurred one-time
 inventory write-off of approximately $1.0 million as a result of the transfer of our headquarters from
 Shanghai to Hong Kong. In year 2003 we ceased our operations in the Chinese market and the engagement
 of CAST as an exclusive distributor in China was terminated.

NUR
 has incurred operating losses during the last three years. NUR will require additional funds to be raised
 through public or private financing of debt or equity if we seek to expand our operations or if we do
 not meet our expected revenues in future quarters. If such funds are not raised, we may be unable to
 increase expenditures for research and development, production, or marketing of our products, any one
 of which could have an adverse effect on NURs business. There can be no assurance that such additional
 financing will be available or that, if available, it will be obtained on terms favorable to NUR. We
 currently have no commitments for additional financing and are exploring the possibility of raising
 additional capital.

In
 this regard, NURs capital requirements and level of expenses depend upon numerous factors, including
 the scope and success of our marketing and customer service efforts, and of our research and development
 activities, as well as the demand for NURs products and services. Moreover, in the course of the bankruptcy
 proceedings of Moshe Nurie and the companies controlled by him, NUR in the future may be exposed to
 claims arising from the actions of Moshe Nurie despite the settlement of all material claims related
 to such persons and entities. Liabilities arising from any such claims may be material.

C.           
 Research and Development, Patents and Licenses

NURs
 research and development efforts, which currently engage approximately 50 employees, are focused on
 developing new products and technologies, enhancing the quality and performance relative to price of
 our existing products, reducing manufacturing costs, upgrading and expanding our product line through
 the development of additional features, and improving functionality in response to market demand.

There
 are three research and development facilities, a facility at our headquarters in Lod, Israel, a facility
 in Ashkelon, Israel, and a facility in Louvain-la-Neuve, Belgium. We are now near completion of the
 transfer of a substantial portion of the research and development activities from Belgium to Israel.

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Total
 research and development expenses, before royalty bearing grants, were approximately $10.9 million,
 $9.2 million and $7.2 million, in the years ended December 31, 2001, 2002 and 2003, respectively. Research
 and development expenditures are composed principally of salaries for employees, the hiring of subcontractors,
 depreciation of capital investment in infrastructure for software and electronic designs, and prototype
 material costs. See ITEM 4: Information on NURResearch and Development.

D.           
 Trend Information

Printers sales

Revenues
 from sales of the NUR Printers, which comprised 55% of NURs total revenues in 2003, declined by $7.3
 million in 2003 compared to 2002. This decline was due to several factors, including a weakened macroeconomic
 environment, a slowdown in capital equipment investments by customers and heightened competition and
 pricing pressures. We have witnessed the expansion of the wide format market to new arenas, such as
 the UV curable flatbed printers. During 2003, for example, we provided technical previews of the NUR
 Tempo flatbed digital printer in prototype form.

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

Consumables Sales

During
 the past few years, NUR has focused on a recurring revenues strategy for consumables. The consumable
 business is composed of two families of products  specialized inks and specialized substrates. Revenues
 from consumables declined by 38% in 2003 compared to 2002, due to a continued increase in the competitiveness
 of the consumables market during 2003 and slow economic conditions worldwide. NUR is constantly working
 on development of new products intended to maintain a differentiation between our consumable products
 and those of our competitors. In July 2003 we announced our decision to exit the substrate business.
 As the digital wide format printers have become more widespread, substrates have become a low margin
 commodity that is no longer profitable for NUR to resell. We believe terminating this business will
 allow us to more strongly focus on our proprietary specialty inks.

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

Gross Margins

The
 decline in gross margins in 2003 on a GAAP basis was mainly due to write-off of inventory of $13.2 million,
 which related to the reorganization plan of NUR, including, the consolidation and relocation of operations
 in North America from San Antonio, Texas to New Jersey, our decision to exit the substrate business
 and our decision to exit the Chinese market. There is an increase in gross margins in 2003 on a non-GAAP
 basis, which is attributed to improvement in performance. NURs management believes that the non-GAAP
 measure reflects better the results of operation of NUR for 2003, since the GAAP results also include
 the completion of NURs transition and transformation period, involving among others, the transfer of
 our U.S. headquarters from San Antonio, Texas to the New Jersey, the relocation and integration of the
 U.S. based ink and machine production to Israel, the replacement of six of the top seven senior management
 positions around the world, and the carrying out of major cost cutting and rationalization programs.

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Industry

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

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

Restructuring Plan

During
 2003, NUR implemented additional restructuring initiative. NUR implemented a corporate plan in order
 to create a more centralized, functional and cost-effective organizational structure. In September 2003,
 NUR completed its consolidation process of the machinery manufacturing facilities in San Antonio, Texas
 and Rosh HaAyin, Israel. NUR now manufactures all its printers in a single plant located in Rosh HaAyin
 Israel. We have also relocated our North American headquarters from San Antonio, Texas to New Jersey
 in the third quarter of 2003. The Ink manufacturing facilities, also previously located in San Antonio,
 Texas were relocated to a new manufacturing plant in Ashkelon, Israel. We now produce all of our solvent-based
 inks in a single manufacturing facility in Ashkelon, Israel. We are now near completion of the transfer
 of a substantial portion of the research and development activities from Belgium to Israel. The restructuring
 plan resulted in extraordinary charges of $2 million for the year ended December 31, 2003.

E.            
 Off-balance Sheet Arrangements

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

F.            
 Contractual obligations

|                                       | Payments due by period(in thousands of U.S. dollars)
|-------------------------------------- | ----------------------------------------------------
|
|
|Long-Term Rent Obligations(1)          |                                                     
|Capital (Finance) Lease obligations(2) |                                                     
|Operating Lease Obligations            |                                                     
|Accrued severance pay(3)               |                                                     
|Long term loans                        |                                                     
|                                       |                                                     
|Total                                  | 37,362                                              
|                                       |                                                     

______________________

| | (1) | We operate from leased premises in Lod, Rosh HaAyin and Ashkelon in Israel. We also lease premises for our subsidiaries activities in the United States, Hong Kong and Japan.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                
| | (2) | NUR Europe conducts its activities in Belgium from premises leased by it. Upon completion of payments, NUR Europe will own the premises.                                       
| |     |                                                                                                                                                                                
| | (3) | The accrued severance pay is considered to be a contractual obligation of NUR for more than 5 years, as we do not anticipate at present the dismissal of our employees.        

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ITEM 6: Directors, Senior Management and Employees

A.           
 Directors and Senior Management

The
 executive officers and directors of NUR are as follows

|Name                    | Age | Position with NUR                    
|----------------------- | --- | -------------------------------------
|Dan Purjes (1)(2)       | 53  | Chairman of the Board of Directors   
|Robert F. Hussey (1)(3) | 54  | Director                             
|Oded Akselrod (2)(4)    | 57  | Director                             
|Ilan Ben Gigi (5)       | 41  | Director                             
|Lauri Hanover (1)(3)(6) | 44  | Director                             
|Koby Shtaierman (3)(6)  | 49  | Director                             
|David Amir              | 46  | President and Chief Executive Officer
|David Seligman          | 45  | Chief Financial Officer              

---

|    |  |                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                    
|(1) |  | Member of NURs Stock Option and Compensation Committee.                                                                                           
|    |  |                                                                                                                                                    
|(2) |  | Member of the NURs Non-Employee Director Share Option Plan Committee.                                                                             
|    |  |                                                                                                                                                    
|(3) |  | Member of NURs Audit Committee.                                                                                                                   
|    |  |                                                                                                                                                    
|(4) |  | Elected to serve on the Board of Directors pursuant to a voting arrangement between Dan Purjes and the Investment Corp. of United Mizrahi Bank Ltd.
|    |  |                                                                                                                                                    
|(5) |  | Elected to serve on the Board of Directors pursuant to a voting arrangement between Dan Purjes and Isal Amlat Investments (1993) Ltd.              
|    |  |                                                                                                                                                    
|(6) |  | External Director.                                                                                                                                 
|    |  |                                                                                                                                                    
|    |  | The senior managers of NUR are as follows:                                                                                                         

|Name            | Age | Position with NUR                         
|--------------- | --- | ------------------------------------------
|Eliahu Shalev   | 53  | Vice President of Research and Development
|Nachum Korman   | 42  | President, NUR America, Inc.              
|Marco Baio      | 41  | Managing Director, NUR Europe S.A.        
|Amir Kleinstern | 43  | Managing Director, NUR Asia Pacific Ltd.  
|Roni Zomber     | 48  | Vice President of Operations              

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

Dan
 Purjeshas served as the Chairman of the Board of NUR since April 1997. Mr. Purjes is the Chairman
 and Chief Executive Officer of Rockwood Group LLC, a merchant and investment banking firm headquartered
 in New York City. He is also Chairman and a Managing Member of Duncan Capital Group, LLC, an asset management
 firm managing several investment funds which also is active in merchant and investment banking. Previously,
 Mr. Purjes was the Chairman and Chief Executive Officer of Josephthal Group, Inc., the parent company
 of Josephthal & Co. Inc. (Josephthal), an investment banking and brokerage firm that was acquired
 in 2001 by the predecessor to Oppenheimer and Company. Mr. Purjes was also the Chairman and Chief Executive
 Officer of FAS Holdings, Inc., the parent company of First Allied Securities, Inc., a retail brokerage
 firm with over 200 branch offices in the U.S., which was acquired in July 2002 by Wells Fargo &
 Company. Prior to joining Josephthal in 1985, Mr. Purjes was a Vice President with a number of securities
 firms, including Bear Stearns & Co. and L.F. Rothschild Unterberg Towbin, in their corporate finance
 and brokerage sales divisions. He began his Wall Street career at Morgan Stanley & Co. in 1978 as
 a director of their computer systems department. Prior to that, Mr. Purjes was a manager at Citibank
 and at Philip Morris International in their computer systems areas. Mr. Purjes earned B.S. and M.S.
 degrees in Computer Science from the City College of New York School of Engineering.

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Robert
 F. Husseyhas served as a Director of NUR since September 1997. Mr. Hussey is a private investor.
 From June 1991 to April 1997, Mr. Hussey served as the President and Chief Executive Officer of Metrovision
 of North America. Prior thereto, from 1984 to 1991, Mr. Hussey served as the President, Chief Executive
 Officer and Director of POP Radio Corp., a company which he helped form. From 1979 to 1984, Mr. Hussey
 served as the Vice President/Management Supervisor for Grey Advertising, Inc. Mr. Hussey is also a director
 of Digital Lightwave, Inc., New World Power Corp., Digital Data Networks, Corp. and Axcess Inc., which
 are all publicly held companies. Mr. Hussey holds a B.S. degree in Finance from Georgetown University
 and an M.B.A. degree in International Finance from George Washington University.

Oded
 Akselrodhas served as a Director of NUR since February 2002. Mr. Akselrod is the General Manager
 of the Investment Corp. of United Mizrahi Bank Ltd., a wholly owned subsidiary of United Mizrahi Bank
 Ltd. Prior to joining the Investment Corp. of United Mizrahi Bank, from 1994 to 1997, Mr. Akselrod held
 the position of General Manager of Apex-Leumi Partners Ltd. as well as Investment Advisor of Israel
 Growth Fund. Prior thereto, from 1991 to 1994, Mr. Akselrod served as General Manager of Leumi &
 Co. Investment Bankers Ltd. Mr. Akselrod began his career in various managerial positions in the Bank
 Leumi Group including member of the management team of Bank Leumi, Deputy Head of the International
 Division, head of the Commercial Lending Department of the Banking Division, member of all credit committees
 at the Bank, assistant to Bank Leumis CEO and Head of International Lending Division of Bank Leumi
 Trust Company of New York. Mr. Akselrod holds a Bachelors degree in Agriculture Economics from Hebrew
 University, Jerusalem and an M.B.A. degree from Tel Aviv University. Mr. Akselrod is also a director
 of Moffet Technology Fund Israel Ltd., Marthon Venture Capital Fund Ltd. both publicly held companies.

Ilan
 Ben Gigi  has served as a Director of NUR since March 2003. Mr. Ben Gigi is Chief Executive
 Officer of MVT Multi Vision Technologies Ltd. Prior to joining MVT, from 2000 to 2002, Mr. Ben Gigi
 served as Vice President of Business Development and Chief Executive Officer of Ormat Industries, Ltd.
 and Ormat Power Inc., respectively. Prior thereto, from 1997 to 2000, Mr. Ben Gigi served as Chief Executive
 Officer of Karaganda Power Ltd. in Kazakhstan. Mr. Ben Gigi holds a B.A. in Economics and a B.Sc with
 honors of Mechanical Engineering, both from Tel Aviv University, and an EMBA from the Senior Management
 Program (SMP) of the Technion Institute of Management.

Lauri
 Hanoverhas served as an External Director of NUR since November 2003. Ms. Hanover is the Corporate
 Vice President and Chief Financial Officer of NICE Systems Ltd. She previously served as Executive Vice
 President and Chief Financial Officer of Sapiens International Corporation N.V., from 1997 to 2000.
 From 1984 to 1997, Ms. Hanover served in a variety of financial management positions, including Corporate
 Controller at Scitex Corporation Ltd. and from 1981 to 1984 as Financial Analyst at Philip Morris Inc.
 (Altria). Ms. Hanover holds a Bachelors degree in finance from the Wharton School of Business and a
 Bachelor-of-Arts degree from the College of Arts and Sciences, both of the University of Pennsylvania.
 Ms. Hanover also holds a Masters degree in business administration from New York University. Ms. Hanover
 has served on the Board of Directors of Nova Measuring Instruments Ltd. since 2000. Ms. Hanover qualifies
 as an External Director according to the Companies Law, 1999.

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Koby
 Shtaiermanhas served as an External Director of NUR since November 2003. Mr. Shtaierman currently
 serves as Vice President Marketing and Sales of Advanced Vision Technology Ltd. From 1996 to 1998, Mr.
 Shtaierman served as Vice President of Corporate Marketing for Tecnomatix Technologies Ltd. From 1985-1995,
 Mr. Shtaierman served as Marketing Director of the Input System Division of Scitex Corporation. Prior
 thereto Mr. Shtaierman held various positions at Israel Aircraft Industries. Mr. Shtaierman holds a
 B.Sc. and M.Sc. degrees in Electronics and Computer Engineering from the Technion, Haifa. Mr. Shtaierman
 qualifies as an External Director according to the Companies Law, 1999.

David
 Amir  has been serving as NURs President and Chief Executive Officer since April 2003. Mr.
 Amir has also been serving as director of NUR Europe, NUR America, Salsa Digital Printers, NUR Media
 Solutions, NUR Asia Pacific and NUR Pro Engineering since April 2003. Prior to joining NUR, from 1999
 to 2002, Mr. Amir served as President and Chief Executive Officer of Paspartoo Ltd., a high-tech company
 specializing in virtual to print technology. Mr. Amir was also the founder of Paspartoo Ltd. Prior
 thereto, from 1984 to 1999, Mr. Amir served in various research and development, marketing, customer
 support and senior management positions with Scitex Corporation. Mr. Amirs last position with Scitex
 Corporation was Corporate Vice President of Business Development. Mr. Amir holds a B.Sc. in Electrical
 Engineering from Technion in Haifa.

David
 Seligman  has served as Chief Financial Officer of NUR since October 2003. Mr. Seligman has
 also served as a Director of NUR Europe, NUR Media Solutions, NUR America, NUR Asia Pacific, NUR Japan
 and Encre Consumables B.V. since October 2003. Prior to joining NUR, Mr. Seligman served as Chief Financial
 Officer for RADVISION Ltd. (Nasdaq: RVSN). Previously, he was Chief Financial Officer for LanOptics
 Ltd. (Nasdaq: LNOP), a senior financial analyst for Fidelity Investment Systems in Boston, Massachusetts,
 and served as a controller and financial analyst for several hi-tech companies. Mr. Seligman holds a
 B.A. degree in political science and geography, and a M.B.A. degree in accounting and finance, both
 from Tel Aviv University.

Eliahu
 Shalevhas served as Vice President of Research and Development since March 2001, as well as Chief
 Operating Officer since November 2001 and until December 2003. Prior to joining NUR, from April 2000
 to February 2001, Mr. Shalev served as corporate Vice President of CreoScitex, heading the Output Division
 in Herzelia and Vancouver. From May 1981 to March 2000, Mr. Shalev served in various research and development
 management positions with Scitex Corporation Ltd. Mr. Shalev holds a B.Sc. in Electrical Engineering
 from Ben Gurion University in Israel and an MSC in Electrical Engineering from Technion Haifa. He also
 holds an M.B.A. degree from Tel Aviv University.

Nachum
 Kormanhas served as President of NUR America, Inc. since June 2003. Mr. Korman joined NUR in 1999
 heading up its NUR Middle East & Africa division, and became Vice President of NUR Europe S.A. in
 July 2000. Mr. Korman was President of NUR Europe from January 2001 and until June 2003. Prior to joining
 NUR Mr. Korman served as Operations Director and Sales Director for the Middle East and Africa at Scitex
 Corporation. Previously, Mr. Korman held a Sales Logistics Management role at Scitex Europe S.A. following
 his earlier career at Elbit and Optrotec Belgium.

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

Amir
 Kleinsternhas served as Managing Director of NUR Asia Pacific since July 2003. Previously, Mr.
 Kleinstern had provided consulting services to NUR. Prior to this, Mr. Kleinstern held the position
 of Vice President of Research and Development at Paspartoo Ltd., a company specializing in virtual-to-print
 technology. Previously, Mr. Kleinstern spent 12 years with Scitex Corporation, both in Israel and in
 the U.S., in a variety of management, marketing and technical positions. Mr. Kleinstern holds a B.Sc.
 and a M.Sc. in Mathematics and Computer Sciences from the Ben Gurion University.

Roni
 Zomberhas served as Vice President of Operations since December 2003. Prior to this Mr. Zomber
 served as a VP of Operations and a member of the management of M-Systems Flash Disk Pioneers Ltd. (Nasdaq:
 FLSH). Previously, Mr. Zomber spent 8 years as an Executive VP and a member of the management of Nice
 Systems Ltd. (Nasdaq: NICE) and prior to this Mr. Zomber spent 9 years at Scitex as a planning and control
 manager. Mr. Zomber holds a practical engineer diploma and a B.A. in Business administration from New
 England College, Henniker, New Hampshire.

B.           
 Compensation of Officers and Directors

In
 the year ended December 31, 2003, the aggregate compensation paid to the executive officers and directors
 of NUR (a total of 10 persons, including 2 directors who left the Board during 2003) amounted to approximately
 $0.198 million. This amount includes the amount of compensation paid and benefits in kind granted to
 these persons by NUR and our subsidiaries.

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

In
 addition, a total of 647,501 options were granted in 2003 to executive officers and directors to purchase
 ordinary shares. The 647,501 options granted had a weighted average exercise price of $0.67 and have
 expiration dates in 2013.

Pursuant
 to an employment agreement, Erez Shachar, in his capacity as President and Chief Executive Officer of
 NUR, earned a salary of $58,000  during the first three months of 2003. Erez Shachar resigned
 his position as President and Chief Executive Officer of NUR on April 1, 2003, and is working with NUR
 as a consultant until March 31, 2004.

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

NURs
 shareholders approved at the Annual Shareholders meeting held on February 12, 2002 a Terms of Service
 Agreement with Dan Purjes effective as of January 1, 2002. In his capacity as Chairman of the Board,
 Dan Purjes receives an annual fee of $125,000 to be due and paid in ordinary shares to Rockwood Group
 LLC, a company wholly owned by Dan Purjes. The fee shall be paid quarterly, at the end of each quarter,
 by way of issuing ordinary shares valued at $31,250. Such annual fee shall be in lieu of any and all
 payments, which are due to Dan Purjes in his capacity as a director, Chairman of the Board, and a member
 of any committees of the Board, including the right to receive options to purchase ordinary shares in
 accordance with NURs 1998 Share Option Plan for Non-Employee Directors.

Outstanding Options and Warrants

As
 of December 31, 2003, NUR had outstanding options under NURs stock option plans to purchase a total
 of 2,661,710 of its ordinary shares. Of such options, 54,500 have been issued under the 1995 Israel
 Stock Plan, 771,466 have been issued under the 1997 Stock Option Plan, 107,501 have been issued under
 the 1998 Non-Employee Director Share Option Plan and 1,728,243 have been issued under the 2000 Stock
 Option Plan (as amended). The options granted under the 1995 Plan, the 1997 and the 2000 Plan are subject
 to various vesting requirements and have been issued at exercise prices ranging from $0.37 to $7.50per
 share with various expiration dates. The options granted under the 1998 Plan are not subject to vesting
 requirements and have an exercise price ranging from $0.37 to $13.50 per share, with various expiration
 dates. See Note 15 to NURs consolidated financial statements included as a part of this annual report
 on Form 20-F for more details.

On
 May 17, 2002, NUR filed a tender offer with the Securities and Exchange Commission pursuant to which
 option holders had the right to cancel and exchange certain options granted to them under NURs 2000
 Stock Option Plan, 1997 Stock Option Plan and 1995 Israel Stock Option Plan. Pursuant to the terms and
 conditions of the tender offer, the new options were to be granted six months and one day from the date
 the old options were canceled, at an exercise price equal to the market price on the date of the new
 grant. In order to receive the new options, option holders were required to have a service relationship
 with NUR or any of its subsidiaries until the new grant date. 2,027,166 ordinary shares, representing
 93% of the outstanding options under NURs 2000 Stock Option Plan, 1997 Stock Option Plan and 1995 Israel
 Stock Option Plan, were available for exchange under the tender offer. The tender offer expired on June
 15, 2002 and resulted in the cancellation of 1,245,316 options with varying exercise prices.

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As
 of March 25, 2004, NUR had outstanding warrants exercisable into a total of 3,127,833 ordinary shares.
 Of such warrants, (i) 50,000 were issued to Josephthal & Co., Inc. as placement agent in connection
 with NURs private placement between September and December 1997 and subsequently transferred by Josephthal
 to David Fuchs, (ii) 37,411 were issued to Investec Clali Trust Company Ltd. as placement agent in connection
 with NURs private placement in September 2000, (iii) 612,500 were issued to the Investment Corp. of
 United Mizrahi bank Ltd. as part of the private placement in January 2002, (iv) 70,000 were issued to
 Bank Hapoalim as part of the rescheduling of NURs long-term debts, (v) 50,000 were issued to Bank Leumi
 as part of the rescheduling of NURs long-term debts (vi) 140,000 were issued to Bank Hapoalim as part
 of the amendments of the covenants governing the rescheduling of NURs long-term debts, (vii) 100,000
 were issued to Bank Leumi as part of the amendments of the covenants governing the rescheduling of NURs
 long-term debts, (viii) 11,000 were issued to Poalim Capital Markets as part of the settlement of the
 litigation discussed in ITEM 4: Legal Proceedings, (ix) 505,000 were issued to Bank Hapoalim as part
 of the amendments of the covenants governing NURs debts, (x) 350,000 were issued to Bank Leumi as part
 of the amendments of the covenants governing NURs debts, (xi) 27,000 were issued to Bank Discount as
 part of the agreement regarding NURs debt, (xii) 98,000 were granted to Bank Discount as part of the
 agreement regarding the covenants governing NURs debt, (xiii) 1,009,614 were granted to the investors
 participating in NURs convertible loan of $3.50 million in October 2003, and (xiv) 67,308 were granted
 to Rockwood Inc. in its capacity as placement agent in connection with NURs convertible loan in October
 2003. The Fuchs warrants are exercisable at $1.00. NUR extended the exercise period for the Fuchs warrants
 to December 2005 in consideration for certain services provided by Fuchs. The Investec Clali warrants
 are exercisable at $13.365 no later than September 2005. The Mizrahi warrants are exercisable at $4.50
 no later than January 2006. The Bank Hapoalim and Bank Leumi warrants are exercisable at $5.00 no later
 than February 2006. The additional Bank Hapoalim and Bank Leumi warrants are exercisable at $0.34 no
 later than March 2007. The Poalim Capital Markets warrants are exercisable at $0.784 no later than November
 2006, the first Bank Discount warrant is exercisable at $0.72 no later than June 2007, The second Bank
 Discount warrant and the third Bank Hapoalim and Bank Leumi warrants are exercisable at $0.62 no later
 than August 2007 and the convertible loan investment warrants and the convertible loan placement agent
 warrants are exercisable at $0.52 no later than October 2008.

Of
 the options and warrants described above, directors and executive officers of NUR hold options and warrants
 to purchase an aggregate of 1,073,655 ordinary shares issuable pursuant to exercise of such securities.

1995 Israel Stock Option Plan

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

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

1997 Stock Option Plan

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

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

1998 Non-Employee Director Share Option Plan

In
 1998, NUR adopted the 1998 Non-Employee Director Share Option Plan to provide for grants of options
 to purchase ordinary shares to non-employee directors of NUR. The 1998 Plan is administered by the Non-Employee
 Director Share Option Committee subject to Board approval. An aggregate amount of not more than 250,000
 ordinary shares is reserved for grants under the 1998 Plan. The 1998 Plan will expire on December 8,
 2008 (10 years after adoption), unless earlier terminated by the Board.

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

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

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

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

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2000 Stock Option Plan

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

NURs
 shareholders approved, at the Annual Shareholders meeting held on November 18, 2003, the termination
 of the 1995 Plan and the 1997 Plan and the increase of the number of ordinary shares authorized for
 issuance under the 2000 Stock Option Plan (as amended) in the aggregate amount that was outstanding
 for grant under the 1995 Plan and the 1997 Plan as of July 15, 2003, thereby increasing the number of
 ordinary shares authorized for issuance under the 2000 Stock Option Plan (as amended) by 497,590, from
 2,000,000 to 2,497,590. The 2000 Stock Option Plan will expire on August 31, 2008, unless previously
 terminated or extended by the Board.

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

The
 Board determines the term of each option granted under the 2000 Stock Option Plan (as amended); provided,
 however, that the term of an option shall not be for more than ten (10) years. Upon termination of employment,
 all unvested options lapse. The Board determines the vesting period of each option grant under the 2000
 Stock Option Plan (as amended).

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

Indemnification of Executive Officers and Directors

At
 the Annual Shareholders meeting held on February 12, 2002, NURs shareholders authorized it to enter
 into indemnification agreements with each of its current and future Directors. The shareholders of NUR
 further authorized certain amendments to the indemnification agreements at the Annual Shareholders meeting
 held on November 18, 2003. According to the terms of the indemnification agreements (as amended), NUR
 shall, subject to the provisions of the indemnification agreement, indemnify each director for the following:

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

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(b)          
 reasonable litigation expenses.

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

C.           
 Board Practices

Terms of Directors

The
 Board currently consists of six members, including two external directors. Unless otherwise prescribed
 by resolution, the Board shall consist of not less than four (4) nor more than twelve (12) directors.
 The members of the Board are elected annually at NURs Annual Shareholders meeting and remain in office
 until the next annual shareholders meeting, unless the director has previously resigned, vacated his
 office, or was removed in accordance with NURs Amended and Restated Articles of Association. The previous
 Annual Meeting was held on November 18, 2003. In addition, the Board may elect additional members to
 the Board. The members of the Board do not receive any additional remuneration upon termination of their
 services as directors.

Pursuant
 to the Israeli Companies Law, 1999, the two external directors of the Board serve for a period of three
 (3) years unless their office is vacated earlier in accordance with NURs then current Amended and Restated
 Articles of Association and the Israeli Companies Law, 1999.

Alternate Directors

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

Committees of the Board of Directors

Approval of Certain Transactions Under the Israeli
 Companies Law; Audit Committee

The
 Israeli Companies Law, 1999 requires disclosure by an Office Holder (as defined below) to NUR in the
 event that an Office Holder has a direct or indirect personal interest in a transaction to which NUR
 intends to be a party, and codifies the duty of care and fiduciary duties which an Office Holder has
 to NUR. An Office Holder is defined under the Israeli Companies Law as a director, general manager,
 chief business manager, vice general manager, other manager directly subordinate to the general manager
 and any other person assuming the responsibilities of any of the foregoing positions without regard
 to such persons title.

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The
 Israeli Companies Law, 1999 requires that certain transactions, actions and arrangements must be approved
 by the Audit Committee, by the Board and, in certain circumstances, by the shareholders of NUR. NUR
 is also required to maintain the Audit Committee as a result of the inclusion for quotation of the ordinary
 shares on the Nasdaq SmallCap Market. The Audit Committee must be composed of members of the Board who
 are not employees of NUR and the external directors. In addition, the majority of members of the Audit
 Committee may not be holders, directly or indirectly, through family members, of more than five percent
 of the ordinary shares.

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

Office
 Holders (including directors) who have a personal interest in a matter which is considered at a meeting
 of the Board or the Audit Committee may not be present at such meeting, may not participate in the discussion,
 and may not vote on any such matter, except that such Office Holders may consent in writing to resolutions
 adopted by the Board and/or the Audit Committee by unanimous consent.

The
 requirements of The Nasdaq Stock Market, Inc. provide that the Audit Committee reports, among other
 things, that it has reviewed and discussed the consolidated financial statements for the year ended
 December 31, 2003 with the management of NUR.

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

Stock Option and Compensation Committee

In
 March 1998, NUR established a Stock Option and Compensation Committee to administer NURs stock option
 plans, other than the 1998 Non-Employee Director Share Option Plan. The Stock Option and Compensation
 Committee is charged with administering and overseeing the allocation and distribution of stock options
 under the approved stock option plans of NUR and approval of the NURs executive officers annual compensation.
 The Companies Law, 1999 provides that the Board is not entitled to delegate to Board committees its
 power, among other things, to allocate shares or securities convertible into shares of NUR. Accordingly,
 all recommendations of the Stock Option and Compensation Committee are subject to the Board approval.
 The Stock Option and Compensation Committee is presently composed of three members: Dan Purjes, Lauri
 Hanover and Robert F. Hussey.

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Non-Employee Director Share Option Plan Committee

In
 February 1999, NUR established a committee to administer the NURs 1998 Non-Employee Director Share
 Option Plan (the NEDSOP Committee). The NEDSOP Committee is charged with administering and overseeing
 the allocation and distribution of stock options under the 1998 Non-Employee Director Share Option Plan.
 The Israeli Companies Law, 1999 provides that the Board is not entitled to delegate to Board committees
 its power, among other things, to allocate shares or securities convertible into shares of NUR. Accordingly,
 the NEDSOP Committee recommendations are subject to the Boards approval. The NEDSOP Committee is presently
 composed of two members: Dan Purjes and Oded Akselrod.

D.           
 Employees

As
 of December 31, 2003, we had 322 employees and independent contractors compared to 355 employees and
 independent contractors as of December 31, 2002 and 404 as of December 31, 2001. The 9% decrease was
 primarily due to the restructuring and consolidation of NURs operations during 2003. Out of NURs 322
 employees and independent contractors, as of December 31, 2003, 47 were in sales and marketing, 50 were
 in research and development, 170 were in customer support, operations and production, and 55 were in
 management finance and administration. As of December 31, 2003, we had 190 employees located in Israel,
 57 employees located in Belgium, 36 employees located in the U.S., 8 employees located in Central and
 Latin America and 31 employees located in Asia Pacific. We believe our relations with employees are
 satisfactory.

E.            
 Share Ownership

The
 following table sets forth certain information regarding the beneficial ownership of NURs ordinary
 shares as of December 31, 2003 of (i) each director of NUR and (ii) each executive officer of NUR. All
 of the information with respect to beneficial ownership of the ordinary shares is given to the best
 of NURs knowledge and has been furnished in part by the respective directors and executive officers.

|Name of Beneficial Owner | Number of SharesBeneficially Held(1) |  |  | Percent of Class
|------------------------ | ------------------------------------ |  |  | ----------------
|                         |                                      |  |  |                 
|Dan Purjes(2)            | 5,424,268                            |  |  | 31.15%          
|Ilan Ben Gigi            | *                                    |  |  | *               
|Robert F. Hussey         | *                                    |  |  | *               
|Lauri A. Hanover         | *                                    |  |  | *               
|Koby Shtaierman          | *                                    |  |  | *               
|Oded Akselrod (3)        | -                                    |  |  | -               
|David Amir               | *                                    |  |  | *               
|David Seligman           | *                                    |  |  | *               

| | ____________________________                                     
| | -----------------------------------------------------------------
| |                                                                  
| | * Less than one
      percent of the outstanding ordinary shares.

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| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | As used in this table, beneficial ownership means the sole or shared power to vote or direct the voting or to dispose or direct the disposition of any security. For purposes of this table, a person is deemed to be the beneficial owner of securities that can be acquired within 60 days from December 31, 2003 through the exercise of any option or warrant. Ordinary shares subject to options or warrants that are currently exercisable or exercisable within 60 days are deemed outstanding for computing the ownership percentage of the person holding such options or warrants, but are not deemed outstanding for computing the ownership percentage of any other person. The amounts and percentages are based upon 17,414,281 ordinary shares outstanding as of December 31, 2003.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (2) | Not including 403,226 ordinary shares of NUR that Dan and Edna Purjes elected on December 31, 2003 to convert into ordinary shares of NUR at the conversion rate of $0.62 per ordinary share convertible under the loan that was extended to NUR on July 2003. The total number of ordinary shares that were converted on December 31, 2003 in connection with the convertible loan is 1,020,614. During January 2004 NUR issued the share certificates in connection with the conversion of the convertible loan.                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | (3) | Oded Akselrod does not hold any ordinary shares or options to purchase ordinary shares of NUR.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

The
 directors and officers of NUR hold, in the aggregate, options and warrants exercisable into 1,116,924
 ordinary shares. Under the 1998 Share Option Plan for Non-Employee Directors (the 1998 Plan), each
 of Messrs. Robert Hussey, Dan Purjes, who are Directors of NUR, were granted on October 26, 1998, August
 1, 1999, August 1, 2000 and August 1, 2001, respectively, options to purchase 10,000 ordinary shares
 of NUR. On August 1, 2002 and on August 1, 2003 Robert Hussey was granted options to purchase 10,000
 ordinary shares, respectively. Ilan Ben Gigi, a Director of NUR as of March 11, 2003, was granted 4,167
 options on March 11, 2003. Lauri Hanover and Kobi Shtaierman, both External Directors of NUR as of November
 18, 2003 were each granted 6,667 options on November 18, 2003. The exercise price for the underlying
 shares of such options is the Fair Market Value (as defined in the 1998 Plan) of the ordinary shares
 of NUR at the date of grant.

ITEM 7: Major Shareholders and Related Party Transactions

Major Shareholders

The
 following table sets forth information regarding the beneficial ownership of NURs ordinary shares as
 of December 31, 2003, by each person known by NUR to be the beneficial owner of more than 5% of our
 outstanding ordinary shares. Each of our shareholders has identical voting rights with respect to its
 shares. All of the information with respect to beneficial ownership of the ordinary shares is given
 to the best of NURs knowledge and has been furnished in part by the beneficial owner.

|                                             | Ordinary SharesBeneficially Owned |  |  | Percentage of Ordinary Shares Beneficially Owned (1)
|-------------------------------------------- | --------------------------------- |  |  | ----------------------------------------------------
|                                             |                                   |  |  |                                                     
|Dan Purjes(2)                                | 5,424,268                         |  |  | 31.15%                                              
|Investment Corp. of United Mizrahi Bank Ltd. | 2,333,333                         |  |  | 13.39%                                              

| | ___________________________
| | ---------------------------
| | (1)                        
| | (2)                        
| |                            

As
 of December 31, 2003, there were 70 record holders of ordinary shares, of which 39 represented United
 States record holders holding approximately 83.49% of the outstanding ordinary shares of NUR.

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Related Party Transactions

In
 October 2000, NUR loaned Hilel E. Kremer, NURs former Chief Financial Officer, NIS 85,744 (approximately
 $17,350). The loan agreement provides for a three-year term loan linked to the consumer price index
 at an interest of 4% per annum. As part of Hilel Kremers severance agreement, NUR agreed to forgive
 the loan including all accrued linkage and interest.

For
 various services rendered to NUR Europe S.A. and NUR Media Solutions S.A. by Sorly Ltd., a company wholly
 owned by Erez Shachar, our former President and Chief Executive Officer, NUR Europe S.A. and NUR
 Media Solutions S.A. each paid Sorly Ltd. the annual sum of $30,201.50 during 2002.

At
 the Annual Meeting of Shareholders held on February 12, 2002, NURs shareholders approved a Terms of
 Service Agreement with Dan Purjes effective as of January 1, 2002. In his capacity as Chairman of the
 Board, Dan Purjes will receive an annual fee of $125,000 to be due and paid in ordinary shares of NUR
 to Rockwood Group LLC, a company wholly owned by Dan Purjes. Until decided otherwise by NURs Audit
 Committee, the fee shall be paid quarterly, at the end of each quarter, by way of issuing ordinary shares
 valued at $31,250. Such annual fee shall be in lieu of any and all payments which are due to Dan Purjes
 in his capacity as a member of the Board, Chairman of the Board, and a member of any committees of the
 Board, including the right to receive options to purchase ordinary shares in accordance with NURs 1998
 Share Option Plan for Non-Employee Directors.

On
 September 17, 2003, NURs Audit Committee and Board of Directors approved the participation of David
 Amir, our President and Chief Executive Officer, as an investor in the a convertible loan undertaking.
 David Amir provided $50,000 of the $3.50 million convertible loan undertaking, under the same terms
 and conditions as all other investors.

In
 October 2003, NUR entered into an engagement agreement with the law offices of Omer, Zohari & Co.,
 a law firm owned by Moshe Zohari, Avi Omer and certain other partners. Avi Omer is the brother of David
 Amir, our President and Chief Executive Officer. Under the engagement agreement, Omer, Zohari &
 Co. represents us in litigations against third parties and provides us with legal services as needed
 in Israel and in Belgium. The cost of these services is intended to at least equal the cost of these
 services if performed by unrelated parties. The aggregate consideration for the services that Omer,
 Zohari & Co. provided to us and to the subsidiaries was $70,000 in 2003. On March 2004, our Audit
 Committee and Board of Directors reviewed, ratified and approved the terms of the engagement with Omer,
 Zohari & Co.

At
 the Annual meeting of Shareholders held on November 18, 2003, NURs shareholders approved the participation
 of Dan Purjes, NURs Chairman and major shareholder as an investor in the a convertible loan undertaking.
 Dan Purjes provided $1,250,000 of the $3.50 million convertible loan undertaking, under the same terms
 and conditions as all other investors.

See
 ITEM 10: Additional InformationMaterial Contracts and Note 14 to NURs consolidated financial statements,
 which are included as a part of this annual report, for a further discussion of transactions and balances
 with related parties.

Interests of experts and counsel

Not
 Applicable.

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ITEM 8: Financial Information

See
 pages F-[2] to F-[43].

ITEM 9: The Offer and Listing

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

NUR
 ordinary shares were traded on the Nasdaq National Market between October 1995 and July 2003. During
 2003, our ordinary shares closed for a period of 30 consecutive trading days below the minimum bid price
 of $1.00 per share as required for continued listing on The Nasdaq National Market. Accordingly, in
 July 2003, we transferred our securities to the Nasdaq SmallCap Market, whereby we were granted an extension
 of 180 days to meet the minimum requirement of $1.00 per share. NUR regained compliance with this requirement
 in October 2003. Our ordinary shares are currently traded under the symbol NURM.

The
 prices set forth below are high and low closing market prices for the ordinary shares of NUR as reported
 by Nasdaq National Market or the Nasdaq SmallCap Market, as applicable, for the fiscal year ended December
 31 of each year indicated below, as of the end of each fiscal quarter indicated below, and for each
 month for the six-month period ending December 31, 2003. Such quotations reflect inter-dealer prices,
 without retail markup, markdown, or commission and may not necessarily represent actual transactions.

|High (US)                        | Low (US)
|-------------------------------- | --------
|1999                             |         
|2000                             |         
|2001                             |         
|2002                             |         
|2003                             |         
|                                 |         
|**2002**                         |         
|First Quarter                    | $       
|Second Quarter                   |         
|Third Quarter                    |         
|Fourth Quarter                   |         
|                                 |         
|**2003**                         |         
|First Quarter                    | $       
|Second Quarter                   |         
|Third Quarter                    |         
|Fourth Quarter                   |         
|                                 |         
|**2004**                         |         
|First Quarter                    | $       
|                                 |         
|**Most
      Recent Six Months** |         
|March 2004                       | $       
|February
      2004              |         
|January 2004                     |         
|December2003                     |         
|November
      2003              |         
|October 2003                     |         

58

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NUR
 does not anticipate that it will pay any cash dividend on its ordinary shares in the foreseeable future.
 Dividends, if any, will be paid in NIS. Dividends paid to shareholders outside Israel will be converted
 to U.S. dollars, on the basis of the exchange rate prevailing at the date of payment. NUR has determined
 that it will not distribute dividends out of tax-exempt profits.

ITEM 10: Additional Information

A.           
 Share Capital

Not
 applicable.

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

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

Authorized Share Capital

The
 authorized share capital of NUR is fifty million (50,000,000) New Israeli Shekel, divided into fifty
 million ordinary shares.

Purpose and Objective

Pursuant
 to Section 3.1 of NURs Articles, our objective is to undertake any lawful activity, including any objective
 set forth in our Memorandum of Association. Pursuant to Section 3.2 of our Articles, our purpose is
 to operate in accordance with commercial considerations with the intentions of generating profits.

Board of Directors

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

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The
 directors are elected annually at a general meeting of shareholders and remain in office until the next
 annual meeting at which time they shall retire, unless their office is previously vacated as provided
 in the Articles. A retiring director may be reelected. If no directors are elected at the annual meeting,
 all of the retiring directors remain in office pending their replacement at a general meeting. Holders
 of the ordinary shares do not have cumulative voting rights in the election of directors. Consequently,
 the holders of ordinary shares in the aggregate conferring more than 50% of the voting power represented
 in person or by proxy will have the power to elect all the directors. Pursuant to the Israeli Companies
 Law, publicly traded companies must appoint two external directors to serve on their Board of Directors
 and Audit Committee. The external directors are appointed for a 3-year term. The election of external
 directors requires the vote of the majority of the voting power represented at the meeting, provided
 that either (i) such a majority includes at least one third of the shareholders present who do not qualify
 as controlling shareholders (as such term is defined in the Israeli Companies Law) or (ii) the aggregate
 number of shares held by non-controlling shareholders voting at the meeting against such election does
 not exceed one percent of the outstanding voting rights of the company.

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

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

Rights of Shareholders

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

An
 annual meeting of shareholders must be held once in every calendar year at such time (within a period
 of not more than fifteen months after the last preceding annual meeting) and at such place as may be
 determined by the Board. The Board may, at any time, convene general meetings of shareholders, and shall
 be obligated to do so upon receipt of a requisition in writing in accordance with Israeli law. Prior
 to any general meeting a written notice thereof shall be delivered to all registered holders and to
 all other persons entitled to attend, and shall be otherwise made public as required by Israeli law.

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

On
 August 18, 1999, pursuant to the purchase of 600,000 ordinary shares of NUR by Isal Amlat Investments
 (1993), a shareholders agreement was signed between Isal and Dan Purjes providing for, among other things,
 Dan Purjes voting the ordinary shares over which he has voting control in favor of one designee selected
 by Isal to serve as a director on NURs board of directors. This agreement will terminate in the event
 that either Isal holds less than 4% of NURs outstanding ordinary shares or Dan Purjes holds less than
 20%.

On
 January 17, 2002, pursuant to the purchase of 2,333,333 ordinary shares of NUR and of warrants exercisable
 for 612,500 ordinary shares of NUR by Investment Corp. of United Mizrahi Bank Ltd., a shareholders
 agreement was signed between Mizrahi and Dan Purjes providing for, among other things, Dan Purjes voting
 the ordinary shares over which he has voting control in favor of one designee selected by Mizrahi to
 serve as a director on NURs board of directors. This agreement will terminate in the event that either
 Mizrahi holds less than 7% of NURs outstanding ordinary shares or Dan Purjes holds less than 17%.

Dividends and Profits

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

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C.           
 Material Contracts

Loan Agreements and Recent Amendments

In
 July 2000, in order to finance the acquisition of Salsa Digital, NUR entered into long-term loan agreements
 with Bank Hapoalim and Bank Leumi, as subsequently amended. The loan agreements provided for a three-year
 long-term credit line of up to $20.0million and $15.0million from Bank Hapoalim and Bank Leumi, respectively.

The
 most recent amendments to the long-term loan agreements were entered into in July 2003 and February
 2004, providing for a twelve-month grace period regarding the quarterly payments of the principal and
 a balloon payment of the remainder of the long-term loans in the first quarter of 2006. According to
 the rescheduling agreements, the remaining long term loans of $13.8 million at Bank Leumi and $15.8
 million at Bank Hapoalim carry interest rates of LIBOR plus 2.25% per annum on 11.8 million and LIBOR
 plus 2.5% per annum on $2.0 million at Bank Leumi, and of LIBOR plus 2.5% per annum on the $15.8 million
 at Bank Hapoalim. As of December 31, 2003 $15.825 million was outstanding under the Bank Hapoalim loan
 and $13.8 million was outstanding under the Bank Leumi loan.

In
 addition, to support its ongoing operations NUR utilizes short-term bank credit from certain banking
 institutions. As of December 31, 2003, NUR utilized short-term facilities of $8.0 million from Bank
 Hapoalim, $4.6 from Bank Discount, $2.65 million from Bank Leumi, and $0.2 from Bank Investec (the Investec
 credit line is to be repaid during the first quarter of 2004).

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

In
 addition, under the long-term and short-term loan agreements as amended in July 2003 and February 2004,
 NUR undertook, among other things, the following:

| |  | To maintain certain earnings before income tax, depreciation and amortization (EBITDA) of not less than $6.0 million in year 2004. The EBITDA for year 2005 shall be determined by the end of year 2004.                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | To maintain a tangible equity of no less than: (i) no less than $0.5 million in the first calendar quarter of 2004, $0.7 million in the second calendar quarter of 2004, $1.0 million in the third calendar quarter of 2004, and $1.3 million in the fourth calendar quarter of 2004; and (ii) not less than $15.5 million or less than 16% of NURs tangible assets in 2005.                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | To maintain at the end of each quarter a cash balance of at least $6.0 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | To refrain from merging, consolidating, amalgamating or entering into any other form of business combination with a third party, or liquidating or dissolving.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | To issue an option to purchase up to 505,000 ordinary shares, an option to purchase up to 350,000 ordinary shares and an option to purchase up to 98,000 ordinary shares of NUR to Bank Hapoalim, Bank Leumi and Bank Discount, respectively. All option warrants will be exercisable until August 2007 at $0.62 per ordinary share. NUR also undertook to issue an option to purchase an additional 27,000 ordinary shares to Bank Discount exercisable at $0.72 per share no later than June 2007. For more information regarding option warrants previously issued to the banks see ITEM 6: Outstanding Options and Warrants.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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NUR Pro Engineering Acquisition

In
 May 2003, NUR signed an agreement to acquire the remaining 50% shares of NUR Pro Engineering, its subcontractor
 for the assembly and manufacturing of its printers, from Ogen Dialogix Ltd., for $850,000. Under the
 terms of the agreement the transfer of the shares will become effective on March 31, 2004. As of March
 2004 the parties fulfilled their material commitments and undertakings under the agreement. Upon completion
 of the transaction, NUR Pro Engineering will become a wholly owned subsidiary of NUR. During the third
 quarter of 2003, we completed a consolidation process of our global machinery manufacturing operations
 of Salsa Digital Printers in San Antonio, Texas with those of NUR Pro Engineering, into a single large
 manufacturing facility in Rosh HaAyin, Israel. During the transition period between the signing of
 the agreement and the transfer of the ownership of the shares we have been working to complete the transfer
 of all NUR Pro Engineerings operations to NUR leaving NUR Pro Engineering a dormant company upon completion
 of the transaction.

Convertible Loan

On
 July 30, 2003 NUR secured a convertible loan commitment from several investors according to which the
 investors have undertaken to provide NUR with a convertible loan in the aggregate amount of $3.50 million.
 NURs chairman and largest shareholder, Dan Purjes, provided $1.3 million of the loan. Under the terms
 of the loan agreement, the loan is convertible at any time into ordinary shares of NUR at a conversion
 rate of $0.62 per share. In consideration for the loan undertaking, NUR agreed to pay a cash commitment
 fee and issue to the investors warrants to purchase ordinary shares of NUR equal to 15% of the loan
 at an exercise price of $0.52 per share exercisable over a five-year period. In the event of a draw
 down of the loan, NUR will issue to the investors additional warrants to purchase ordinary shares in
 the amount equal to 15% of the draw down amount, at an exercise price of $0.52 per share, and exercisable
 for a period of five years from the date of the draw down. On December 31, 2003, the investors elected
 to convert $2 million of the loan into ordinary shares of NUR at the conversion rate of $0.62 per ordinary
 share. During January 2004 NUR issued the share certificates in connection with the conversion of the
 convertible loan.

D.           
 Exchange Controls

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

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E.            
 Taxation

Israeli Taxation, Foreign Exchange Regulation and
 Investment Programs

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

Holders
 of our ordinary shares should consult their own tax advisors as to the United States, Israeli or other
 tax consequences of the purchase, ownership and disposition of ordinary shares, including, in particular,
 the effect of any foreign, state or local taxes.

The Tax Reform

On
 January 1, 2003, the Law for Amendment of the Income Tax Ordinance (Amendment No. 132), 5762-2002, known
 as the Tax Reform, came into effect, following its enactment by the Israeli Parliament on July 24, 2002.
 On December 17, 2002, the Israeli Parliament approved a number of amendments to the tax reform, which
 came into effect on January 1, 2003.

The
 tax reform, aimed at broadening the categories of taxable income and reducing the tax rates imposed
 on employment income, introduced the following, among other things:

Reduction
 of the tax rate levied on capital gains (other than gains deriving from the sale of listed securities)
 derived after January 1, 2003, to a general rate of 25% for both individuals and corporations. Regarding
 assets acquired prior to January 1, 2003, the reduced tax rate will apply to a proportionate part of
 the gain, in accordance with the holding periods of the asset, before or after January 1, 2003, on a
 linear basis;

Imposition
 of Israeli tax on all income of Israeli residents, individuals and corporations, regardless of the territorial
 source of income, including income derived from passive sources such as interest, dividends and royalties;

Introduction
 of controlled foreign corporation (CFC) rules into the Israeli tax structure. Generally, under such
 rules, an Israeli resident who holds, directly or indirectly, 10% or more of the rights in a foreign
 corporation whose shares are not publicly traded, in which more than 50% of the rights are held directly
 or indirectly by Israeli residents, and a majority of whose income in a tax year is considered passive
 income, will be liable for tax on the portion of such income attributed to his holdings in such corporation,
 as if such income were distributed to him as a dividend;

Imposition
 of capital gains tax on capital gains realized by individuals as of January 1, 2003, from the sale of
 shares of publicly traded companies (such gain was previously exempt from capital gains tax in Israel).
 For information with respect to the applicability of Israeli capital gains taxes on the sale of ordinary
 shares, see  Capital Gains Tax on Sales of Our Ordinary Shares below; and

Introduction
 of a new regime for the taxation of shares and options issued to employees and officers (including directors).

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General Corporate Tax Structure

Generally,
 Israeli companies are subject to Company Tax at the rate of 36% of taxable income (and are subject
 to Capital Gains Tax at a rate of 25% for capital gains derived after January 1, 2003). However, the
 effective tax rate payable by a company which derives income from an approved enterprise (as further
 discussed below) may be considerably less.

Tax Benefits Under the Law for the Encouragement
 of Capital Investments, 1959

The
 Law for the Encouragement of Capital Investments, 1959, as amended (the Investment Law), provides
 that a proposed capital investment in eligible facilities may, upon application to the Investment Center
 of the Ministry of Industry and Commerce of the State of Israel, be designated as an approved enterprise.
 The Investment Center approves applications based upon the criteria set forth in the Investment Law
 and regulations, the then prevailing policy of the Investment Center, and the specific objectives and
 financial criteria of the applicant. Each certificate of approval for an approved enterprise relates
 to a specific investment program delineated both by its financial scope, including its capital sources,
 and by its physical characteristics, e.g., the equipment to be purchased and utilized pursuant to the
 program.

The
 Investment Law provides that an approved enterprise is eligible for tax benefits on taxable income derived
 from its approved enterprise programs. Under an amendment to the Investment Law that was made within
 the framework of the tax reform, it was clarified that tax benefits under the Investment Law shall also
 apply to income generated by a company from the grant of a usage right with respect to know-how developed
 by the approved enterprise, income generated from royalties, and income derived from a service which
 is auxiliary to such usage right, provided that such income is generated within the Approved Enterprises,
 as defined by the Investment Law, ordinary course of business. If a company has more than one approval
 or only a portion of its capital investments are approved, its effective tax rate is the result of a
 weighted average of the applicable rates. The tax benefits under the Investment Law are not available
 with respect to income derived from products manufactured outside of Israel. In addition, the tax benefits
 available to an approved enterprise are contingent upon the fulfillment of conditions stipulated in
 the Investment Law and regulations and the criteria set forth in the specific certificate of approval,
 as described above. In the event that a company does not meet these conditions, it would be required
 to refund the amount of tax benefits, plus a consumer price index linkage adjustment and interest.

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

Taxable
 income of a company derived from an approved enterprise is subject to company tax at the maximum rate
 of 25%, rather than 36%, for the benefit period. This period is ordinarily 7 years commencing with the
 year in which the approved enterprise first generates taxable income, and is limited to twelve years
 from commencement of production or 14 years from the date of approval, whichever is earlier.

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A
 company that has an approved enterprise program is eligible for further tax benefits if it qualifies
 as a foreign investors company. A foreign investors company is a company in which more than 25% of
 its share capital and combined share and loan capital is owned by non-Israeli residents. A company that
 qualifies as a foreign investors company and has an approved enterprise program is eligible for tax
 benefits for a ten-year benefit period. As specified below, depending on the geographic location of
 the approved enterprise within Israel, income derived from the approved enterprise program may be exempt
 from tax on its undistributed income for a period of between two to ten years, and will be subject to
 a reduced tax rate for the remainder of the benefits period. The tax rate for the remainder of the benefits
 period will be 25%, unless the level of foreign investment exceeds 49%, in which case the tax rate will
 be 20% if the foreign investment is more than 49% and less than 74%; 15% if more than 74% and less than
 90%; and 10% if 90% or more.

Instead
 of the foregoing tax benefits, a company may elect to receive an alternative package of benefits. Under
 the alternative package of benefits, our undistributed income derived from the approved enterprise will
 be exempt from company tax for a period of between two and ten years from the first year the company
 derives taxable income under the program, depending on the geographic location of the approved enterprise
 within Israel, and such company will be eligible for a reduced tax rate for the remainder of the benefits
 period. A company that has elected the alternative package of benefits, such as us, that subsequently
 pays a dividend out of income derived from the approved enterprise during the tax exemption period,
 will be subject to tax in respect of the amount distributed, including any taxes thereon, at the rate
 which would have been applicable had it not elected the alternative package of benefits, generally 10%-25%,
 depending on the percentage of the companys ordinary shares held by foreign shareholders. The dividend
 recipient is taxed at the reduced rate of 15%; such rate is applicable to dividends from approved enterprises
 if the dividend is distributed during the tax exemption period or within twelve years thereafter. The
 company must withhold this tax at source, regardless of whether the dividend is converted into foreign
 currency.

Subject
 to applicable provisions concerning income under the alternative package of benefits, dividends paid
 by a company are considered to be attributable to income received from the entire company and the companys
 effective tax rate is the result of a weighted average of the various applicable tax rates, excluding
 any tax exempt income. Under the Investment Law, a company that has elected the alternative package
 of benefits is not obliged to distribute retained profits, and may generally decide from which years
 profits to declare dividends. We currently intend to reinvest any income derived from our approved enterprise
 program and not to distribute such income as a dividend.

Part
 of NURs production facilities have been granted the status of an Approved Enterprise under the Investment
 Law, under three separate investment plans. The implementation of the investments under the first plan
 was completed in 1993. The implementation of the second plan was finalized in 1999. NURs application
 for a third plan was approved in 2000.

According
 to the provisions of the Investment Law, NUR chose to enjoy alternative benefitswaiver of grants
 in return for tax benefits. Accordingly, NURs income from the Approved Enterprise will be tax-exempt
 for a period of two years for the first and the third plans and for a period of four years for the second
 plan, commencing with the year it first earns taxable income, and subject to corporate tax at the rate
 of 15% based on the percentage of foreign ownership of the company, for additional periods of five,
 three and five years, for the first, second and third plans, respectively.

The
 period of tax benefits, detailed above, is subject to limits of twelve years from the commencement of
 production, or fourteen years from receiving the approval, whichever is earlier. Given the above-mentioned
 conditions, the period of benefits for the first plan commenced in the year 1994 and terminated in the
 year 2000, and the period of benefits for the second plan commenced in the year 1998 and will terminate
 in the year 2004. The period of benefits for the third plan has not yet been determined.

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If
 dividends are distributed out of profits derived from an Approved Enterprise, NUR will be liable for
 corporate tax at the rate, which would have been applied if it had not chosen the alternative tax benefits
 (currently 15% based on the percentage of foreign ownership of NUR for an Approved Enterprise). Therefore,
 income derived from NURs Approved Enterprise tax-exempt profits, is not available for distribution
 to shareholders as a dividend. See Note 16(a) to NURs consolidated financial statements, which are
 included as a part of this annual report on Form 20-F.

The
 dividend recipient is taxed at the reduced rate applicable to dividends from Approved Enterprises
 (i.e., 25%), if the dividend is distributed during the tax benefits period or within a twelve years
 period thereafter, or for an unlimited period in the case of a Foreign Investors Companya company
 over 25% foreign-owned with an approved enterprise. This tax must be withheld by the company at source,
 regardless of whether the dividend is converted into foreign currency. See below  Capital Gains Tax
 on Sales of Our Ordinary Shares.

Grants
 and certain other incentives received by a company in accordance with the Investment Law remain subject
 to final ratification by the Israel Investment Center, such ratification being conditional upon fulfillment
 of all terms of the approved program. Failure to comply with all such terms may require the return of
 such grants and incentives (inclusive of interest as of the date of the grant).

NURs
 existing Approved Enterprise status and any new programs, if and when approved, are subject to various
 conditions. The tax benefits derived from NURs Approved Enterprise status are conditioned upon fulfillment
 of the conditions stipulated by the Investment Law, the regulations promulgated thereunder and the criteria
 set forth in the certificate of approval issued pursuant to the Investment Law. In the event of a failure
 by NUR to comply with these conditions and criteria, the grants and tax benefits could be canceled,
 in whole or in part, and NUR would be required to refund the amount of the canceled benefits, adjusted
 for inflation, interest and penalties. Management believes that NUR has operated and will continue to
 operate in compliance with all the Approved Enterprise conditions and other criteria applicable to
 us from the Office of Chief Scientist, the Marketing Fund and our Approved Enterprise status, although
 there can be no assurance of this. Management further believes that the likelihood is remote that NUR
 will be required to refund grants or tax benefits that we derive from the Office of Chief Scientist,
 the Marketing Fund and under our Approved Enterprise status. There can be no assurance, however, that
 the funding and tax benefits will continue. See ITEM 4: Information on NURResearch and Development
 and ITEM 3: Key InformationRisk FactorsWe rely upon government grants, tax benefits, and other funding
 from third parties.

The
 Israeli government may reduce or eliminate tax benefits available to approved enterprise programs in
 the future. We cannot assure you that our approved program and the benefits thereunder shall continue
 in the future at its current level or at any level  see ITEM 3: Risksrelating to location in Israel).

Tax Benefits Under the Law for the Encouragement
 of Industry (Taxes), 1969

Under
 the Law for the Encouragement of Industry (Taxes), 1969 (the Industry Encouragement Law), Industrial
 Companies are entitled to the following preferred corporate tax benefits:

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| |  | deduction of purchases of know-how and patents over an eight-year period for tax purposes;
| | - | ------------------------------------------------------------------------------------------
| |   |                                                                                           
| |  | accelerated depreciation rates on equipment and buildings.                                
| |   |                                                                                           

Eligibility
 for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any
 governmental authority. Under the Industry Encouragement Law, an Industrial Company is defined as
 a company resident in Israel, at least 90% of the income of which, in any tax year, determined in Israeli
 currency, exclusive of income from government loans, capital gains, interest and dividends, is derived
 from an Industrial Enterprise owned by it. An Industrial Enterprise is defined as an enterprise
 owned by an Industrial Company, whose major activity in a given tax year is industrial production activity.

We
 believe that we currently qualify as an Industrial Company within the definition of the Industry Encouragement
 Law. No assurance can be given that we will continue to qualify as an Industrial Company or that the
 benefits described above will be available in the future.

Taxation Under Inflationary Conditions

The
 Income Tax Law (Adjustment for Inflation), 1985 (the Adjustment for Inflation Law) attempts to overcome
 some of the problems experienced in a traditional tax system by an economy experiencing rapid inflation,
 which was the case in Israel at the time the Adjustment for Inflation Law was enacted. Generally, the
 Adjustment for Inflation Law was designed to neutralize for Israeli tax purposes the erosion of capital
 investments in businesses and to prevent unintended tax benefits resulting from the deduction of inflationary
 financing expenses. The Adjustment for Inflation Law applies a supplementary set of inflationary adjustments
 to taxable profit computed according to regular historical cost principles.

The
 Adjustment for Inflation Law introduced a special tax adjustment for the preservation of equity based
 on changes in the Israeli CPI whereby certain corporate assets are classified broadly into fixed (inflation
 resistant) assets and non-fixed assets. Where shareholders equity, as defined in the Adjustment for
 Inflation Law, exceeds the depreciated cost of fixed assets, a corporate tax deduction which takes into
 account the effect of inflationary change on such excess is allowed (up to a ceiling of 70% of taxable
 income for companies in any single tax year, with the unused portion permitted to be carried forward
 on a linked basis with no ceiling). If the depreciated cost of fixed assets exceeds shareholders equity,
 then such excess multiplied by the annual rate of inflation is added to taxable income.

In
 addition, subject to certain limitations, depreciation on fixed assets and losses carried forward are
 adjusted for inflation based on changes in the Israeli CPI. The net effect of the Adjustment for Inflation
 Law on NUR might be that NURs taxable income, as determined for Israeli corporate tax purposes, will
 be different than NURs U.S. dollar income, as reflected in our consolidated financial statements, due
 to the difference between the annual changes in the CPI and in the NIS exchange rate with respect to
 the U.S. Dollar, causing changes in the effective tax rate.

Capital Gains Tax on Sales of Our Ordinary Shares

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

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Prior
 to the tax reform, sales of our ordinary shares by individuals were generally exempt from Israeli capital
 gains tax for so long as they were quoted on Nasdaq.

Pursuant
 to the tax reform, generally, capital gains tax is imposed at a rate of 15% on real gains derived on
 or after January 1, 2003, from the sale of shares in companies (i) publicly traded on the Tel Aviv
 Stock Exchange (TASE) or; (ii) (subject to a necessary determination by the Israeli Minister of Finance)
 Israeli companies publicly traded on a recognized stock exchange outside of Israel (such as NUR). This
 tax rate does not apply to: (i) dealers in securities; (ii) shareholders that report in accordance
 with the Inflationary Adjustment Law; or (iii) shareholders who acquired their shares prior to
 an initial public offering (that are subject to a different tax arrangement). The tax basis of shares
 acquired prior to January 1, 2003 will be determined in accordance with the average closing share price
 in the three trading days preceding January 1, 2003. However, a request may be made to the tax authorities
 to consider the actual adjusted cost of the shares as the tax basis if it is higher than such average
 price.

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

In
 any event, the provisions of the tax reform shall not affect the exemption from capital gains tax for
 gains accrued before January 1, 2003, as described above.

In
 some instances where NUR shareholders may be liable to Israeli tax on the sale of their ordinary shares,
 the payment of the consideration may be subject to the withholding of Israeli tax at the source. Pursuant
 to the Convention Between the Government of the United States of America and the Government of Israel
 with Respect to Taxes on Income, as amended (the U.S.-Israel Tax Treaty) the sale, exchange or disposition
 of ordinary shares by a person who (i) holds the ordinary shares as a capital asset, (ii) qualifies
 as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty and (iii) is entitled
 to claim the benefits afforded to such person by the U.S.-Israel Tax Treaty generally will not be subject
 to the Israeli capital gains tax unless such Treaty U.S. Resident holds, directly or indirectly, shares
 representing 10% or more of our voting power during any part of the 12-month period preceding such sale,
 exchange or disposition, subject to certain conditions. In this case, the sale, exchange or disposition
 of ordinary shares would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel
 Tax Treaty, such Treaty U.S. Resident would be permitted to claim a credit for such taxes against the
 U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations
 in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state
 or local taxes.

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Taxation of Non-Resident Holders of Shares

Non-residents
 of Israel are subject to income tax on income accrued or derived from sources in Israel. Such sources
 of income include passive income such as dividends, royalties and interest, as well as non-passive income
 from services rendered in Israel. On distributions of dividends other than bonus shares, or stock dividends,
 income tax at the rate of up to 25% is withheld at source, unless 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 ordinary shares who is a Treaty U.S. Resident is 25%.
 However, under the Investment Law, dividends generated by an Approved Enterprise are taxed at the rate
 of 15%. Furthermore, dividends not generated by an Approved Enterprise paid to a U.S. company holding
 10% or more of our ordinary shares are taxed at a rate of 12.5%.

Under
 an amendment to the Inflationary Adjustments Law, non-Israeli corporations might be subject to Israeli
 taxes on the sale of traded securities in an Israeli company, subject to the provisions of any applicable
 double taxation treaty or unless a specific exemption is available.

For
 information with respect to the applicability of Israeli capital gains taxes on the sale of ordinary
 shares by United States residents, see above  Capital Gains Tax on Sales of Our Ordinary Shares.

U.S. Tax Considerations Regarding Ordinary Shares

The
 following summary describes certain of the principal United States federal income tax consequences relating
 to an investment in ordinary shares as of the date hereof. The summary is based on the Internal Revenue
 Code of 1986 (the Code), and existing final, temporary and proposed Treasury Regulations, Revenue
 Rulings and judicial decisions, all of which are subject to prospective and retroactive changes. NUR
 will not seek a ruling from the Internal Revenue Service (the IRS) with regard to the United States
 federal income tax treatment relating to an investment in ordinary shares and, therefore, there can
 be no assurance that the IRS will agree with the conclusions set forth below. The summary does not purport
 to address all federal income tax consequences that may be relevant to particular investors. For example,
 the summary applies only to holders who hold ordinary shares as a capital asset within the meaning of
 Section 1221 of the Code, and does not address the tax consequences that may be relevant to investors
 in special tax situations (including, for example, insurance companies, tax-exempt organizations, dealers
 in securities or currency, banks or other financial institutions, or investors that hold ordinary shares
 as part of a hedge, straddle or conversion transaction). Further, it does not address the alternative
 minimum tax consequences of an investment in ordinary shares or the consequences to holders of equity
 interests in investors in ordinary shares (including, for example, a partner in a partnership). ACCORDINGLY,
 PERSONS CONSIDERING THE PURCHASE OF ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING
 THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR
 FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS.

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For
 purposes of this discussion, U.S. Holder means a holder of ordinary shares that is a citizen or resident
 of the United States, a corporation (or entity treated as a corporation for the United States federal
 income tax purposes) created or organized in the United States or any State thereof (including the District
 of Columbia), or an estate or trust the income of which is subject to United States federal income tax
 on a net income basis with respect to ordinary shares. The term non-U.S. Holder refers to any holder
 of ordinary shares (other than a partnership) that is not a U.S. Holder. If a partnership (including
 an entity treated as a partnership for United States federal income tax purposes) is a holder of ordinary
 shares, the United States income tax treatment of a partner in the partnership will generally depend
 upon the status of the partner and the activities of the partnership. Partners should consult their
 own tax advisors as to the particular United States income tax consequences applicable to them.

Taxation of U.S. Holders

Distributions
 on Ordinary Shares.   Distributions made by NUR with respect to ordinary shares generally
 will constitute dividends for federal income tax purposes and will be taxable to a U.S. Holder as dividend
 income to the extent of NURs undistributed current or accumulated earnings and profits (as determined
 for United States federal income tax purposes). Distributions in excess of NURs current or accumulated
 earnings and profits will be treated first as a nontaxable return of capital reducing the U.S. Holders
 tax basis in the ordinary shares, thus increasing the amount of any gain (or reducing the amount of
 any loss) which might be realized by such Holder upon the sale or exchange of such ordinary shares.
 Any such distributions in excess of the U.S. Holders tax basis in the ordinary shares will be treated
 as capital gain to the U.S. Holder and will be either long term or short term capital gain depending
 upon the U.S. Holders federal income tax holding period for the ordinary shares. Dividends paid by
 NUR generally will not be eligible for the dividends received deduction available to certain United
 States corporate shareholders under Code Sections 243 and 245. Recently enacted legislation may permit
 a U.S. Holder that is an individual to treat any dividends received from NUR with respect to ordinary
 shares under favorable tax rates applicable to capital gains. U.S. Holders that are individuals should
 consult their own tax advisors concerning the availability of the favorable tax rates to any dividends
 received from NUR with respect to ordinary shares.

The
 amount of any cash distribution paid in a foreign currency will equal the U.S. dollar value of the distribution,
 calculated by reference to the exchange rate in effect at the time the dividends are received. A U.S.
 Holder should not recognize any foreign currency gain or loss if such foreign currency is converted
 into U.S. dollars on the day received. If a U.S. Holder does not convert the foreign currency into U.S.
 dollars on the date of receipt, however, such Holder may recognize gain or loss upon a subsequent sale
 or other disposition of the foreign currency (including an exchange of the foreign currency for U.S.
 dollars). Such gain or loss, if any, will be ordinary income or loss for United States federal income
 tax purposes.

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

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

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Passive
 Foreign Investment Company.   A foreign corporation generally will be treated as a passive
 foreign investment company (PFIC) if, after applying certain look-through rules, either (i) 75%
 or more of its gross income is passive income or (ii) 50% or more of the average value of its assets
 is attributable to assets that produce or are held to produce passive income. Passive income for this
 purpose generally includes dividends, interest, rents, royalties and gains from securities and commodities
 transactions. The look-through rules require a foreign corporation that owns at least 25%, by value,
 of the stock of another corporation to treat a proportionate amount of assets and income as held or
 received directly by the foreign corporation.

NUR
 does not believe that it is currently a PFIC nor does it anticipate that it will be a PFIC in the future
 because it expects that less than 75% of its annual gross income will be passive income and less than
 50% of its assets will be passive assets, based on the look-through rules, the current income and assets
 of NUR and its subsidiaries, and the manner in which NUR and its subsidiaries are anticipated to conduct
 their businesses in the future. However, there can be no assurance that NUR is not or will not be treated
 as a PFIC in the future. If NUR were to be treated as a PFIC, all U.S. Holders may be required, in certain
 circumstances, to pay an interest charge together with tax calculated at maximum rates on certain excess
 distributions, including any gain on the sale of ordinary shares. In order to avoid this tax consequence,
 a U.S. Holder (i) may be permitted to make a qualified electing fund election, in which case, in lieu
 of such treatment, such holder would be required to include in its taxable income certain undistributed
 amounts of NURs income or (ii) may elect to mark-to-market the ordinary shares and recognize ordinary
 income (or possible ordinary loss) each year with respect to such investment and on the sale or other
 disposition of the ordinary shares.

Neither
 NUR nor its advisors have the duty to or will undertake to inform U.S. Holders of changes in circumstances
 that would cause NUR to become a PFIC. U.S. Holders should consult their own tax advisors concerning
 the status of NUR as a PFIC at any point in time after the date of this Form. NUR does not currently
 intend to take the action necessary for a U.S. Holder to make a qualified electing fund election in
 the event NUR is determined to be a PFIC.

Foreign
 Personal Holding Company.   A foreign corporation may be classified as a foreign personal
 holding company (a FPHC) for federal income tax purposes if both of the following tests are satisfied:
 (i) at any time during the taxable year five or fewer individuals who are United States citizens or
 residents own or are deemed to own (under certain attribution rules) more than 50% of its stock (vote
 or value) and (ii) at least 60% (50% for years subsequent to the year in which it becomes a FPHC) of
 its gross income (regardless of its source), as specifically adjusted, is foreign personal holding
 company income, which includes dividends, interest, rents, royalties and gain from the sale of stock
 or securities.

NUR
 does not believe that it is currently a FPHC nor does it anticipate that it will be a FPHC in the future;
 however, no assurance can be given that NUR is not or will not become a FPHC as a result of future changes
 of ownership or changes in the nature of the income of NUR. If NUR were to be classified as a FPHC,
 each U.S. Holder would be required to include in income as a taxable constructive dividend its pro rata
 share of NURs undistributed foreign personal holding company income.

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Controlled
 Foreign Corporation.   If more than 50% of the ordinary shares (vote or value) of NUR
 is owned, directly or indirectly, by U.S. Holders that own or are deemed to own under certain attribution
 rules 10% or more of the total combined voting power of all classes of stock of NUR (10% Shareholder),
 NUR could be treated as a controlled foreign corporation (a CFC) under Subpart F of the Code. It
 is unclear how controlling blocks of stock will be valued for these purposes. Accordingly, NUR may be
 treated as a CFC for United States federal income tax purposes even though 10% Shareholders do not own
 more than 50% of the outstanding ordinary shares.

NUR
 does not believe that it is currently a CFC; however, no assurance can be given that NUR will not become
 a CFC as a result of future changes in its ownership. If NUR were to be treated as a CFC, each 10% Shareholder
 would be required to include in its taxable income as a constructive dividend its pro rata share of
 certain undistributed income of NUR, and all or a portion of the gain from the sale or exchange of the
 ordinary shares may be treated under Section 1248 of the Code as dividend income. Neither NUR nor its
 advisors have the duty to or will undertake to inform U.S. Holders of changes in circumstances that
 would cause NUR to become a CFC. U.S. Holders should consult their own tax advisors concerning the status
 of NUR as a CFC.

Information
 Reporting.   Under limited circumstances, U.S. Holders are required to report certain
 acquisitions of ordinary shares from NUR to the IRS on IRS Form 926. In addition, a U.S. Holder who
 owns 10% or more of the ordinary shares (vote or value) may be required to file IRS form 5471 to the
 IRS to report certain acquisitions or dispositions of the ordinary shares or in the case NUR were treated
 as a CFC or FPHC. Failure to file the required information returns may result in the imposition of penalties.
 Potential investors of the ordinary shares should consult with their own tax advisors regarding the
 necessity of filing information returns.

Taxation of Non-U.S. Holders

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

Sale
 or Exchange of Ordinary Shares.   A non-U.S. Holder will not be subject to United States
 federal income tax on any gain realized upon the sale or exchange of ordinary shares if such Holder
 has no connection with the United States other than holding the ordinary shares and in particular (i)
 such gain is not effectively connected with a trade or business in the United States of the non-U.S.
 Holder and (ii) in the case of a non-U.S. Holder who is an individual, such non-U.S. Holder is not present
 in the United States for 183 days or more in the taxable year of such disposition.

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United
 States Business.   A non-U.S. Holder engaged in a trade or business in the United States
 whose income from the ordinary shares (including gain from the sale or exchange thereof) is effectively
 connected with the conduct of such trade or business will generally be subject to regular United States
 federal income tax on such income in the same manner as if it were a U.S. Holder. In addition, if such
 a Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively
 connected earnings and profits for the taxable year, subject to adjustments.

Backup Withholding

Distributions
 made by NUR with respect to the ordinary shares and the gross proceeds received from the disposition
 of the ordinary shares may be subject to certain information reporting to the IRS and to a backup withholding
 tax. However, backup withholding generally will not apply to payments made to certain exempt recipients
 (such as a corporation or financial institution) or to a Holder who furnishes a correct taxpayer identification
 number or provides a certificate of foreign status and provides certain other required information.
 If backup withholding applies, the amount withheld is not an additional tax, but is credited against
 such Holders United States federal income tax liability.

F.            
 Dividends and paying agents

Not
 Applicable.

G.           
 Statement by experts

Not
 Applicable.

H.           
 Documents on display

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

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

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

I.             
 Subsidiary Information

See
 ITEM 4.C. of this annual report.

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ITEM 11: Quantitative and Qualitative Disclosures
 About Market Risk

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

Inflation, Deflation and Fluctuation of Currencies

See
 ITEM 5: Operating and Financial Review and ProspectsImpact of Inflation, Deflation and Fluctuation
 of Currencies.

During 2002, NUR entered into non-hedging forward and
 options contracts. On June 26, 2003 the transactions resulted in a loss of approximately $0.5 million
 for the year ended December 31, 2003, which is included in the statements of operations as financial
 expenses.

Interest Rate

NURs
 exposure to market risk due to changes in interest rates relates primarily to NURs long-term loans
 interest rate variation. As of December 31, 2003 we had a balance of $30.0 million of long term loans
 carrying annual interest rates of LIBOR + 2.5%. Changes in the LIBOR interest rate might affect our
 financial expenses. The most recent amendment to the long-term loan agreements was entered into in July
 2003 and February 2004, providing for a twelve-month grace period regarding the quarterly payments of
 the principal and a balloon payment of the remainder of the long-term loans in the first quarter of
 2006. According to the rescheduling agreements, the remaining long term loans of $13.8 million at Bank
 Leumi and $15.8 million at Bank Hapoalim carry interest rates of LIBOR plus 2.25% per annum on 11.8
 million and LIBOR plus 2.5% per annum on $2.0 million at Bank Leumi, and of LIBOR plus 2.5% per annum
 on the $15.8 million at Bank Hapoalim. As of March 2004 $15.8 million was outstanding under the Bank
 Hapoalim loan and $13.8 million was outstanding under the Bank Leumi loan.

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

ITEM 12: Description of Securities Other Than Equity
 Securities

Not
 Applicable.

PART II

ITEM 13: Defaults, Dividend Arrearages and Delinquencies

During
 2003 NUR failed to meet certain of the financial ratios governing its long-term and short-term loans.
 However, the banks have agreed in writing not to act upon their contractual rights pursuant to NURs
 defaults mentioned above. We believe that the amendment of the financial ratios that took place on February
 2004 will allow a better alignment between the financial ratios and NURs business plan for 2004. For
 more information see ITEM 10.C: Material Contracts.

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

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

ITEM 15: Controls and Procedures

Disclosure Controls and Procedures

NURs
 Chief Executive Officer and Chief Financial Officer have conducted an evaluation of NURs disclosure
 controls and procedures (as defined in Rules 13a-15(c) and 15d-15(c) of the Securities Exchange Act
 of 1934) as of the end of the period covered by this report and each has concluded that such disclosure
 controls and procedures were effective as of such date to ensure that information required to be disclosed
 in NURs reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized
 and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Internal control over Financial Reporting

There
 were no changes in NURs internal control over financial reporting that occurred during the year ended
 December 31, 2003 that have materially affected, or are reasonably likely to materially affect, NURs
 internal control over financial reporting.

ITEM 16: Reserved

ITEM 16A: Audit Committee Financial Expert

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

ITEM 16B: Code of Ethics

NURs
  Audit Committee and Board have adopted a code of ethics, as defined in Item
  16B of Form 20-F, that applies to NURs Chief Executive Officer, Chief
  Financial Officer, Vice President of Finance, Controller and any other person
  bearing the title of Vice President or higher in the Finance Department. A copy
  of the code of ethics has been filed as an exhibit to this annual report.

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

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ITEM 16C: Principal Accountant Fees and Services

Fees paid to the Auditors

Audit Fees

In
 the years ended December 31, 2002 and December 31, 2003, the aggregate fees billed for professional
 services rendered by our independent accountant for the audit of our annual financial statements or
 services that are normally provided by the accountant in connection with statutory and regulatory filings
 or engagements for those fiscal years amounted to approximately $0.39 million and $0.36 million, respectively.

Audit-Related Fees

In
 the years ended December 31, 2002 and December 31, 2003, the aggregate fees billed for assurance and
 related services by our independent accountant that are reasonably related to the performance of the
 audit or review of NURs financial statements and are not under audit fees mentioned above amounted
 to approximately $0.05 million and $0.12 million, respectively. The audit related services included
 mainly audit services of the subsidiaries related to the annual financial statements performed by external
 auditors.

Tax Fees

In
 the years ended December 31, 2002 and December 31, 2003, the aggregate fees billed for professional
 services rendered by our independent accountant for tax compliance, tax advice, and tax planning amounted
 to approximately $0.15 million and $0.12 million, respectively. The nature of services was mainly focused
 international tax consultancy services.

All Other Fees

In
 the years ended December 31, 2002 and December 31, 2003, the aggregate fees billed for products and
 services rendered by our independent accountant other than the above reported services amounted to approximately
 $0.05 million and $0.04 million, respectively. The nature of the other services was mainly focused advisory
 services pertaining to approved enterprise issues, transfer prices, etc.

Audit Committees pre-approval policies and procedures

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

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

Not
 Applicable.

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

Not
 Applicable.

PART III

ITEM 17: Financial Statements

Not
 Applicable.

ITEM 18: Financial Statements

See
 Financial Statements and Financial Statement Schedule included at the end of this report.

78

---

---

|**ITEM
        19: Exhibits**
|-----------------------------
|Number                       
|1.1                          
|1.2                          
|1.3                          
|2.1                          
|2.2                          
|2.3                          
|2.4                          
|2.5                          
|2.6                          
|2.7                          
|2.8                          
|2.9                          
|2.10                         
|2.11                         
|2.12                         
|2.13                         
|2.14                         
|2.15                         
|2.16                         
|2.17                         
|2.18                         
|2.19                         
|2.20                         

79

---

---

|Number | Description                                                                                                                                                          
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.21   | Form of Warrant Agreement, dated October 15, 2003 between the Registrant and the Placement Agent (Matthew Norton)                                                    
|2.22   | Form of Warrant Agreement, dated October 15, 2003 between the Registrant and the Placement Agent (David Fuchs)                                                       
|2.23   | Form of Warrant Agreement, dated August 1, 2003 between the Registrant and Bank Hapoalim B.M.                                                                        
|2.24   | Form of Registration Rights Agreement, dated August 1, 2003 between the Registrant and Bank Hapoalim B.M.                                                            
|2.25   | Form of Warrant Agreement, dated August 1, 2003 between the Registrant and Bank Leumi le-Israel Ltd.                                                                 
|2.26   | Form of Registration Rights Agreement, dated August 1, 2003 between the Registrant and Bank Leumi le-Israel Ltd.                                                     
|2.27   | Form of Warrant Agreement, dated June 27, 2003 between the Registrant and Israel Discount Bank Ltd.                                                                  
|2.28   | Form of Registration Rights Agreement, dated June 27, 2003 between the Registrant and Israel Discount Bank Ltd.                                                      
|2.29   | Form of Warrant Agreement, dated August 1, 2003 between the Registrant and Israel Discount Bank Ltd.                                                                 
|2.30   | Form of Registration Rights Agreement, dated August 1, 2003 between the Registrant and Israel Discount Bank Ltd.                                                     
|4.1    | 1995 Israel Stock Option Plan (previously referred to in Company filings as the 1995 Flexible Stock Incentive Plan or the 1995 Stock Option / Stock Purchase Plan)(1)
|4.2    | Amendment to the 1995 Israel Stock Option Plan(4)                                                                                                                    
|4.3    | 1997 Stock Option Plan(7)                                                                                                                                            
|4.4    | 1998 Non-Employee Director Share Option Plan(8)                                                                                                                      
|4.5    | 2000 Stock Option Plan(9)                                                                                                                                            
|4.6    | Amendment to the 1995 Israel Stock Option Plan                                                                                                                       
|4.7    | Lease Agreement for office space in Brussels, Belgium between Nivellease, S.A. and the Registrant dated November 26, 1996(4)                                         
|4.8    | Lease Agreement for office space in Newton Center, Massachusetts between WHTR Real Estate Limited Partnership and the Registrant dated July 10, 1998(4)              
|4.9    | Distribution Agreement between Imaje S.A. and the Registrant dated June 26, 1995(1)                                                                                  
|4.10   | Settlement Agreements relating to Moshe Nurie and his affiliated companies(4)                                                                                        
|4.11   | Bank Hapoalim Loan Agreements(5)                                                                                                                                     
|4.12   | Bank Hapoalim Rescheduling Loan Agreement dated February 10, 2002(5)                                                                                                 
|4.13   | Bank Leumi le-Israel Loan Agreements(5)                                                                                                                              
|4.14   | Bank Leumi le-Israel Rescheduling Loan Agreement dated February 11, 2003(6)                                                                                          
|4.15   | Bank Hapoalim Amendment to the Rescheduling Loan Agreement dated March 11, 2003(6)                                                                                   
|4.16   | Bank Leumi le-Israel Amendment to the Rescheduling Loan Agreement dated March 12, 2003(6)                                                                            
|4.17   | Bank Hapoalim Amendment to the Rescheduling Loan Agreement dated August 7, 2003                                                                                      

80

---

---

|Number | Description                                                                                                                                                                                                                                                                                                                                                                      
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.18   | Bank Leumi le-Israel Amendment to the Rescheduling Loan Agreement dated July 30, 2003                                                                                                                                                                                                                                                                                            
|4.19   | Israel Discount Bank Amendment to the Rescheduling Loan Agreement dated July 30, 2003                                                                                                                                                                                                                                                                                            
|4.20   | Bank Hapoalim Amendment to the Covenants dated February 18, 2004                                                                                                                                                                                                                                                                                                                 
|4.21   | Bank Leumi le-Israel Amendment to the Covenants dated February 18, 2004                                                                                                                                                                                                                                                                                                          
|4.22   | Israel Discount Bank Amendment to the Covenants dated February 22, 2004                                                                                                                                                                                                                                                                                                          
|4.23   | Form of confidentiality agreement (4)                                                                                                                                                                                                                                                                                                                                            
|4.24   | The Founders Agreement dated September 30, 1999 among Gera Eiron, Ogen Dialogix Ltd. and the Registrant(2)                                                                                                                                                                                                                                                                       
|4.25   | Assembly Agreement dated October 4, 1999 between NUR Pro Engineering and the Registrant(2)                                                                                                                                                                                                                                                                                       
|4.26   | Lod Lease Agreement dated January 11, 2000 between A. Barzilai Investments and Assets Ltd. and Kamim Investments and Assets Ltd. and the Registrant(2)                                                                                                                                                                                                                           
|       |                                                                                                                                                                                                                                                                                                                                                                                  
|4.27   | Asset Purchase Agreement dated May 17, 2000 by and among Salsa Digital, Ltd., Signtech Japan, Ltd., Salsa Digital DO Brasil, Ltda., Salsa Digital (Guangzhou) Ltd., Salsa Dubai Corp., Salsa Technology Pte Ltd., as sellers, and NUR Macroprinters Ltd., Salsa Digital Printing Ltd. and NUR Hungary Trading and Software Licensing Limited Liability Company, as purchasers(10)
|4.28   | Amendment No. 1 to Asset Purchase Agreement dated as of June 30, 2000(11)                                                                                                                                                                                                                                                                                                        
|4.29   | Lease Agreement dated July 1, 2001 by and between RAM Global Ltd. and Salsa Digital Printers(5)                                                                                                                                                                                                                                                                                  
|4.30   | Form of Agreement dated May 11, 2003 between the Registrant and Ogen Dialogix Ltd., Gera Eiron and NUR Pro Engineering Ltd.                                                                                                                                                                                                                                                      
|8      | List of Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                           
|11     | Code of Ethics                                                                                                                                                                                                                                                                                                                                                                   
|12.2   | Certification of Principal Executive Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302 Certifications)                                                                                                                                                                                                                                                          
|12.2   | Certification of Principal Financial Officer required by Rule 13a-14(a) and Rule 15d-14(a) (Section 302 Certifications)                                                                                                                                                                                                                                                          
|13.1   | Certification of Principal Executive Officer required by Rule 13a-14(b) and Rule 15d-14(b) (Section 906 Certifications)                                                                                                                                                                                                                                                          
|13.2   | Certification of Principal Financial Officer required by Rule 13a-14(b) and Rule 15d-14(b) (Section 906 Certifications)                                                                                                                                                                                                                                                          
|14.1   | Consent of Kost Forer & Gabbay (S-8)                                                                                                                                                                                                                                                                                                                                             
|14.2   | Consent of Kost Forer & Gabbay (F-3)                                                                                                                                                                                                                                                                                                                                             

|    |  | __________________________________                                                                              
|--- |  | ----------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                 
|(1) |  | Previously filed with NURs F-1 (File No. 33-93160) and incorporated by reference herein.                       
|    |  |                                                                                                                 
|(2) |  | Previously filed with NURs Form 20-F for the year ended December 31, 2000 and incorporated by reference herein.
|    |  |                                                                                                                 
|(3) |  | Previously filed with NURs Form 6-K dated January 7, 1998 and incorporated by reference herein.                
|    |  |                                                                                                                 
|(4) |  | Previously filed with NURs Form F-1 (File No. 333-66103) and incorporated by reference herein.                 
|    |  |                                                                                                                 
|(5) |  | Previously filed with NURs Form 20-F for the year ended December 31, 2001 and incorporated by reference herein.

81

---

---

|(6)  |  | Previously
      filed with NURs Form 20-F for the year ended December 31, 2002 and
      incorporated by reference herein.  
|---- |  | ------------------------------------------------------------------------------------------------------------------------------
|     |  |                                                                                                                               
|(7)  |  | Previously
      filed with NURs Form 20-F for the year ended December 31, 1997 and
      incorporated by reference herein.  
|     |  |                                                                                                                               
|(8)  |  | Previously
      filed with NURs Form 6-K dated November 13, 1998 and incorporated
      by reference herein.                
|     |  |                                                                                                                               
|(9)  |  | Previously
      filed with NURs Schedule TO-I (File No. 5-56015) on May 16, 2002 and
      incorporated by reference herein.
|     |  |                                                                                                                               
|(10) |  | Previously
      filed with NURs Form 6-K/A dated May 22, 2000 and incorporated by
      reference herein.                   
|     |  |                                                                                                                               
|(11) |  | Previously
      filed with NURs Form 6-K/A dated July 7, 2000 and incorporated by
      reference herein.                   

Financial Statement Schedules

Other
 than as set forth below, all schedules have been omitted as the required information is either not applicable
 or presented in the financial statements or notes thereto.

82

---

---

SIGNATURES

Pursuant
 to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that
 it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be
 signed on its behalf by the undersigned, thereunto duly authorized.

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

Dated: March 30, 2004

CERTIFICATIONS

I, David Amir, the principal executive officer of NUR
 Macroprinters Ltd., certify that:

| | 1. | I have reviewed this annual report on Form 20-F of NUR Macroprinters Ltd.;                                                                                                                                                                                                                                
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                           
| | 2. | Based on my knowledge, this 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 report;
| |    |                                                                                                                                                                                                                                                                                                           
| | 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;                      
| |    |                                                                                                                                                                                                                                                                                                           
| | 4. | The companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:                                                                                  
| |    |                                                                                                                                                                                                                                                                                                           

| | (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                            
| | (b) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                            
| | (c) | Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting.                                                                           



83

---

---

| | 5. | The companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                          

| | (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                       
| | (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting.                                                                                               
| |     |                                                                                                                                                                                                                                                                       

Date: March 30, 2004

| | /s/David Amir          
| | -----------------------
| |                  
| | David Amir             
| |                        
| | Chief Executive Officer
| |                        

I, David Seligman, the principal financial officer
 of NUR Macroprinters Ltd., certify that:

| | 1. | I have reviewed this annual report on Form 20-F of NUR Macroprinters Ltd.;                                                                                                                                                                                                                                
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                           
| | 2. | Based on my knowledge, this 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 report;
| |    |                                                                                                                                                                                                                                                                                                           
| | 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;                      
| |    |                                                                                                                                                                                                                                                                                                           
| | 4. | The companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:                                                                                  
| |    |                                                                                                                                                                                                                                                                                                           

| | (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                            
| | (b) | Evaluated the effectiveness of the companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                            
| | (c) | Disclosed in this report any change in the companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting.                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                            

84

---

---

| | 5. | The companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the companys auditors and the audit committee of the companys board of directors (or persons performing the equivalent functions):
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                          

| | (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the companys ability to record, process, summarize and report financial information; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                       
| | (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the companys internal control over financial reporting.                                                                                               
| |     |                                                                                                                                                                                                                                                                       

Date: March 30, 2004

| | /s/ David Seligman     
| | -----------------------
| |                
| | David Seligman         
| |                        
| | Chief Financial Officer
| |                        

85

---

---

NUR MACROPRINTERS LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2003

IN U. S. DOLLARS

INDEX

|                                                                 |                 
|---------------------------------------------------------------- | ----------------
|                                                                 | **Page**        
|                                                                 |                 
|Report of Independent
      Auditors                             | F-2             
|                                                                 |                 
|Consolidated
      Balance Sheets                                | F-3
      - F-4 
|                                                                 |                 
|Consolidated
      Statements of Operations                      | F-5             
|                                                                 |                 
|Statements of
      Changes in Shareholders Equity (Deficiency) | F-6             
|                                                                 |                 
|Consolidated
      Statements of Cash Flows                      | F-7
      - F-8 
|                                                                 |                 
|Notes to Consolidated
      Financial Statements                 | F-9
      - F-43

---

---

---

|****ERNST &
      YOUNG***
|--------------------------

REPORT OF INDEPENDENT AUDITORS

To the Shareholders
  ofNUR MACROPRINTERS
  LTD.

We have audited the accompanying
consolidated balance sheets of NUR Macroprinters Ltd. (the Company) and its subsidiaries
as of December 31, 2002 and 2003 and the related consolidated statements of operations, changes in
shareholders equity (deficiency) and cash flows for each of the three years in the period ended
December 31, 2003. These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based on our audits. We
did not audit the financial statements of certain consolidated subsidiaries, which statements reflect
total assets of 7% as of December 31, 2003 and total revenues of approximately 15% for the year ended
December 31, 2003, of the related consolidated totals. Those financial statements were audited by
other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to
amounts included for these subsidiaries, is based solely on the reports of the other auditors.

We conducted our audits
in accordance with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. 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, based
on our audits and the reports of other auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial position of the Company
and its subsidiaries as of December 31, 2002 and 2003 and the consolidated results of their operations
and their cash flows for each of the three years in the period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States.

As discussed in Notes 2k, 1e and 2l to
the financial statements, the Company adopted FASB 142, Goodwill and other Intangible Assets
and FASB 146, Accounting for Costs Associated with Exit or Disposal Activities and EITF
00-21, Revenues Arrangements with Multiple Deliverables, respectively.

|Tel-Aviv,
        Israel  | KOST
        FORER GABBAY & KASIERER    
|------------------------- | ----------------------------------------
|February 26,
        2004 | A
        Member of Ernst & Young Global

F - 2

---

---

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

|                                                                              
|------------------------------------------------------------------------------
|
|**2002**                                                                      
|                                                                              
|ASSETS                                                                        
|                                                                              
|CURRENT ASSETS:                                                               
|Cash
      and cash equivalents                                               
|Short-term
      restricted cash                                              
|Trade
      receivables (net of allowance for doubtful accounts of $ 5,768 and
|$
      4,963 as of December 31, 2002 and 2003, respectively)                 
|Other
      accounts receivable and prepaid expenses (Note 3)                 
|Inventories
      (Note 4)                                                    
|                                                                              
|Total
      current assets                                                    
|                                                                              
|LONG-TERM
      INVESTMENTS:                                                  
|Long-term
      trade receivables (Note 5)                                    
|Investments
      in an affiliated company (Note 6)                           
|Restricted
      long-term bank deposits (Note 7)                             
|Severance
      pay fund                                                      
|Long-term
      prepaid expenses                                              
|                                                                              
|Total
      long-term investments                                             
|                                                                              
|PROPERTY,
      PLANT AND EQUIPMENT, NET (Note 8)                             
|                                                                              
|TECHNOLOGY
      AND OTHER INTANGIBLE ASSETS, NET (Note 9)                    
|                                                                              
|DEFERRED
      INCOME TAXES (Note 16f)                                        
|                                                                              
|Total
      assets                                                            
|                                                                              

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

F -3

---

---

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

|                                                                     
|---------------------------------------------------------------------
|                                                                     
|**2002**                                                             
|
|LIABILITIES
      AND SHAREHOLDERS EQUITY (DEFICIENCY)              
|                                                                     
|CURRENT LIABILITIES:                                                 
|Short-term
      bank credit and loans (Note 10)                     
|Current
      maturities of long-term loans (Note 11)                
|Trade
      payables                                                 
|Trade
      payables to related parties (Note 14)                    
|Other
      accounts payable and accrued expenses (Note 12)          
|Customer
      advances                                              
|                                                                     
|Total
      current liabilities                                      
|                                                                     
|LONG-TERM
      LIABILITIES:                                         
|Long-term
      loans, net of current maturities (Note 11)           
|Accrued
      severance pay                                          
|                                                                     
|Total
      long-term liabilities                                    
|                                                                     
|COMMITMENTS
      AND CONTINGENT LIABILITIES (Note 13)               
|                                                                     
|SHAREHOLDERS'
      EQUITY (DEFICIENCY) (Note 15):                   
|Share
      capital                                                  
|Ordinary
      shares of NIS 1 par value:                            
|Authorized:
      50,000,000 shares as of December 31, 2002 and 2003;
|Issued and outstanding:
      17,155,859 and 17,414,281 shares as of 
|December 31, 2002 and 2003, respectively                             
|Additional
      paid-in capital                                     
|Receipts
      on account of shares                                  
|Accumulated
      other comprehensive loss                           
|Accumulated
      deficit                                            
|                                                                     
|Total
      shareholders equity (deficiency)                        
|                                                                     
|Total
      liabilities and shareholders equity (deficiency)        
|                                                                     

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

F - 4

---

---

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

|                                                         
|---------------------------------------------------------
|                                                         
|**2001**                                                 
|
|Revenues
      (Note 17):                                
|Sales
      of printers, related products and services   
|                                                         
|Cost of revenues:                                        
|Cost
      of sales of printers and related products (a) 
|Inventory
      write-off                                
|                                                         
|Total
      cost of revenues                             
|                                                         
|Gross profit                                             
|                                                         
|Operating
      expenses:                                
|Research
      and development, net (Note 18a)           
|Selling
      and marketing                              
|General
      and administrative:                        
|Ongoing
      expenses                                   
|Doubtful
      account expenses                          
|Amortization
      and impairment of goodwill (Note 2k)  
|Amortization
      and impairment of technology and other
|intangible
      assets (Note 2k)                        
|Restructuring
      charges (Note 1e)                    
|                                                         
|Total
      operating expenses                           
|                                                         
|Operating
      loss                                     
|Financial
      expenses, net (Note 18b)                 
|Other expenses,
      net                                
|                                                         
|Loss before
      taxes on income (tax benefit)          
|Taxes on
      income (tax benefit) (Note 16d)           
|                                                         
|Loss before
      equity in earnings of an affiliate     
|Equity in
      earnings of an affiliate, net            
|                                                         
|Net loss                                                 
|                                                         
|Basic net
      loss per share (Note 18c)                
|                                                         
|Diluted net
      loss per share (Note 18c)              
|                                                         

|(a) | Cost of sales
      includes purchases from related parties for the years ended December 31,
      2001, 2002 and 2003 in the amounts of $ 13,819 and $ 9,026 and
      $ 8,273, respectively.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F - 5

---

---

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

|                                                  | **Number of
      Ordinary 
      shares 
      outstanding** | **Share
      capital** | **Additional
      paid-in
      capital** | **Receipts
      on
      account of
      shares** | **Accumulated
      other
      comprehensive
      loss** | **Retained
      earnings
      (accumulated
      deficit)** | **Total
      comprehensive
      loss** | **Total
      shareholders
      equity
      (deficiency)**
|------------------------------------------------- | ------------------------------------------------------------- | ----------------------- | ------------------------------------------ | --------------------------------------------------- | ---------------------------------------------------------- | ------------------------------------------------------------- | ---------------------------------------- | -------------------------------------------------------------
|
|
|Balance
      as of January 1, 2001               |                                                               |                         |                                            | 14,525,918                                          |                                                            | $                                                             | 3,618                                    |                                                              
|Comprehensive
      loss:                         |                                                               |                        
|Net loss                                          |                                                               |                         |                                            | -                                                   |                                                            |                                                               | -                                        |                                                              
|Other comprehensive
      loss:                   |                                                               |                        
|Foreign currency
      translation adjustments    |                                                               |                         |                                            | -                                                   |                                                            |                                                               | -                                        |                                                              
|                                                  |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|Total comprehensive
      loss                    |                                                               |                         |                                            | -                                                   |                                                            |                                                               | -                                        |                                                              
|                                                  |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|Exercise
      of options, net                    |                                                               |                         |                                            | 225,835                                             |                                                            |                                                               | 56                                       |                                                              
|                                                  |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|Balance as
      of December 31, 2001             |                                                               |                         |                                            | 14,751,753                                          |                                                            |                                                               | 3,674                                    |                                                              
|Comprehensive
      loss:                         |                                                               |                        
|Net loss                                          |                                                               |                         |                                            | -                                                   |                                                            |                                                               | -                                        |                                                              
|Other comprehensive
      loss:                   |                                                               |                        
|Foreign currency
      translation adjustments    |                                                               |                         |                                            | -                                                   |                                                            |                                                               | -                                        |                                                              
|                                                  |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|Total comprehensive
      loss                    |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|                                                  |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|Issuance
      of shares, net                     |                                                               |                         |                                            | 2,404,106                                           |                                                            |                                                               | 528                                      |                                                              
|                                                  |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|Balance as
      of December 31, 2002             |                                                               |                         |                                            | 17,155,859                                          |                                                            |                                                               | 4,202                                    |                                                              
|Comprehensive
      loss:                         |                                                               |                        
|Net loss                                          |                                                               |                         |                                            | -                                                   |                                                            |                                                               | -                                        |                                                              
|Other comprehensive
      loss:                   |                                                               |                        
|Foreign currency
      translation adjustments    |                                                               |                         |                                            | -                                                   |                                                            |                                                               | -                                        |                                                              
|                                                  |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|Total comprehensive
      loss                    |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|                                                  |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|Issuance
      of shares, net                     |                                                               |                         |                                            | 184,754                                             |                                                            |                                                               | 42                                       |                                                              
|Exercise
      of options                         |                                                               |                         |                                            | 73,668                                              |                                                            |                                                               | 17                                       |                                                              
|Receipts
      on account of shares, net          |                                                               |                         |                                            | -                                                   |                                                            |                                                               | -                                        |                                                              
|Issuance
      of warrants                        |                                                               |                         |                                            | -                                                   |                                                            |                                                               | -                                        |                                                              
|Fair value
      of options granted in connection |                                                               |                        
|to
      convertible loans and beneficial         |                                                               |                        
|conversion
      feature                          |                                                               |                         |                                            | -                                                   |                                                            |                                                               | -                                        |                                                              
|                                                  |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              
|Balance as
      of December 31, 2003             |                                                               |                         |                                            | 17,414,281                                          |                                                            | $                                                             | 4,261                                    |                                                              
|                                                  |                                                               |                         |                                            |                                                     |                                                            |                                                               |                                          |                                                              

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

F -6

---

---

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

|                                                                     
|---------------------------------------------------------------------
|                                                                     
|**2001**                                                             
|
|Cash flows
      from operating activities:                          
|                                                                     
|Net
      loss                                                       
|Adjustments
      to reconcile net loss to net cash used in          
|operating
      activities:                                          
|Depreciation,
      amortization and impairment of goodwill,         
|technology
      and other intangible assets                         
|Write-off
      of property and equipment                            
|Write-off
      of inventories                                       
|Amortization
      of fair value of warrants granted in              
|connection
      with convertible loans and amortization of          
|beneficial
      conversion feature                                  
|Costs
      related to issuance of shares                            
|Loss
      on sale of property and equipment                         
|Deferred
      income taxes, net                                     
|Accrued
      severance pay, net                                     
|Equity
      in earnings of an affiliate, net                        
|Decrease
      in trade receivables                                  
|Decrease
      (increase) in other accounts receivable and           
|prepaid
      expenses                                               
|Decrease
      (increase) in inventories                             
|Decrease
      in long-term trade receivables                        
|Decrease
      in long-term related parties' accounts                
|Decrease
      in long-term prepaid expenses                         
|Increase
      (decrease) in trade payables                          
|Increase
      (decrease) in trade payables from related parties     
|Decrease
      in other accounts payable and accrued expenses        
|Decrease
      in customer advances                                  
|                                                                     
|Net cash
      used in operating activities                          
|                                                                     
|Cash flows
      from investing activities:                          
|                                                                     
|Investment
      in short-term restricted cash                       
|Investment
      in restricted long-term bank deposit                
|Proceeds
      from restricted long-term bank deposit and            
|restricted
      cash                                                
|Purchase
      of property and equipment                             
|Proceeds
      from sale of property and equipment                   
|Investment
      in an affiliated company                            
|Proceeds
      from acquisition of a consolidated subsidiary, net (1)
|                                                                     
|Net cash
      used in investing activities                          
|                                                                     

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

F - 7

---

---

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

|                                                                  
|------------------------------------------------------------------
|                                                                  
|**2001**                                                          
|
|Cash
      flows from financing activities:                       
|                                                                  
|Proceeds
      from issuance of shares and warrants               
|Proceeds
      from exercise of options and warrants, net         
|Proceeds
      from convertible loans, net                        
|Short-term
      bank credit and short-term loans, net            
|Principal
      payment of long-term loans                        
|                                                                  
|Net cash
      provided by financing activities                   
|                                                                  
|Effect of
      exchange rate changes on cash and cash equivalents
|                                                                  
|Decrease
      in cash and cash equivalents                       
|                                                                  
|Cash and
      cash equivalents at the beginning of the year      
|                                                                  
|Cash and
      cash equivalents at the end of the year            
|                                                                  

|(1) | Proceeds
      from acquisition of consolidated subsidiary:      |   |        |   |  |   |       |   |       | 
|--- | ---------------------------------------------------------------- | - | ------ | - |  | - | ----- | - | ----- | 
|    | Fair value
      of assets acquired and liabilities assumed at   |  
|    | the date
      of acquisition was as follows:                    |  
|    | Working capital,
      net (excluding cash and cash equivalents) | $ | (554   | ) |  | $ | -     | $ | -     | 
|    | Long-term
      trade receivables                                |   | 42     |   |  |   | -     |   | -     | 
|    | Property
      and equipment                                     |   | 862    |   |  |   | -     |   | -     | 
|    | Technology                                                       |   | 700    |   |  |   | -     |   | -     | 
|    | Long-term
      loans                                            |   | (1,468 | ) |  |   | -     |   | -     | 
|    | Excess of
      losses over investment in an affiliate           |   | 308    |   |  |   | -     |   | -     | 
|    |                                                                  |   |        |   |  |   |       |  
|    |                                                                  | $ | (110   | ) |  | $ | -     | $ | -     | 
|    |                                                                  |   |        |   |  |   |       |  
|(2) | Supplemental
      disclosure of cash flows activities:          |   |        |   |  |   |       |   |       | 
|    | Cash paid
      during the year for:                             |  
|    | Interest                                                         | $ | 2,628  |   |  | $ | 1,685 | $ | 1,483 | 
|    |                                                                  |   |        |   |  |   |       |  
|    | Income taxes                                                     | $ | 945    |   |  | $ | 625   | $ | -     | 
|    |                                                                  |   |        |   |  |   |       |  
|(3) | Supplemental
      disclosure of non-cash operating financing    |   |        |   |  |   |       |   |       | 
|    | activities:                                                      |  
|    | Conversion
      of long-term loans                              | $ | -      |   |  | $ | -     | $ | 1,401 | 
|    |                                                                  |   |        |   |  |   |       |  
|    | Transfer
      of equipment from property, plant and             |  
|    | equipment
      to inventory                                     | $ | -      |   |  | $ | -     | $ | 2,131 | 
|    |                                                                  |   |        |   |  |   |       |  

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

F -8

---

---

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

|NOTE
      1:- | GENERAL
|-------------- | -------
|               |        

| | a. | NUR Macroprinters Ltd. (the Company) and its subsidiaries (collectively, the Group)
develop, manufacture, sell and provide services of digital printing systems for on-demand, short-run,
wide format and super-wide format printing as well as related consumable products. The principal
markets of the Group are located in Europe, the Americas and Asia.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                  

| | The Company operates through wholly-owned subsidiaries for sales, support services and marketing of
the Companys products in their country or region of domicile. Such entities include NUR Europe
S.A. Nur Media Solutions S.A. (Nur Media Solutions), (NUR Europe) in Belgium,
NUR America Inc. (NUR America) in the U.S. and NUR Asia Pacific Ltd. (NUR Asia
Pacific) in Hong Kong.            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                            
| | NUR Media Solutions S.A. (NUR Media Solutions), a wholly-owned subsidiary, was engaged
in developing and marketing consumables for the Companys printers. In October 2003 the operations
of NUR Media Solutions were transferred to Nur Europe. In addition, during 2003, NUR Shanghai operations
were transferred to NUR Asia Pacific.                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                            
| | During 2003, the manufacturing operations of Stillachem and NUR Salsa were transferred to Israel. As
part of the transfer, the Company manufactures all its printers in a single plant located in Rosh
HaAyin, Israel and the ink manufacturing facilities were relocated to a new manufacturing plant
in Ashkelon, Israel. In addition, NUR Salsas marketing operations were transferred to NUR America.
| |                                                                                                                                                                                                                                                                                                                                                                                                            

| | b. | Acquisition of NUR Pro Engineering Ltd.:
| | -- | ----------------------------------------
| |    |                                         

| | NUR Pro Engineering Ltd., a 50% joint venture, is engaged in the assembly of the Companys printers.
On May 11, 2003, the Company and the shareholders of NUR Pro Engineering Ltd. signed an additional
share purchase agreement (the Agreement). According to the Agreement, the Company
will purchase the remaining shares held by the shareholders (50%), in consideration for $ 850, which
will be paid in monthly installments until March 31, 2004. The Company expects to complete the acquisition
of Nur Pro Engineering by the end of the first quarter of 2004. As a result, the financial statements
of Nur Pro Engineering, will be fully consolidated into the financial statements of the Group.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | As of December 31, 2003, $ 460 has been paid in accordance with the agreement. (See Note 6).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | c. | The Company
      purchases some of the ink and all of the ink-jet printer-heads used in its
      printers from a single supplier for each series of printers. The Companys
      customers rely on the ink and ink-jet printerheads to operate their printers.
      Because the Companys business depends on these items for sale and
      maintenance of its printers, a failure in supply or a change in credit terms
      could have a material adverse effect on the Companys results of operations
      and financial position.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 9

---

---

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

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

| | d. | The Company employs a limited number of unaffiliated subcontractors to manufacture components for its
printers. The Company currently employs one 50% owned affiliated sub-contractor to assemble some
of its printers (see b above).
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                      

| | Because the Company relies on a limited number of subcontractors, if the Company fails to maintain
its relationships with its subcontractors or fails to develop alternative sources for its printer
components, it could have a material adverse effect on the Companys results of operations and
financial position.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                        

| | e. | Restructuring charges:
| | -- | ----------------------
| |    |                       

| | During the first and fourth quarters of 2001, the second and fourth quarters of 2002 and the second
quarter of 2003 the Company decided to perform a series of strategic initiatives intending to further
reduce costs and increase efficiency. As a result, approximately 60, 72 and 58 positions were eliminated
by the Group in 2001, 2002 and 2003, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                      
| | The restructuring charges consisted of the following:                                                                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                                                                                                      
| | In 2001:                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                      

| | a)             | Consolidating
      the operations of NUR America and Salsa Digital Printers into one facility
      in San-Antonio.                  
| | -------------- | --------------------------------------------------------------------------------------------------------------------------------------
| | b)             | Consolidating
      the ink manufacturing of Stillachem into the facility of Salsa Digital Printers
      in San Antonio.             
| | c)             | Consolidating
      the Salsa Digital Printers R&D operations in Israel and the U.S. into
      the Companys facility in Lod, Israel.
| |                |                                                                                                                                       
| |                |                                                                                                                                       
| | In
      2002:
| |                |                                                                                                                                       
| | a)             | Downsizing
      in the number of employees due to the reduction in sales levels.                                                     
| | b)             | Relocating
      operations in Asia Pacific from China to Hong Kong.                                                                  
| |                |                                                                                                                                       
| | In
      2003:
| |                |                                                                                                                                       
| | a)             | Consolidating
      the operations of NUR Media Solutions and Nur Europe.                                                             
| | b)             | Relocating
      Nur Salsa operations to Israel.                                                                                      
| | c)             | Relocating
      Nur Shanghais operations to Nur Asia Pacific.                                                                       
| |                |                                                                                                                                       

| | In connection with SFAS No. 146, Accounting for Costs Associated With An Exit Or Disposal Activity
(SFAS 146), the Group recorded during 2001, 2002 and 2003 restructuring charges of $
3,237, $ 1,300 and $ 2,001, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                      

F - 10

---

---

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

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

| |  | The changes
      in the accrued restructuring costs are as follows:
| |  | --------------------------------------------------------------------

|                                               | June 30, 2003 | Payments/
      write-off | December 31,
      2003
|---------------------------------------------- | ------------- | ------------------------- | -----------------------
|                                               |               |                           |                        
|Employee
      termination and severance costs | $             | 1,067                     |                        
|Other exit
      costs                         |               | 934                       |                        
|                                               |               |                           |                        
|Total special
      charges                    | $             | 2,001                     |                        
|                                               |               |                           |                        

| |  | As of the years ended December 31, 2003, 2003 and 2001, all restructuring charges were fully paid or
written-off.
| |  | -----------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                  

| | The components
      and the classification of the restructuring charges for the years ended
      2001, 2002 and 2003, are as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------

| |                                                | Year ended
      December 31,
| | ---------------------------------------------- | -----------------------------
|
|
|
|
| |                                                |                              
| | Restructuring
      charges:                   |                              
| | Employee
      termination and severance costs | $                            
| | Other
      exit costs                         |                              
| |                                                |                              
| |                                                | $                            
| |                                                |                              

| | f. | As for additional information regarding the requirements of bank covenants see Note 11e.
| | -- | ----------------------------------------------------------------------------------------
| |    |                                                                                         

|NOTE
      2:- | SIGNIFICANT
      ACCOUNTING POLICIES
|-------------- | -------------------------------------
|               |                                      

| | The Companys consolidated financial statements are prepared in accordance with accounting principles
generally accepted in the United States (US GAAP).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                           

| | a. | Use of estimates:
| | -- | -----------------
| |    |                  

| | The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                 

| | b. | Financial
      statements in U.S. dollars:                                                                                                                                                                                                                                             
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                         
| |    | The currency
      of the primary economic environment in which the operations of the Company
      and certain subsidiaries are conducted is the U.S. dollar (dollar);
      thus, the dollar is the reporting and functional currency of the Company
      and certain subsidiaries.

F - 11

---

---

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

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

| |  | The Companys and certain subsidiaries transactions and balances denominated in dollars
are presented at their original amounts. Non-dollar transactions and balances have been remeasured
to dollars in accordance with Statement of Financial Accounting Standards (SFAS) No.
52 Foreign Currency Translation. All transaction gains and losses from remeasurement
of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements
of operations as financial income or expenses, as appropriate.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| | For those subsidiaries whose functional currency has been determined to be their local currency, assets
and liabilities are translated at year-end exchange rates and statement of operations items are translated
at average exchange rates prevailing during the year. Such translation adjustments are recorded as
a separate component of accumulated other comprehensive loss in shareholders equity (deficiency).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                         

| | c. | Principles of consolidation:
| | -- | ----------------------------
| |    |                             

| | The consolidated financial statements include the accounts of the Company and its wholly- owned subsidiaries.
Intercompany transactions and balances including profit from intercompany sales not yet realized
outside the Group, have been eliminated upon consolidation.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                           

| | d. | Cash equivalents:
| | -- | -----------------
| |    |                  

| | Cash equivalents are short-term highly liquid investments that are readily convertible to cash with
original maturities of three months or less.
| | ------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                 

| | e. | Short-term restricted cash
| | -- | --------------------------
| |    |                           

| | Short-term restricted cash is primarily invested in highly liquid deposits, which are used as security
for certain of the Companys liabilities and obligations.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                 

| | f. | Inventories:
| | -- | ------------
| |    |             

| | Inventories
      are stated at the lower of cost or market value. Inventory write-offs are
      provided to cover risks arising from slow-moving items, technological obsolescence,
      excess inventories, discontinued products and for market prices lower than
      cost . In 2003, the Group wrote off an amount of approximately $ 13,100
      in excess inventory, discontinued products and for market prices lower than
      cost, which has been included in cost of revenues.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Cost is determined
      as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Raw materials
       using the average cost method with addition of allocable indirect
      manufacturing costs.                                                                                                                                                                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Work-in-progress
      and finished products - on the basis of direct manufacturing costs with
      the addition of allocable indirect manufacturing costs.                                                                                                                                                                                                                                                                                                                                   

F - 12

---

---

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

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

| | g. | Long-term trade receivables:
| | -- | ----------------------------
| |    |                             

| | Long-term receivables from extended payment agreements are recorded at estimated present values determined
based on prevailing rates of interest at the date of transaction and reported at the net amounts
in the accompanying consolidated financial statements. Imputed interest is recognized, using the
effective interest method as a component of interest income in the accompanying statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                         

| | h. | Investments in an affiliated company:
| | -- | -------------------------------------
| |    |                                      

| | The investment in NUR Pro Engineering, of which the Company owns 50% and can exercise significant influence,
is presented using the equity method of accounting.                                                                                                                                                                              
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                               
| | In these financial statements, affiliated companies are companies held to the extent of 20% or more
(which are not subsidiaries), or companies less than 20% held, which the Company can exercise significant
influence over operating and financial policy of the affiliate.                                                                 
| |                                                                                                                                                                                                                                                                                                                                               
| | The Companys investments in affiliates are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an investment may not be recoverable. As of
December 31, 2003 based on managements most recent analyses, no impairment losses have been
identified.                                     
| |                                                                                                                                                                                                                                                                                                                                               
| | Investment in an affiliated company represents investments in ordinary shares. The Company applies
EITF 99-10, Percentage Used to Determine the Amount of Equity Method Losses (EITF
No. 99-10). Accordingly, losses of the investee are recognized based on the ownership level
of the particular investee security held by the investor.
| |                                                                                                                                                                                                                                                                                                                                               
| | The Company expects to complete the acquisition of Nur Pro Engineering by the end of the first quarter
of 2004. As a result, the financial statements at Nur Pro Engineering, will be fully consolidated
into the financial statements of the Group (see Note 1b).                                                                            
| |                                                                                                                                                                                                                                                                                                                                               

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

| | Property,
      plant and equipment are stated at cost, net of grants received and accumulated
      depreciation.                                
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                   
| | Depreciation
      is calculated using the straight-line method over the estimated useful lives
      of the assets at the following annual rates:

| |                                      |  | **%**                            | 
| | ------------------------------------ |  | -------------------------------- | 
| |                                      |  |                                  | 
| | Machinery
      and equipment        |  | 10
      - 33                    | 
| | Motor vehicles                       |  | 15                               | 
| | Office furniture
      and equipment |  | 6 - 10                           | 
| | Building                             |  | 3                                | 
| | Leasehold
      improvements         |  | Over the
      term of the lease | 

F - 13

---

---

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

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

| | j. | Impairment of long-lived assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    | The Groups long-lived assets and certain identifiable intangibles are reviewed for impairment
in accordance with Statement of Financial Accounting Standard No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets (SFAS No. 144), whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount of an asset to the
future undiscounted cash flows expected to be generated by the assets. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount
of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. As of December 31, 2003, impairment
losses in the amount of approximately $ 1,021 have been identified. This amount is included in the
statements of income under ongoing general and administrative expenses.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | k. | Technology and other intangible assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | Intangible assets acquired in a business combination for which date is on or after July 1, 2001, should
be amortized over their useful lives using a method of amortization that reflects the pattern in
which the economic benefits of the intangible assets are consumed or otherwise used up, in accordance
with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
(SFAS No. 142). Acquired technology is amortized over a weighted average of 10 years,
and the customer list is amortized over a weighted average of  seven years. Amortization
and impairment of goodwill, technology and other intangible assets for the years ended December 31,
2003, 2002 and 2001, were $2,955, $12,855 and $118, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

| | l. | Revenue recognition:
| | -- | --------------------
| |    |                     

| | The Company
      generates revenues from the sale of its products and from services to its
      products. The Company sells its products primarily through its direct sales
      force and distributors.                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | The Company
      adopted Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue
      Arrangements with Multiple Deliverables.                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | In accordance
      with EITF No. 00-21, the Company concluded that its entire arrangements
      represents a single unit accounting. Accordingly, payments that are contingent
      upon performance are deferred until contingency is resolved.                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | Revenues
      from product sales are recognized in accordance with Staff Accounting Bulletin
      No. 104 Revenue Recognition in Financial Statements (SAB.
      No 104) upon delivery, provided that the collection of the resulting
      receivable is probable, there is a persuasive evidence of an arrangement,
      no significant obligations in respect of installation remain and the price
      is fixed or determinable. The Company does not grant a right of return.

F - 14

---

---

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

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

| | Revenues from services are comprised of maintenance and support arrangements, installation and training,
none of which are considered essential to the functionality of the products. Revenues from maintenance
and support arrangements are deferred and recognized on a straight-line basis over the term of the
arrangement and revenues from training and installation are recognized at the time the services are
rendered.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Value of trade-in transactions of the Companys printers are recorded at fair value as a discount
from revenues in accordance with APB 29, Accounting for Non-monetary Transactions, and
EITF 01-2, Interpretations of APB Opinion No. 29, when the cash consideration involved
with such transactions is material.                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | Deferred revenue includes amounts received from customers for which revenue has not yet been recognized.                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                 

| | m. | Warranty costs:
| | -- | ---------------
| |    |                

| | The Group
      generally provides a warranty period of six months, at no extra charge.
      The Group estimates the costs that may be incurred under its basic limited
      warranty and records a liability in the amount of such costs at the time
      product revenue is recognized. Factors that affect the Groups warranty
      liability include the number of installed units, historical and anticipated
      rates of warranty claims, and cost per claim. The Group periodically assesses
      the adequacy of its recorded warranty liabilities and adjusts the amounts
      as necessary.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Changes in
      the Groups liability during the year are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | Balance at
      the beginning of the year              |  |  | $ | (1,327 | )
| | ------------------------------------------------------- |  |  | - | ------ | -
| | Utilization
      of warranties                         |  |  |   | 966    |  
| | Changes in
      liability for warranty during the year |  |  |   | (16    | )
| |                                                         |  |  |   |       
| | Balance at
      the end of the year                    |  |  | $ | (377   | )
| |                                                         |  |  |   |       

| | n. | Research and development costs:
| | -- | -------------------------------
| |    |                                

| | Research and development costs net of grants for funding approved research and development projects
are charged to the statement of operations as incurred.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                            

| | o. | Government grants:
| | -- | ------------------
| |    |                   

| | Royalty-bearing
      grants from the Government of Israel for funding approved research and development
      projects are recognized at the time the Company is entitled to such grants,
      on the basis of the costs incurred and included as a reduction in research
      and development costs. Research and development grants amounted to $ 649,
      $ 1,449 and $ 687 in 2001, 2002 and 2003, respectively. Total royalties
      accrued or paid amounted to $ 432, $ 180 and $ 67 in 2001, 2002 and 2003,
      respectively and were recorded as part of the cost of revenues.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 15

---

---

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

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

| | The Company also received non-royalty-bearing grants from the Fund for Encouragement of Marketing Activity.
These grants are recognized at the time the Company is entitled to such grants on the basis of the
costs incurred and included as a reduction in sales and marketing expenses.                                             
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                        
| | The Company is also entitled to non-royalty-bearing grants for its participation in the MAGNET
project financed by the Government of Israel. These grants are recognized at the time the Company
is entitled to such grants, on the basis of the costs incurred and are recorded as a reduction in
research and development expenses.
| |                                                                                                                                                                                                                                                                                                                                        

| | p. | Income taxes:
| | -- | -------------
| |    |              

| | The Group accounts for income taxes in accordance with Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes (SFAS No. 109). This statement prescribes
the use of the liability method whereby deferred tax asset and liability account balances are determined
based on differences between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the differences are expected
to reverse. The Group provides a valuation allowance, if necessary, to reduce deferred tax assets
to their estimated realizable value.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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

| | Financial
      instruments that potentially subject the Group to concentrations of credit
      risk consist principally of cash and cash equivalents, short-term restricted
      cash, trade receivables, long-term trade receivables, restricted long-term
      bank deposits and long-term loan to an affiliate.                                                                                                                                                                                                                                                                                                                                                                                                         
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The majority
      of the Groups cash and cash equivalents and short-term restricted
      cash are invested in dollar and Euro instruments with major banks in Israel,
      the U.S., Asia and Belgium. Management believes that the financial institutions
      that hold the groups investments are financially sound and accordingly,
      minimal credit risk exists with respect to these investments. Such deposits
      in the United States may be in excess of insured limits and are not insured
      in other jurisdictions. However, management believes that such financial
      institutions are financially sound, and accordingly, minimal credit risk
      exists with respect to these investments.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The trade
      receivables and the long-term trade receivables of the Group are derived
      mainly from sales to customers located primarily in the U.S.A. and Europe.
      Management believes that credit risks are moderated by the diversity of
      its end-customers and geographic sales areas. The Group performs ongoing
      credit evaluations of its customers financial condition. An allowance for
      doubtful accounts is determined with respect to specific debts that the
      Group has determined to be doubtful of collection.                                                                                                                                                                  

F - 16

---

---

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

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

| | The Company has provided a long-term loan to an affiliate, amounting to $ 282 and $ 280 as
of December 31, 2002 and 2003, respectively. The long-term loan is unsecured. The Company performs
ongoing evaluations of the balances and to date, considers the credit risk to be low.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                    
| | The Group has no significant off-balance-sheet concentration of credit risk such as foreign exchange
contracts, option contracts or other foreign hedging arrangements.                                                                                                            
| |                                                                                                                                                                                                                                                                                    

| | r. | Severance pay:
| | -- | --------------
| |    |               

| | The Companys liability for severance pay is calculated pursuant to Israels Severance Pay
Law based on the most recent salary of the employees multiplied by the number of years of employment,
as of the balance sheet date. Employees are entitled to one months salary for each year of
employment, or a portion thereof. The Companys liability for all of employees, is fully provided
by monthly deposits with severance pay funds, insurance policies and by an accrual. The value of
these policies is recorded as an asset in the Companys consolidated balance sheet.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may
be withdrawn only upon the fulfillment of the obligation pursuant to Israels Severance Pay
Law or labor agreements. The value of the deposited funds is based on the cash surrendered value
of these policies, and includes immaterial profits.                                                                                                                                                                                                                             
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | Severance expenses for the years ended December 31, 2001, 2002 and 2003 amounted to $ 1,426, $ 716
and $ 1,388, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

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

| | The following
      methods and assumptions were used by the Group in estimating their fair
      value disclosures for financial instruments:                                                                                                                                                                                                                                                                                                                                                             
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | The carrying
      amounts of cash and cash equivalents, short-term restricted cash, trade
      receivables, other accounts receivable and prepaid expenses, short-term
      bank credit, other accounts receivable and prepaid expenses, current maturities
      of long-term loans, trade payables, trade payables to related parties, customer
      advances and other accounts payable and accrued expenses approximate their
      fair value, due to the short-term maturity of such instruments.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | The carrying
      amounts of the Groups long-term trade receivables, long-term loans
      to an affiliate and restricted long-term bank deposits, approximate their
      fair value. The fair value was estimated using discounted cash flow analyses,
      based on the Groups investment rates currently available for similar
      type of investment arrangements.                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | The carrying
      amount of the Groups long-term loans approximates their fair value.
      The fair value was estimated using discounted cash flow analyses, based
      on the Groups incremental borrowing rates for similar type of borrowing
      arrangements.                                                                                                                                                                                                                                   

F - 17

---

---

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

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

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

| | Advertising expenses are charged to the statement of operations, as incurred. Advertising expenses
for the years ended December 31, 2001, 2002 and 2003 amounted to $ 554, $ 261 and $ 291,
respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                          

| | u. | Basic and diluted net loss per share:
| | -- | -------------------------------------
| |    |                                      

| | Basic net loss per share is computed based on the weighted average number of Ordinary shares outstanding
during each year. Diluted net loss per share is computed based on the weighted average number of
Ordinary shares outstanding during the period plus dilutive potential Ordinary shares considered
outstanding during the year, in accordance with Statement of Financial Accounting Standard No. 128,
Earnings Per Share (SFAS No. 128).        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Outstanding stock options and warrants have been excluded from the calculation of the diluted net loss
per Ordinary share when such securities are anti-dilutive for all periods presented. The total weighted
average number of shares related to the outstanding options and warrants excluded from the calculations
of diluted net loss per share was 931,736, 1,194,630 and 1,446,455 for the years ended December 31,
2001, 2002 and 2003, respectively.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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

| | The Company
      has elected to follow Accounting Principles Board Opinion No. 25 Accounting
      for Stock Issued to Employees (APB No. 25) and FASB Interpretation
      No. 44 Accounting for Certain Transactions Involving Stock Compensation
      (FIN No. 44) in accounting for its employee stock option plans.
      Under APB No. 25, when the exercise price of the Companys stock options
      is less than the market price of the underlying shares on the date of grant,
      compensation expense is recognized.                                                                                                                                                                                                                                                                                                                                                                                      
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | The Company
      adopted the disclosure provisions of Financial Accounting Standards Board
      Statement No. 148, Accounting for Stock-Based Compensation - Transition
      and Disclosure (SFAS No. 148), which amended certain provisions
      of SFAS 123 to provide alternative methods of transition for an entity that
      voluntarily changes to the fair value based method of accounting for stock-based
      employee compensation, effective as of the beginning of the fiscal year.
      The Company continues to apply the provisions of APB No. 25, in accounting
      for stock-based compensation.                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Pro forma
      information regarding net income and net earnings per share is required
      under Statement of Financial Accounting Standard No. 123 Accounting
      for Stock-Based Compensation (SFAS No. 123) and has been determined
      as if the Company had accounted for its employee stock options under the
      fair value method of SFAS No. 123. The fair value for these options is amortized
      over their vesting period and estimated at the date of grant using a Black-Scholes
      Option Valuation Model with the following weighted-average assumptions for
      2001, 2002 and 2003: risk-free interest rates of 2.0%, 2.0% and 3.2%, respectively;
      dividend yields of 0% for each year; volatility factors of the expected
      market price of the Companys Ordinary shares of 0.74, 0.78 and 0.76,
      respectively; and an expected life of the option of 10 years for each year.

F - 18

---

---

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

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

| | The following
      table illustrates the effect on net loss and loss per share, assuming that
      the Company had applied the fair value recognition provision of SFAS 123
      on its stock-based employee compensation:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year ended
      December 31,                   
| | ------------------------------------------------
|
| | Net loss
      as reported                      
| |                                                 
| | Add: Stock-based
      compensation expense     
| | determined
      under fair value method for all
| | awards,
      net of related tax effects        
| |                                                 
| | Pro forma
      net loss                        
| |                                                 
| | Earnings
      per share:                       
| | Basic
      net loss per share, as reported     
| |                                                 
| | Basic
      pro forma net loss per share        
| |                                                 
| | Diluted
      net loss per share, as reported   
| |                                                 
| | Diluted
      pro forma net loss per share      
| |                                                 

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

| | w. | Derivative and hedging activities:                                                                                                                                                                                                                                                                                                                                  
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                     
| |    | The Company accounts for Derivatives and Hedging based on Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133). SFAS No. 133 requires companies to recognize all of its derivative instruments as either
assets or liabilities in the statement of financial position at fair value.
| |    |                                                                                                                                                                                                                                                                                                                                                                     

| | For derivative
      instruments not designated as hedging instruments, the gain or loss is recognized
      in other income/expense in current earnings during the period of change.                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                              
| | On June 28,
      2002, the Company entered into call/put option agreement in the amount of
      approximately $ 10,000, to be executed on June 26, 2003. The gain (loss)
      that resulted was included in the statements of operations during 2002 and
      2003, and was $ 221 and$ (5), respectively.

F - 19

---

---

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

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

| | x.           The unqualification of the auditors
opinion:
| | ----------------------------------------------------------
| |                                                           

| |  | The report of Grant Thornton LLP on the financial statements of NUR Asia Pacific, a subsidiary of the
Company, was qualified with respect to certain limitations in evidence and accounting records relating
to the carrying value of inventory at December 31, 2002, resulting in changes to the carrying value
of inventory and the subsidiarys net loss in 2003, as discussed in their report. These effects
on net loss are, in managements opinion, not material in relation to the consolidated financial
statements of the Company.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

| | y. | Reclassification:
| | -- | -----------------
| |    |                  

| | Certain amounts from prior years have been reclassified to conform to the current year representation.
The reclassification had no effect on previously reported net loss, shareholders equity and
cash flows.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                

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

| | In January
      2003, the FASB issued Interpretation No. 46, Consolidation of Variable
      Interest Entities (FIN 46). The objective of FIN 46 as
      revised in December 2003, is to improve financial reporting by companies
      involved with variable interest entities. A variable interest entity is
      a corporation, partnership, trust, or any other legal structure used for
      business purposes that either (a) does not have equity investors with voting
      rights or (b) has equity investors that do not provide sufficient financial
      resources for the entity to support its activities. FIN 46 requires a variable
      interest entity to be consolidated by a company if that company is subject
      to a majority of the risk of loss from the variable interest entitys
      activities or entitled to receive a majority of the entitys residual
      returns or both. FIN 46 also requires disclosures about variable interest
      entities that the company is not required to consolidate but in which it
      has a significant variable interest. The consolidation requirements of FIN
      46 apply immediately to variable interest entities created after January
      31, 2003. The consolidation requirements apply to older entities in the
      first fiscal year or interim period ending after March 15, 2004. Certain
      of the disclosure requirements apply in all financial statements issued
      after January 31, 2003, regardless of when the variable interest entity
      was established. As of December 31, 2003, the Company does not expect the
      adoption of FIN 46 to have a material impact on its consolidated financial
      statements.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 20

---

---

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

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

| | December 31,                              
| | ------------------------------------------
|
| | Government
      authorities              
| | Participations
      and grants receivable
| | Employees                                 
| | Advances
      to suppliers (1)           
| | Prepaid expenses                          
| | Other                                     
| |                                           
| |                                           
| |                                           

| | (1) | Includes $ 1,328 and $ 0 as of December 31, 2002 and 2003, respectively, paid in advance
to an affiliate, NUR Pro Engineering, in respect of printers that have not yet been supplied.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                       

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

| | December 31,           
| | -----------------------
|
| | Raw materials          
| | Work-in-progress       
| | Finished
      products
| |                        
| |                        
| |                        

|NOTE
      5:- | LONG-TERM
      TRADE RECEIVABLES
|-------------- | ---------------------------------
|               |                                  

| | The aggregate annual maturities of long-term trade receivables from the sale of products are as follows:
| | --------------------------------------------------------------------------------------------------------
| |                                                                                                         

| | December 31,                         
| | -------------------------------------
|
| | First year
      (current maturities)
| | Second year                          
| | Third year                           
| | Fourth year                          
| |                                      
| |                                      
| | Less - current
      maturities      
| |                                      
| |                                      
| |                                      

|Long-term
      trade receivables bear interest at the average rate of 13% per annum.
|-------------------------------------------------------------------------------------

F - 21

---

---

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

NOTE 6:-        INVESTMENTS IN AN AFFILIATED COMPANY

| | Investment
      in NUR Pro Engineering:
| | ----------------------------------------

| | December 31,                                  
| | ----------------------------------------------
|
| | Equity, net
      (1)                         
| | Long-term
      loans (2)                     
| |                                               
| | Total investments
      in NUR Pro Engineering
| |                                               
| | (1) Net equity
      as follows:              
| | Net
      equity as of purchase date          
| | Accumulated
      net earnings                
| | Additional
      investment                   
| |                                               
| |                                               
| |                                               

| | (2) | The Company granted NUR Pro Engineering loans as follows:
| | --- | ---------------------------------------------------------
| |     |                                                          

| | A loan in the amount of $ 175 linked to the U.S. dollar bearing annual interest at the rate of
3%. A maturity date has not yet been determined.
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                
| | A loan in the amount of $ 100 denominated in NIS bearing no interest and to be repaid in 20 years.                                             
| |                                                                                                                                                

| | *) | Represents an amount lower than $ 1.
| | -- | ------------------------------------
| |    |                                     

NOTE 7:-      
  RESTRICTED LONG-TERM BANK DEPOSITS

| | Restricted
      long-term bank deposits are maintained with banks mainly to secure obligations
      to customers. Nur Europe is restricted from withdrawing any portion of the
      long-term bank deposits at any time, until the repayment of the leasing
      obligation by the customer. The restricted long-term bank deposits will
      mature in 2005, are linked to the Euro and bear a weighted average interest
      at a rate of 1.05%.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 22

---

---

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

|NOTE
      8:- | PROPERTY,
      PLANT AND EQUIPMENT
|-------------- | -----------------------------------
|               |                                    

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

| | December 31,                        
| | ------------------------------------
|
| | Cost:                               
| | Machinery
      and equipment       
| | Motor
      vehicles                
| | Office
      furniture and equipment
| | Buildings                           
| | Leasehold
      improvements        
| |                                     
| |                                     
| |                                     
| | Accumulated
      depreciation      
| |                                     
| | Depreciated
      cost              
| |                                     

| | b. | Depreciation expenses for the years ended December 31, 2001, 2002 and 2003, amounted to $ 3,014,
$ 2,860 and $ 3,452, respectively. (As for impairment, see Note 2j).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                      

| | As for charges,
      see Note 13c.
| | -----------------------------------
| |                                    

| | c. | Capital lease obligations
| | -- | -------------------------
| |    |                          

| | Nur Europe
      leases certain equipment under lease agreements which are recorded as capital
      leases. The related equipment is included in property, plant and equipment
      and depreciated accordingly.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                   
| | Future minimum
      lease payment sunder the capital leases at December 31,:                                                                                                                                     

| | 2004                                        |  |  | $ | 85  | 
| | ------------------------------------------- |  |  | - | --- | 
| | 2005                                        |  |  |   | 85  | 
| | 2006                                        |  |  |   | 85  | 
| | 2007                                        |  |  |   | 85  | 
| | 2008 and
      thereafter                   |  |  |   | 595 | 
| |                                             | 
| |                                             |  |  |   | 935 | 
| | Less - amounts
      representing interest  |  |  |   | 218 | 
| |                                             | 
| | Present value
      of net minimum payments |  |  |   | 717 | 
| | Less- current
      portion                 |  |  |   | 71  | 
| |                                             | 
| | Non-current
      portion                   |  |  | $ | 646 | 
| |                                             | 

F - 23

---

---

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

|NOTE
      9:- | TECHNOLOGY
      AND OTHER INTANGIBLE ASSETS, NET
|-------------- | -------------------------------------------------
|               |                                                  

| | a.
               Technology
      and other intangible assets:
| | ---------------------------------------------------------------
| |                                                                

| | 1. | Composition
      of technology and other intangible assets:
| | -- | ------------------------------------------------------------

| | December 31,                   
| | -------------------------------
|
| | Original
      amounts:        
| | Technology                     
| | Customer
      list            
| | Patent
      rights            
| |                                
| |                                
| |                                
| | Accumulated
      amortization:
| | Technology                     
| | Customer
      list            
| | Patent
      rights            
| |                                
| |                                
| |                                
| | Amortized
      cost           
| |                                

| | 2.          Estimated amortization expenses for the year
ended:
| | ---------------------------------------------------------------
| |                                                                

| | December 31,             
| | -------------------------
| | 2004                     
| | 2005                     
| | 2006                     
| | 2007 and
      thereafter
| |                          
| |                          
| |                          

F - 24

---

---

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

|NOTE
      9:- | TECHNOLOGY
      AND OTHER INTANGIBLE ASSETS, NET (Cont.)
|-------------- | ---------------------------------------------------------
|               |                                                          

| | b. | The unaudited results of operations presented below for the year ended December 31, 2001, reflect the
impact on results of operations had the Group adopted the non-amortization provisions of SFAS No.
142 effective January 1, 2000:
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                       

| | Year ended
      December 31,
      2001
| | ----------------------------------------
| | Reported
      net loss                 
| | Goodwill
      amortization             
| |                                         
| | Proforma
      net loss                 
| |                                         
| | Basic loss
      per share:             
| | Reported
      net loss                 
| | Goodwill
      amortization             
| |                                         
| | Proforma
      net loss                 
| |                                         
| | Diluted loss
      per share:           
| | Reported
      net loss                 
| | Goodwill
      amortization             
| |                                         
| | Proforma
      net loss                 
| |                                         

|NOTE
      10:- | SHORT-TERM
      BANK CREDIT AND LOANS
|--------------- | --------------------------------------

| | Linkage
      terms          | Interest
      rate | December
      31.
| | ---------------------------- | ------------------- | ------------------
|
|
| |                              |                     |                   
| |                              |                     |                   
| | Short-term
      bank credit |                     |                   
| |                              |                     |                   
| | Short-term
      bank loans  |                     |                   
| | Short-term
      bank credit |                     |                   
| | Short-term
      bank credit |                     |                   
| |                              |                     |                   
| |                              |                     |                   
| |                              |                     |                   

| | The weighted average interest rate as of December 31, 2002 and 2003 was 8.2% and 3.77%, respectively.
| | -----------------------------------------------------------------------------------------------------
| |                                                                                                      
| | The total authorized credit line is $ 15,450 at December 31, 2003, which was fully utilized.         
| |                                                                                                      

F - 25

---

---

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

|
|
|

|NOTE
      11:- | LONG-TERM
      LOANS
|--------------- | ---------------------
|                |                      

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

|                                |  |  |                   | Interest
      rate |  |      | December
      31. | 
|------------------------------- |  |  | ----------------- | ------------------- |  | ---- | ------------------ | 
|
|
|
|
|                                |  |  |                   |                     |  |      |                    | 
|From banks                      |  |  | U.S.
      dollar |                     |  | 4.5  |                    | 
|From leasing
      companies    |  |  | Euro              |                     |  | 4.95 |                    | 
|                                |  |  |                   |                     |  |      |                   
|                                |  |  |                   |                     |  |      |                    | 
|Less - current
      maturities |  |  |                   |                     |  |      |                    | 
|                                |  |  |                   |                     |  |      |                   
|                                |  |  |                   |                     |  |      |                    | 
|                                |  |  |                   |                     |  |      |                   

| | b. | The aggregate
      annual maturities of long-term loans are as follows:
| | -- | ------------------------------------------------------------------------

| | December
      31,                    | 
| | ------------------------------------- | 
|
|
|
| | First year
      (current maturities) | 
| |                                       | 
| | Second year                           | 
| | Third year                            | 
| | Fourth year                           | 
| | Fifth year
      and thereafter       | 
| |                                       | 
| |                                       | 
| |                                       | 
| |                                       | 
| |                                       | 

| | c. | In July 2003, the Company entered into a Convertible Loan Agreement with certain existing shareholders
(the Lenders), according to which the Company is entitled to receive up to a maximum
possible loan (the Loan) amount of $ 3,500. Through December 31, 2003, the Company received
an amount of $ 2,000 from the Lenders, on account of the Loan. The Loan is to be repaid after three
and one-half years, unless converted into Ordinary shares by the Lenders or a defined event triggering
early repayment is met. The Loan bears interest at a rate of 12% per annum. Furthermore, the Loans
principal and interest may be converted by the Lender into Ordinary shares of the Company at any
time during the loan term, at a conversion price of $ 0.62 per Ordinary share (Conversion
Price). Warrants exercisable for purchase of up to 1,076,922 of the Companys Ordinary
shares were also issued to the lenders (based on such loan amounts advanced, divided by the Conversion
Price). The warrants are exercisable at a price per Ordinary share of $ 0.52, at any time until October 2008.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

F - 26

---

---

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

|NOTE
      11:- | LONG-TERM
      LOANS (Cont.)
|--------------- | -----------------------------
|                |                              

| | In accordance with APB No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants (APB No. 14). The fair value of the warrants amounted to $ 711. However,
for accounting purposes, the net proceed received has been allocated between the loan and the warrants,
resulting in a value ascribed to the warrants in the amount of $466. This amount is amortized ratably
until October 2008, and is included in financial expenses. For the year ended December 31, 2003,
the Company recorded $ 29 in financial expenses.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | The fair value of the warrants was estimated at the grant date using a Balck-Scholes option pricing
model with the following assumptions: risk-free interest rate of 3.2%, dividend yield of 0%, volatility
factors of the expected market price of the Companys Ordinary shares of 0.76 and an expected
life of ten years.                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | As of December 31, 2003, $ 2,000 of the Loans were converted into Ordinary shares by the Lenders and
recorded as receipts on account of shares.                                                                                                                                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | In connection with the issuance of the Loans and warrants, the Company has applied EITF 00-27, Application
of Issue No. 98-5 to Certain Convertible Instruments, which resulted in the recognition of $
676 related to the beneficial conversion feature on the Loans, because the effective Conversion Price
of the convertible debt was less than the fair value of the Ordinary shares on the date of issuance,
which is also the commitment date. As of December 31, 2003, the entire amount was recorded as financial
expenses.                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | d. | During 2003, the Company entered into agreements with certain banks according to which the banks agreed
to reschedule the repayment dates of the Companys long-term loans and bank credit.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                            

| | In connection
      with the loan rescheduling, the Company issued to the banks warrants to
      purchase an aggregate amount of 1,220,000 Ordinary shares of the Company,
      at an exercise price of $ 0.34 through $ 0.72 per share. The warrants expire
      on various dates during 2007.                                                                                                                                                          
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The Company
      recorded compensation of approximately $ 494, which is being amortized ratably
      from March 2003 through April 2007, and is included in financial expenses.
      For the year ended December 31, 2003, the Company recorded $ 92 in financial
      expenses. This transaction was accounted for in accordance with APB No.14,
      Accounting for Convertible Debt and Debt Issued with Stock Purchase
      Warrants (APB 14).
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The fair
      value of the warrants was estimated at the grant date using a Black-Scholes
      option pricing model with the following assumptions: risk-free interest
      rate of 3.2%, dividend yield of 0%, volatility factors of the expected market
      price of the Companys Ordinary shares of 0.76 and an expected life
      of five years.                                                                                                 

F - 27

---

---

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

|NOTE
      11:- | LONG-TERM
      LOANS (Cont.)
|--------------- | -----------------------------
|                |                              

| | e. | During 2003, the Company did not comply with certain terms of the covenants set under their loan agreements
with the banks.
| | -- | ---------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                            

| | During 2003, the Company received the banks written approval, not to act upon their contractual rights
on the Companys abovementioned default. The long-term loans balances are presented according
to the original rescheduled periods.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                          
| | In February 2004, the Company signed new agreements with the banks, according to which new covenants
were arranged. The new covenants are as follows:                                                                                    
| |                                                                                                                                                                                                                                          

| | 1. | To maintain an equity of no less than $ 500, $ 700, $ 1,000 and $ 1,300 during
the first, second, third and fourth quarters of 2004, respectively, to maintain an equity of no less
than $ 15,500 or less than 16% of the Companys tangible assets in 2005.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                             
| | 2. | To maintain at the end of each quarter a cash balance of at least $ 6,000.                                                                                                                                                                                  
| |    |                                                                                                                                                                                                                                                             
| | 3. | To refrain from merging, consolidating, amalgamating or entering into any other form of business combination
with a third party, or liquidating or dissolving.                                                                                              
| |    |                                                                                                                                                                                                                                                             
| | 4. | To maintain certain financial ratios relating to the Companys earnings before income tax, depreciation
and amortization (EBITDA) and the Companys overall long-term debt to financial institutions.                                                       
| |    |                                                                                                                                                                                                                                                             
| | 5. | To further secure the Companys outstanding credit by a guarantee in favor of the banks issued
by the Companys subsidiaries.                                                                                                                               
| |    |                                                                                                                                                                                                                                                             

| | The long-term
      loans balances are presented according to the new rescheduled periods and
      in accordance with Statement of Financial Accounting No. 6, Classification
      of Short-Term Obligation Expected to be Refinanced.                                                                     
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                
| | Subsequent
      to the balance sheet date existing shareholders and new investors of the
      Company have given an indication for additional equity investment, of which
      $1,500 was secured in an escrow account.                                                                                     
| |                                                                                                                                                                                                                                                                                                                
| | The minimum
      investment required to meet the first quarter bank covenants, based on the
      preliminary result of operations for the first quarter of 2004, is approximately
      $2,700 thousand.                                                                                                     
| |                                                                                                                                                                                                                                                                                                                
| | Based on
      the indications for additional investment that exceed the minimum equity
      required for the first quarter, the budget for 2004 and other indicators
      management is in the opinion that it will meet the bank covenants for the
      first quarter of 2004, and all preceding quarters.

F - 28

---

---

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

|NOTE
      12:- | OTHER
      ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|--------------- | -------------------------------------------------

| | December
      31,                   | 
| | ------------------------------------ | 
|
|
|
| | Employees
      and payroll accruals | 
| | Government
      Authorities         | 
| | Royalties
      payable              | 
| | Warranty                             | 
| | Accrued expenses                     | 
| |                                      | 
| |                                      | 
| |                                      | 

|NOTE
      13:- | COMMITMENTS
      AND CONTINGENT LIABILITIES
|--------------- | --------------------------------------------
|                |                                             

| | a. | Lease commitments:
| | -- | ------------------
| |    |                   

| | The Company
      and most of its subsidiaries rent their facilities under various operating
      lease agreements, which expire on various dates, the latest of which is
      in 2011. The minimum rental payments under non-cancelable operating leases
      are as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                          | Year ended
      
      December 31, | 
|------------------------- | ------------------------------------ | 
|
|2004                      |                                      | 
|2005                      |                                      | 
|2006                      |                                      | 
|2007 and
      thereafter |                                      | 
|                          |                                      | 
|                          |                                      | 
|                          |                                      | 

| | Total rent expenses for the years ended December 31, 2001, 2002 and 2003, were $ 1,778, $ 1,570
and $ 1,654, respectively.
| | --------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                           

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

| | 1. | The Company entered into several project plans with the Chief Scientist of Israels Ministry of
Industry and Trade. The Company has an obligation to pay royalties at the rate of 2%-3% of the sales
derived from the applicable products developed within the framework of such research and development
projects, up to an amount equal to 100% - 150% of the grant received, linked to the U.S. dollar and
for grants received after January 1, 1999, accrued for interest at the rate of LIBOR. The Company
has no obligation to repay this amount if sales are not sufficient to satisfy the royalty obligations.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| | In addition,
      Nur Median Solutions has an obligation to pay royalties at rates of 3%-6%
      on the sales of products developed with funds provided by the Government
      of Belgium, up to an amount equal to the research and development grants
      received in connection with such products, linked to the Euro.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 29

---

---

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

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

| | Total royalties accrued or paid amounted to $ 180, $ 67 and $ 675 for the years ended
December 31, 2001, 2002 and 2003, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                      
| | As of December 31, 2003, the Company and NUR Media Solutions have a contingent obligation to pay royalties
in the amount of $ 3,196. 
| |                                                                                                                                      

| | 2. | The Company is required to pay royalties to the Fund for the Encouragement of Marketing Activity at
the rate of 3%-4% of the increases in export sales of products for which the Company received participations
for its marketing activities, up to an amount equal to 100%-150% of the grant received, linked to
the U.S. dollar. Royalties regarding grants received from 1999 and accrued for interest at LIBOR
interest.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                              

| | The grant is repayable only in respect of sales of the related products, as a percentage of the growth
in export sales. If there is no increase in export sales, or if the Company ceases producing the
relevant products, the grant would not be repaid. As of December 31, 2003, the Company paid an aggregate
amount of $ 346.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                  

| | As of December 31, 2003, the Company has a contingent obligation to pay royalties in the amount of
$ 411.
| | ---------------------------------------------------------------------------------------------------------
| |                                                                                                          

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

| | 1. | As collateral for its liabilities to the banks, the Company recorded fixed charges on certain assets
and share capital, as well as a floating lien on all of its assets.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                         
| | 2. | Bank deposit in the amount of $ 628 secures bank guarantees and letters of credit.                                                                                      
| |    |                                                                                                                                                                         

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

| | During 2002,
      the Company filed three lawsuits against customers of NUR Shanghai. As a
      result, the customers filed lawsuits against Nur Shanghai, in the amount
      of $ 392. Based on the opinion of its legal counsel, management did not
      record any provision with respect to these claims.                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                               
| | During 2003,
      a former supplier filed a lawsuit against NUR Media Solutions, in the amount
      of  943 thousand. Based on managements estimate and the opinion
      of its legal counsel, the Company did not record any provision in respect
      of this claim.                                                                  
| |                                                                                                                                                                                                                                                                                                                                               
| | During 2003,
      a former employee filed a lawsuit against NUR Japan, in the amount of $
      40. Based on managements estimate and the opinion of its legal counsel,
      the Company did not record any provision in respect of this claim.                                                                                            
| |                                                                                                                                                                                                                                                                                                                                               
| | During 2003,
      a government institution in the United States filed a claim against the
      Nur America regarding payments due to employees in the amount of $ 80. Company
      management believes that actual payments on account of the claim will amount
      to $ 55. Nur America has provided an allowance in the amount of $ 55.

F -30

---

---

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

|NOTE
      14:- | TRANSACTIONS
      AND BALANCES WITH RELATED PARTIES
|--------------- | ----------------------------------------------------
|                |                                                     

| | a. | Accounts payable in respect of an affiliate, NUR Pro Engineering, are in respect of the assembly of
the Companys printers. The amount is linked to the NIS and does not bear any interest (as for
advances to a supplier, see Note 3).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                        
| | b. | A company wholly-owned by the Companys former CEO rendered services to certain subsidiaries.
The Groups expenses during the years 2001, 2002 and 2003 in respect of such services amounted
to $ 73, $ 60 and $ 220, respectively.    
| |    |                                                                                                                                                                                                                                        

| | c. | Loans to related
      parties, see Note 6.
| | -- | -------------------------------------------
| |    |                                            

| | d. | In February 2002, the Company signed a service agreement with the Chairman of the Board of Directors
for an annual fee of $ 125, which will be paid by the issuance of Ordinary shares of the Company.
In  2002 and 2003, in respect of this agreement, 70,773 and 184,754 Ordinary shares were
issued, respectively.                                                                                                                                                                                                                                                                                                              
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | e. | In October 2003, the Company entered into an engagement agreement with a certain law firm, that is
owned, among others, by the brother of the Companys CEO. Under the engagement agreement, the
law firm represented the Company in litigations against third parties and provided legal services
as needed in Israel and in Belgium. The aggregate consideration for the services provided to the
Company and to its subsidiaries by the law firm amounted to approximately $ 70 in 2003. During 2004
the Companys audit committee and Board of Directors reviewed, ratified and approved the terms
of the engagement agreement.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|NOTE
      15:- | SHAREHOLDERS
      EQUITY (DEFICIENCY)
|--------------- | ---------------------------------------
|                |                                        

| | a. | The Ordinary shares of the Company are currently listed for trade on the Nasdaq SmallCap Market as
of May 2003, as a result of the Companys non compliance with Nasdaq listing requirements.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                              
| | b. | Shareholders rights:                                                                                                                                                                        
| |    |                                                                                                                                                                                              

| | Ordinary shares confer upon their holders voting rights, the right to receive dividends and the right
to share in excess assets upon liquidation of the Company.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                 

F - 31

---

---

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

|NOTE
      15:- | SHAREHOLDERS
      EQUITY (DEFICIENCY) (Cont.)
|--------------- | -----------------------------------------------
|                |                                                

| | c. | On January 17, 2002, the Company effected a private offering of its securities in which the Company
issued 2,333,333 Ordinary shares of NIS 1 par value each in consideration of $ 7,000 (excluding
issuance expenses).
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                        

| | In addition, as part of the share purchase agreement, the Company issued to the investors warrants
exercisable into an aggregate of 612,500 Ordinary shares. The warrants will be exercisable until
January 2006 at $ 4.5 per Ordinary share.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                              

| | d. | Stock Option Plans:
| | -- | -------------------
| |    |                    

| | 1. | In October 1995, the Companys Board of Directors adopted a Flexible Stock Incentive Plan (1995
Plan). The Stock Incentive Plan provides for grants of stock options to the Companys
employees and outside consultants. An aggregate amount of not more than 500,000 stock options are
available for grant under the Stock Incentive Plan. Of such amount, (i) not more than 414,768 options
are available for grant as stock options on the basis of future services (service options),
(ii) not more than 18,232 options may be granted as stock options on the basis of performance (performance
options - as of December 31, 2003 there are no outstanding performance options) and (iii) not
more than 67,000 options may be granted as stock options to consultants on the basis of service or
performance in respect of the public offering (consultant options).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

| | The service options usually vest over a four-year period with an exercise price of not less than 80%
of the fair market value of the Ordinary shares at the date of grant (as defined in the stock incentive
plan).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | Consultant options usually vest immediately based on past services rendered as the board determines.
The options expire usually after 10 years from the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In October 1997, the Company adopted an additional stock option plan. According to that option plan,
1,200,000 options will be granted to the Companys and its subsidiaries employees, directors
and consultants. In October 1998 and August 1999, the Companys and its subsidiaries shareholders
approved the increase in the number of options available for grant by 500,000, and 500,000 options,
respectively. The options usually vest over a three-year period with an exercise price of not less
than 80% of the fair market value of the Ordinary shares at the date of grant (as defined in the
stock option plan). Each option usually expires after 10 years from the date of grant.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | In December 1998, the Companys shareholders approved the directors stock option plan (1998
plan) according to which 250,000 options are available for grant with an exercise price of
the average of the closing bid and sale price at the issuance date. Each option is vested immediately
and will expire after 10 years.                                                                                                                                                                                                                                                                                                                                                                      
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

F - 32

---

---

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

|NOTE
      15:- | SHAREHOLDERS
      EQUITY (DEFICIENCY) (Cont.)
|--------------- | -----------------------------------------------
|                |                                                

| | In August
      2000, the Companys Board of Directors adopted the 2000 Stock Option
      Plan (2000 plan). According to that option plan, 1,000,000 options
      may be granted to officers, directors, employees and consultants of the
      Company and its subsidiaries. The Options usually vest over a three-year
      period. The exercise price of the options under the 2000 plan is determined
      to be not less than 80% of the fair market value of the Companys Ordinary
      shares at the time of grant, and they usually expire after 10 years from
      the date of grant. The 2000 plan expires on August 31, 2008, unless previously
      terminated or extended by the Board of Directors.                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | During 2001,
      2002 and 2003, the Company granted to directors (including the Chairman
      of the Board of Directors) 20,834, 10,000 and 27,501 options, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Under the
      Companys 1995, 1997, 1998 and 2000 plans, the Company reserved for
      issuance 466,739, 1,735,671, 250,000 and 2,497,590 Ordinary shares, respectively.
      As of December 31, 2003, 0, 0, 92,499, and 862,680 options, respectively,
      are still available for future grants under these plans. Any options, which
      are canceled or forfeited before expiration, become available for future
      grant.                                                                                                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | In November
      2003, the Company decided to terminate the 1995 and 1997 plans and to increase
      the number of Ordinary shares authorized to be issued under the 2000 plan
      in the aggregate amount that was outstanding under these plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | In May 2002,
      the Company offered to option holders the right to cancel and exchange certain
      stock options granted to them under the Companys 1995, 1997 and 2000
      Stock Option Plans. At such time, which is not less than six months and
      one day from the date of cancellation of such Stock Options, the Company
      shall grant one new option for every cancelled option to those employees
      who are employees by the Company at such time. The exchange offer expired
      on June 15, 2002 and resulted in the cancellation of 1,245,316 options
      with varying exercise price. 1,219,584 new options were granted on December
      17, 2002. All options were granted with an exercise price equal to the share
      price at the date of grant.

F - 33

---

---

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

|NOTE
      15:- | SHAREHOLDERS
      EQUITY (DEFICIENCY) (Cont.)
|--------------- | -----------------------------------------------
|                |                                                

| | 2. | A summary of the Companys share option activity at December 31, 2003 for the Plans is as
follows:
| | -- | --------------------------------------------------------------------------------------------------
| |    |                                                                                                   

| |                                          |  | Options outstanding
| | ---------------------------------------- |  | -------------------
|
| | Balance
      as of January 1, 2001      |  | 3,553,615          
| |                                          |  |                    
| | Options granted                          |  | (505,734           
| | Options exercised                        |  | -                  
| | Options forfeited                        |  | 569,530            
| |                                          |  |                    
| | Balance
      as of December 31, 2001    |  | 3,617,411          
| | Increase
      of 2000 stock option plan |  | 1,000,000          
| | Options
      granted                    |  | (2,414,466         
| | Options
      forfeited or cancelled     |  | 1,702,166          
| |                                          |  |                    
| | Balance
      as of December 31, 2002    |  | 3,905,111          
| | Options
      granted                    |  | (3,659,923         
| | Options
      exercised                  |  | -                  
| | Options
      forfeited or cancelled     |  | 709,991            
| |                                          |  |                    
| | Balance
      as of December 31, 2003    |  | 955,179            
| |                                          |  |                    

| |  | The number
      of options exercisable as of December 31, 2001, 2002 and 2003 was 1,092,851,
      1,474,122 and 4,412,711, respectively.               
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                          
| |  | The weighted
      average exercise price of options exercisable as of December 31, 2001, 2002
      and 2003 is $ 4.51, $ 1.60 and $ 1.65, respectively.

F - 34

---

---

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

|NOTE
      15:- | SHAREHOLDERS
      EQUITY (DEFICIENCY) (Cont.)
|--------------- | -----------------------------------------------
|                |                                                

| | 3. | The options outstanding as of December 31, 2003 have been separated into ranges of exercise price,
as follows:
| | -- | --------------------------------------------------------------------------------------------------------------
| |    |                                                                                                               

|Range of
      exercise price | Options
      outstanding
      as of
      December 31,
      2003 | Weighted
      average
      remaining
      contractual
      life | Weighted
      average
      exercise
      price | Options
      exercisable
      as of
      December 31,
      2003 | Weighted
      average
      exercise
      price of
      exercisable
      options
|----------------------------- | ------------------------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------------------------------------- | ------------------------------------------------------------------------------------
|
|0.37-0.69                     |                                                                     |                                                                     |                                                   | 2,989,089                                                           |                                                                                     
|0.72-0.78                     |                                                                     |                                                                     |                                                   | 789,024                                                             |                                                                                     
|0.90-1.50                     |                                                                     |                                                                     |                                                   | 573,833                                                             |                                                                                     
|1.63-1.86                     |                                                                     |                                                                     |                                                   | 404,334                                                             |                                                                                     
|1.94-2.75                     |                                                                     |                                                                     |                                                   | 186,000                                                             |                                                                                     
|3.20-4.67                     |                                                                     |                                                                     |                                                   | 660,500                                                             |                                                                                     
|5.00-7.00                     |                                                                     |                                                                     |                                                   | 146,100                                                             |                                                                                     
|7.50-13.5                     |                                                                     |                                                                     |                                                   | 80,663                                                              |                                                                                     
|                              |                                                                     |                                                                     |                                                   |                                                                     |                                                                                     
|                              |                                                                     |                                                                     |                                                   | 5,829,543                                                           |                                                                                     
|                              |                                                                     |                                                                     |                                                   |                                                                     |                                                                                     

| | 4. | Weighted-average
      fair values and exercise price of options on dates of grant are as follows:
| | -- | --------------------------------------------------------------------------------------------------

|                                              | For exercise
      prices on the date of grant that
|--------------------------------------------- | ---------------------------------------------------
|
|
|Weighted
      average  exercise
      prices |                                                    
|                                              |                                                    
|Weighted
      average                        |                                                    
|fair
      value on                           |                                                    
|grant
      date                              |                                                    
|                                              |                                                    

F - 35

---

---

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

|NOTE
      15:- | SHAREHOLDERS
      EQUITY (DEFICIENCY) (Cont.)
|--------------- | -----------------------------------------------
|                |                                                

| | e. | Warrants to consultants investors and others:
| | -- | ---------------------------------------------
| |    |                                              

| | The Companys
      outstanding warrants as of December 31, 2003, are as follows:
| | ---------------------------------------------------------------------------------

|Issuance date        | Number of

      warrants issued | Exercise price
      
      per share | Warrants

      exercisable | Expiration date
|-------------------- | -------------------------------- | ------------------------------------- | --------------------------- | ---------------
|
|December
      1997  |                                  | 50,000                                |                             | $              
|January 2000         |                                  | 15,000                                |                             | $              
|February
      2000  |                                  | 25,000                                |                             | $              
|September
      2000 |                                  | 37,411                                |                             | $              
|January 2002         |                                  | 612,500                               |                             | $              
|February
      2002  |                                  | 120,000                               |                             | $              
|November
      2002  |                                  | 11,000                                |                             | $              
|March 2003           |                                  | 240,000                               |                             | $              
|June 2003            |                                  | 27,000                                |                             | $              
|August 2003          |                                  | 953,000                               |                             | $              
|October 2003         |                                  | 1,076,922                             |                             | $              
|                     |                                  |                                       |                             |                
|                     |                                  | 3,167,833                             |                             |                
|                     |                                  |                                       |                             |                

| | f. | Accumulated other comprehensive loss:
| | -- | -------------------------------------
| |    |                                      

| | Accumulated
      other
      comprehensive loss                  
| | ------------------------------------------------------------------
|
| | Balance as
      of December 31, 2002                             
| | Accumulated
      foreign currency translation adjustments        
| |                                                                   
| | Accumulated
      other comprehensive loss as of December 31, 2003
| |                                                                   

| | g. | Dividends:
| | -- | ----------
| |    |           

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

F - 36

---

---

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

|NOTE
      16:- | TAXES
      ON INCOME
|--------------- | ---------------------
|                |                      

| | a. | Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the law):
| | -- | ------------------------------------------------------------------------------------------
| |    |                                                                                           

| | Certain of
      the Companys production facilities have been granted the status of
      Approved Enterprise under the law, under three separate investment
      plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | According
      to the provisions of this law, the Company elected to enjoy alternative
      benefits which provide tax benefits in exchange for waiver of grants.
      Accordingly, the Companys income from the Approved Enterprise
      will be tax-exempt for a period of 2, 4 and 4 years, for the first, second
      and third plan, respectively, commencing with the year it first earns taxable
      income. Based on the percentage of foreign ownership of the Company, income
      derived during the remaining periods of five, three and three years, respectively
      of benefits is taxable at the rate of 15% to 20%.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The period
      of tax benefits detailed above is subject to limits of 12 years from
      the commencement of production, or 14 years from receiving the approval,
      whichever is earlier. Given the abovementioned conditions, the period of
      benefits for the first and second plans commenced in 1994 and 1999, respectively.
      The first plan was terminated in 2001 and the second plan will terminate
      in 2004. The period of benefits for the third plan have not yet commenced.                                                                                                                                        
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The entitlement
      to the above benefits is conditional upon the Company fulfilling the conditions
      stipulated by the above law, regulations published thereunder and the letters
      of approval for the specific investments in Approved Enterprises.
      In the event of failure to comply with these conditions, the benefits may
      be canceled and the Company may be required to refund the amount of the
      benefits, in whole or in part, including interest. As of the balance sheet
      date, the Company complies with all these conditions.                                                                     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The tax-exempt
      profits earned by the Companys Approved Enterprise can
      be distributed to shareholders, without imposing a tax liability on the
      Company, only upon the complete liquidation of the Company. If these retained
      tax-exempt profits are distributed in a manner other than upon the complete
      liquidation of the Company, they would be taxed at the corporate tax rate
      applicable to such profits as if the Company had not elected the alternative
      tax benefits (currently - 15%-20% for an Approved Enterprise
      based on the percentage of foreign ownership of the Company).     
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | The Company
      has decided to permanently reinvest the tax exempt profits resulting from
      the Approved Enterprise status and not to distribute such profits
      as dividends. Accordingly, no deferred income taxes have been provided in
      respect of said tax exempt profits.                                                                                                                                                                                                                                                                                                                                                    

F - 37

---

---

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

|NOTE
      16:- | TAXES
      ON INCOME (Cont.)
|--------------- | -----------------------------
|                |                              

| | The law also entitles the Company to claim accelerated rates of depreciation on equipment used by the
Approved Enterprise during five tax years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                   
| | Income from sources other than the Approved Enterprise during the periods of benefits,
will be taxable at the statutory rate of 36%.            
| |                                                                                                                                                   

| | b. | Measurement of results for tax purposes under the Income Tax Law (Inflationary Adjustments), 1985:
| | -- | --------------------------------------------------------------------------------------------------
| |    |                                                                                                   

| | Results for tax purposes are measured in terms of earnings in NIS after certain adjustments for increases
in Israels Consumer Price Index (CPI). As explained in Note 2b, the financial statements
are measured in U.S. dollars. The difference between the annual change in Israels CPI and in
the NIS/dollar exchange rate causes a difference between taxable income and the income before taxes
shown in the financial statements. In accordance with paragraph 9(f) of SFAS No. 109, the Company
has not provided deferred income taxes in respect of the difference between the reporting currency
and the tax bases of assets and liabilities.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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

| | The Company
      is an industrial company, as defined by this law and, as such,
      is entitled to certain tax benefits, including accelerated rates of depreciation,
      in accordance with regulations published under the inflationary adjustments
      law. The Company is also entitled to deduct the offering expenses and patent
      amortization costs from its taxable income in three and eight equal annual
      installments, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F - 38

---

---

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

|NOTE
      16:- | TAXES
      ON INCOME (Cont.)
|--------------- | -----------------------------
|                |                              

| | d. | Theoretical tax expense:
| | -- | ------------------------
| |    |                         

| | A reconciliation
      of the theoretical tax expense, assuming all income is taxed at the statutory
      rate applied to corporations in Israel and the actual tax expense, is as
      follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                                    | Year ended
      December 31,
| | ---------------------------------------------------------------------------------- | -----------------------------
|
|
| | Theoretical
      taxes on income (tax benefit)
       computed at the rate of 36% | $                            
| | Increase
      (decrease) in taxes:                                               
| | Approved
      enterprise (1)                                                      |                              
| | Reduced
      statutory tax rate of a subsidiary                                   |                              
| | Non-deductible
      and other expenses                                            |                              
| | Carryforward
      loss, generated during the year                                
| | for
      which a valuation allowance was                                         
| | provided                                                                           |                              
| | Utilization
      of operating carryforward tax                                   
| | losses
      from prior years                                                      |                              
| |                                                                                    |                              
| | Actual tax
      expense (tax benefit)                                             | $                            
| |                                                                                    |                              
| | (1)
       Basic net loss per share amounts of                                     |                              
| | the
      tax benefits resulting from the                                         
| | "Approved
      Enterprise" benefits                                               | $                            
| |                                                                                    |                              
| | Diluted
      net loss per share amounts of                                       
| | the
      tax benefits resulting from the                                         
| | "Approved
      Enterprise" benefits                                               | $                            
| |                                                                                    |                              

| | e. | Taxes on
      income (benefit) included in the
| | -- | -----------------------------------------------

| | statements
      of operations:
| | -------------------------------

| | Current:  |   |      |   |   |     |   |   |      |  
| | --------- | - | ---- | - | - | --- | - | - | ---- | -
| | Domestic  |   | -    |   |   | -   |   | $ | (450 | )
| | Foreign   |   | 472  |   |   | 77  |   |   | 52   |  
| |           |   |      |   |   |     |  
| |           |   | 472  |   |   | 77  |   |   | (398 | )
| |           |   |      |   |   |     |  
| | Deferred:
| | Domestic  |   | (656 | ) |   | (43 | ) |   | 600  |  
| | Foreign   |   | (7   | ) |   | -   |   |   | -    |  
| |           |   |      |   |   |     |  
| |           |   | (663 | ) |   | (43 | ) |   | 600  |  
| |           |   |      |   |   |     |  
| |           | $ | (191 | ) | $ | 34  |   | $ | 202  |  
| |           |   |      |   |   |     |  

F - 39

---

---

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

|NOTE
      16:- | TAXES
      ON INCOME (Cont.)
|--------------- | -----------------------------
|                |                              

| | f. | Deferred income taxes:
| | -- | ----------------------
| |    |                       

| | Deferred
      income taxes reflect the net tax effects of temporary differences between
      the carrying amounts of assets and liabilities for financial reporting purposes
      and the amounts used for income tax purposes. Significant components of
      the Groups deferred tax assets are as follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                          | December 31,
| | -------------------------------------------------------- | ------------
|
| | Deferred
      tax asset:                                |             
| | Net
      operating losses and deductions carryforward   | $           
| | Others                                                   |             
| |                                                          |             
| | Net
      deferred tax assets before valuation allowance |             
| |                                                          |             
| | Valuation
      allowance (1)                            |             
| |                                                          |             
| | Net deferred
      tax assets                            | $           
| |                                                          |             
| | Domestic                                                 | $           
| | Foreign                                                  |             
| |                                                          |             
| |                                                          | $           
| |                                                          |             
| | Presented
      as follows:                             
| | Current
      assets                                     | $           
| | Long-term
      assets                                   |             
| |                                                          |             
| |                                                          | $           
| |                                                          |             

| | (1) | The Group has provided valuation allowances in respect of deferred tax assets resulting from tax losses
carryforward and other temporary differences. Management currently believes that since the Company
has a history of losses it is more likely than not that the deferred tax regarding all loss carryforwards
will not be utilized in the foreseeable future.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                     

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

| | As of December
      31, 2003, the Company had available carryforward tax losses and deductions
      aggregating to approximately $ 17,000.                                                                                                                                                                                                                                                                                                                                                      
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | Additional
      carryforward losses of NUR America and NUR Salsa, in the amount of approximately
      $ 24,500, which is located in the U.S., will expire in 2021. Utilization
      of U.S. net operating losses may be subject to substantial annual limitation
      due to the change in ownership provision of the Internal Revenue Code
      of 1986 and similar state provisions. The annual limitation may result
      in the expiration of net operating losses before utilization.

F - 40

---

---

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

|NOTE
      16:- | TAXES
      ON INCOME (Cont.)
|--------------- | -----------------------------
|                |                              

| |  | NUR Asia Pacific and NUR Shanghai had available carryforward losses as of December 31, 2003 aggregating
to approximately $ 18,000, which have no expiration date.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                  

| | NUR Japan had available carryforward losses as of December 31, 2003 aggregating to approximately $
300, which expire in 2007.                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                   
| | NUR Europe and NUR Media Solutions had available carryforward losses as of December 31, 2003 aggregating
to approximately $ 23,400, which have no expiration date.
| |                                                                                                                                                                   

| | h. | Loss before income taxes consists of the following:
| | -- | ---------------------------------------------------
| |    |                                                    

| |          | Year ended
      December 31,
| | -------- | -----------------------------
|
| | Domestic | $                            
| | Foreign  |                              
| |          |                              
| |          | $                            
| |          |                              

|NOTE
      17:- | MAJOR
      CUSTOMERS AND GEOGRAPHIC INFORMATION
|--------------- | ------------------------------------------------
|                |                                                 

| | a. | Summary information
      about geographic areas:                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The Company
      manages its business on the basis of one reportable segment. See Note 1a
      for a brief description of the Companys business. The following data
      is presented in accordance with Statement of Financial Accounting Standard
      No. 131 (SFAS No 131), Disclosures about Segments of an
      Enterprise and Related Information. Total revenues are attributed
      to geographical areas based on location of end customers.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |    | The following
      table presents total revenues and long lived assets for the years ended
      December 31, 2001, 2002 and as of December 31, 2001, 2002 and 2003, resectively:                                                                                                                                                                                                                                                                               

|                          | 2001 | 2002    | 2003
|------------------------- | ---- | ------- | ----
|
|Israel                    | $    | 1,873   |     
|Asia (except
      China) |      | 20,338  |     
|China                     |      | 13,492  |     
|America (except
      the
|U.S.A.)                   |      | 15,999  |     
|U.S.A                     |      | 22,960  |     
|Europe                    |      | 41,757  |     
|Others                    |      | 3,958   |     
|                          |      |         |     
|                          | $    | 120,377 |     
|                          |      |         |     

F - 41

---

---

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

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

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

| |            | Year ended
      December 31,
| | ---------- | -----------------------------
|
| | Printers   | $                            
| | Ink        |                              
| | Substrates |                              
| | Others     |                              
| |            |                              
| |            | $                            
| |            |                              

| | c. | Major customer
      data as a percentage of total revenues:                                                    
| | -- | ----------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                 
| |    | The Group
      does not have any major customer that represents 10% or more of the consolidated
      revenues.

|NOTE
      18:- | SELECTED
      STATEMENTS OF OPERATIONS DATA
|--------------- | --------------------------------------------
|                |                                             

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

|                                                       | Year ended
      December 31,
|------------------------------------------------------ | -----------------------------
|
|Research
      and development expenses                | $                            
|Less
      - participation of the Israeli and Belgian 
|governments
      in research and development projects |                              
|                                                       |                              
|                                                       | $                            
|                                                       |                              
|b.Financial
      expenses:                           
|                                                       |                              
|Expenses:                                             
|Interest
      on short-term bank credit and charges   | $                            
|Interest
      on long-term loans                      |                              
|Foreign
      currency translation differences (1)     |                              
|                                                       |                              
|                                                       |                              
|                                                       |                              
|Income:                                               
|Interest
      on bank deposits and other              |                              
|Foreign
      currency translation differences (1)     |                              
|                                                       |                              
|                                                       |                              
|                                                       |                              
|                                                       | $                            
|                                                       |                              

| | (1) | Include losses from non-hedging forward and option contracts. (See Note 2w).
| | --- | ----------------------------------------------------------------------------
| |     |                                                                             

F - 42

---

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

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

| | c. | The following
      table sets forth the reconciliation of basic and diluted net losses per
      share:
| | -- | --------------------------------------------------------------------------------------------------------

|                                                   | Year ended December
    31,
|-------------------------------------------------- | ---------------------------
|
|Numerator:                                         |                            
|Net
      losses available to shareholders of     
|Ordinary
      shares                              | $                          
|                                                   |                            
|Numerator
      for diluted net losses per share -
|earnings
      available to shareholders of       
|Ordinary
      shares                              | $                          
|                                                   |                            
|Denominator:                                      
|Weighted
      average number of Ordinary         
|shares
      (denominator for basic net loss       |                            
|per share)                                         |                            
|Effect
      of dilutive securities:              
|Employee
      and non-employee                   
|stock
      options and warrants                   | *)                         
|                                                   |                            
|Denominator
      for diluted net loss per share   |                            
|                                                   |                            

| | *) | Anti-dilutive.
| | -- | --------------
| |    |               

|NOTE
      19:- | SUBSEQUENT
      EVENTS (UNAUDITED)
|--------------- | -----------------------------------
|                |                                    

| | a. | In March
      2004, as part of the Convertible Loan and Warrant Agreement, the Company
      issued 3,225,805 Ordinary shares to the investors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | b. | On February
      2004, NUR received a demand letter from the OCS claiming that NUR outstanding
      liability for royalties to the OCS in connection with the sale of NUR Fresco
      printers aggregates to $ 0.75 million, of which $ 0.36 million
      are dispute amount by NUR. NUR responded to the demand letter by denying
      the OCS claims with respect to the disputed amount, and it is currently
      trying to settle the differences between the parties out-of-court. Based
      on managements estimate and the opinion of its in-house legal counsel,
      the Company did not record any provision in respect of this dispute.

F - 43

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---



**Report
  of Independent Accountants on
  Financial Statement Schedule**

To the Board of Directors of 
  NUR Macroprinters Ltd.Our
  audits of the consolidated financial statements referred to in our report dated
  February 26, 2004 as to which the date is appearing in the 2003 Annual Report
  to the Shareholders of NUR Macroprinters Ltd. also included an audit of Financial
  Statement Schedule II - Valuation and Qualifying Accounts - listed in Item 18
  of this Form 20-F. In our opinion, the schedule presents fairly, in all material
  respects, the information set forth therein when read in conjunction with the
  related consolidated financial statements.

|Tel-Aviv,
      IsraelMarch 30, 2004 | /s/
      KOST FORER & GABBAY
       A Member of Ernst & Young Global
|------------------------------------ | ---------------------------------------------------------------------

|S-1
|---
|   
|   
|   

**SCHEDULE
  II - VALUATION AND QUALIFYING ACCOUNTS**
  Three years ended December 31, 2003
  In thousands of US Dollars

|Column
      A                             |  | Column B |  |       | Column C |  |       | Column D |  |        | Column E | 
|------------------------------------------ |  | -------- |  | ----- | -------- |  | ----- | -------- |  | ------ | -------- | 
|
|
|**Year
      ended December 31, 2003**     |  |          |  |       |          |  |       |          |  |        |          | 
|**Allowance
      for Doubtful Accounts**  |  |          |  | 5,768 |          |  | 7,639 |          |  | (8,444 | )        | 
|**Year
      ended December 31, 2002**     |  |         
|**Allowance
      for Doubtful Accounts**  |  |          |  | 3,922 |          |  | 3,464 |          |  | (1,618 | )        | 
|**Year
      ended December 31, 2001**     |  |         
|**Allowance
      for Doubtful Accounts**  |  |          |  | 4,593 |          |  | 753   |          |  | (1,424 | )        | 
|                                           |  |         
|**Year
      ended December 31, 2003**     |  |         
|**Deffered
      tax Valuation Allowance** |  |          |  | 9,526 |          |  | --    |          |  | 16,184 |          | 
|**Year
      ended December 31, 2002**     |  |         
|**Deffered
      tax Valuation Allowance** |  |          |  | 9,025 |          |  | --    |          |  | 501    |          | 
|**Year
      ended December 31, 2001**     |  |         
|**Deffered
      tax Valuation Allowance** |  |          |  | 4,453 |          |  | --    |          |  | 4,572  |          | 



|S-2
|---
|   
|   
|