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

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Form 20-F

(Mark One)

| | o | REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
| | - | -------------------------------------------------------------------------------------------------

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

For the fiscal year ended December 31, 2002

| | 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 Hilel Silver St.P.O. Box 1281, Lod 71111, Israel
(Address of principal executive offices)

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

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

ordinary shares,NIS 1.0 par value

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

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, 2002:

ordinary shares,NIS 1.0 par value, 17,155,859 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.

|Yesx | Noo
|---- | ---

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



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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.
| | ------------------------------------------------------------------

2

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Selected Financial Data

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

|                                                               | 2000(1)(2) | 2001(4) | 2002(5)
|-------------------------------------------------------------- | ---------- | ------- | -------
|Revenues:                                                      |            |         |        
|Sales of printers and related products                         |            |         | $      
|                                                               |            |         |        
|                                                               |            |         |        
|                                                               |            |         |        
|                                                               |            |         |        
|Cost of revenues:                                              |            |        
|Cost of sales of printers and related                          |            |         |        
|products                                                       |            |        
|Inventory write-off                                            |            |         |        
|                                                               |            |         |        
|                                                               |            |         |        
|                                                               |            |         |        
|Gross profit                                                   |            |         |        
|                                                               |            |         |        
|Research and development expenses                              |            |         |        
|Less royalty-bearing grants                                    |            |         |        
|                                                               |            |         |        
|Research and development expenses, net                         |            |         |        
|                                                               |            |         |        
|Selling and marketing expenses, net                            |            |         |        
|General and administrative:                                    |            |        
|Ongoing expenses                                               |            |         |        
|Doubtful debt expenses resulting from relocation of operations |            |         |        
|Amortization and impairment of goodwill                        |            |         |        
|Amortization and impairment of                                 |            |        
|technology and other intangible assets                         |            |         |        
|Restructuring charges                                          |            |         |        
|Total operating expenses                                       |            |         |        
|                                                               |            |         |        
|Operating income (loss)                                        |            |         |        
|Financial expenses, net                                        |            |         |        
|Other income (expenses), net                                   |            |         |        
|                                                               |            |         |        
|Income (loss) before taxes on income                           |            |         |        
|Taxes on income (tax benefit)                                  |            |         |        
|                                                               |            |         |        
|Income (loss) after taxes on income                            |            |         |        
|Minority interest in earnings of a                             |            |         |        
|subsidiary                                                     |            |        
|Equity in gains (losses) of affiliates, net (3)                |            |         |        
|                                                               |            |         |        
|Net income (loss)                                              |            |         | $      
|                                                               |            |         |        
|Basic net earnings (loss) per share                            |            |         | $      
|                                                               |            |         |        
|Diluted net earnings (loss) per share                          |            |         | $      
|                                                               |            |         |        
|Weighted average number of shares used                         |            |        
|in computing basic net earnings (loss)                         |            |        
|per share                                                      |            |         |        
|                                                               |            |         |        
|                                                               |            |         |        
|Weighted average number of shares used in                      |            |        
|computing diluted net earnings (loss)                          |            |        
|per share                                                      |            |         |        
|                                                               |            |         |        

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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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | 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 in to
Salsa Digital Printers and NUR Media Solutions. Stillachem was dissolved in March
2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

3

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

|                           | 2000(1)(2) | 2001(3)(4) | 2002(5)
|-------------------------- | ---------- | ---------- | -------
|Working capital            |            | $  55,186  |        
|Total assets               |            | $120,006   |        
|Total liabilities          |            | $  72,081  |        
|Total shareholders' equity |            | $  47,925  |        

---

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

|(2) | 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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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        (last eight months).
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | 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 in to Salsa        Digital Printers and NUR Media Solutions.
Stillachem was dissolved in March 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | 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

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# 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 and the NUR Salsa printers. 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 2000, 2001 and 2002, we invested approximately $15.0 million, $10.9
million and $9.2 million, respectively, in research and development projects, of which, in
2000, $4.3 million was related to the Salsa Digital asset purchase transaction that caused
a one-time write-off assigned to research and development. 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. As a result, we will 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. 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 long-term bank loans.If we do not meet
certain covenants provided for in our long-term loan agreements with Bank Hapoalim B.M
(Bank Hapoalim) and Bank Leumi Le Israel Ltd. (Bank Leumi), we may
be required by the banks to immediately repay our long-term debts.In February
2002, we signed an amendment to our long-term loan agreements with Bank Hapoalim and Bank
Leumi providing for the rescheduling of the repayment dates of the remaining outstanding
borrowings. Under the rescheduling agreements, we undertook, among other things, to
maintain four financial ratios. During 2002, we failed to meet some of these financial
ratios as a result of a decrease in our revenues. The banks have agreed in writing not to
act upon their contractual rights pursuant to the defaults mentioned above. Moreover, in
March 2003, the banks agreed to further amend three of these four financial ratios. We
believe that the amendment of the financial ratios will allow a better alignment between
the financial ratios and our current business plan. However, there can be no assurance
that we will be able to comply with the bank covenants. 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.

5

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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 Blueboard, NUR Fresco and
NUR Salsa 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. For example,
components for our NUR Salsa printers are manufactured mainly by an unaffiliated
subcontractor. In addition, the assembly of our NUR Blueboard and NUR Fresco printers is
currently conducted by NUR Pro Engineering, an affiliate of NUR. 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, airbrush and other
technologies. Two of our principal competitors in the wide format digital printing arena
are Vutek and Scitex Vision Ltd. In the market for printers utilizing UV curable ink our
main competition are Durst Phototechnik, Inca Digital Printers, Leggett and Platt Digital
Technologies and Zund. These companies have introduced products that will compete with the
NUR Tempo upon its commercial release. We have also witnessed the recent growth of a local
Chinese market where approximately 15 local competitors are developing, manufacturing and
selling inexpensive printers, mainly to the local Chinese market. 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 2000, 2001 and 2002, ink
sales accounted for 20.0%, 26.1% and 25.7% of our total sales, respectively. We cannot
guarantee that we will be able to remain the exclusive or even principal ink manufacturer
for our printers. We also operate in the substrate business, which is also highly
competitive and characterized by a large number of suppliers worldwide. In 2000, 2001 and
2002, substrate sales accounted for 9.9%, 10.4% and 12.2% of our total sales, respectively.
We cannot assure you that we will be able to compete effectively or achieve significant
revenues in the substrate business.

6

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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 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.

We
rely on 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 or that we will continue to meet the
conditions to benefit from such programs and legislation.

We
must comply with conditions to receive grants and tax benefits. To receive grants and
tax benefits under Israeli law, Belgian law, or otherwise, 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 believe that we have operated and will continue to operate in compliance with
the required conditions, although we cannot be sure.

7

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Political
instability in Israel may disrupt important operations and our business. Some
of our facilities, operations and 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. Finally, recent political turmoil, including the war in Iraq and
current unrest and violence in Israel, can be expected to put pressure on economic
conditions worldwide.

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 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.

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.

8

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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
are not in compliance with The Nasdaq National Market standards. In November 2002, we
received a compliance notice from The Nasdaq Stock Market, Inc., stating that, for a
period of 30 consecutive trading days, our ordinary shares closed below the minimum bid
price of $1.00 per share as required for continued listing on The Nasdaq National Market.
In accordance with Nasdaqs Marketplace Rules, we had until May 5, 2003 to regain
compliance with Nasdaqs continued listing requirements. We have been unable to
demonstrate compliance with the continued listing requirements and, accordingly, have
applied to transfer our securities to the Nasdaq SmallCap Market.

We
may not successfully transition to The Nasdaq SmallCap Market.Although we have
applied to transfer our ordinary shares to The Nasdaq SmallCap Market, our ordinary shares
may fail to be approved for quotation on The Nasdaq SmallCap Market and any trading in our
ordinary shares would thereafter 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 National Market
or The Nasdaq Small-Cap Market, the liquidity of our ordinary shares could be reduced 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 the our ordinary shares. Additionally,
certain investors will not purchase securities that are not quoted on The Nasdaq National
Market or The Nasdaq SmallCap Market, which could materially impair our ability to raise
funds through the issuance of our ordinary shares.

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. Under that rule, 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 our ordinary shares will not be removed from quotation on Nasdaq or treated
as a penny stock.

9

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# ITEM 4: Information on
NUR

# History and Development
of NUR

The
Companys legal and commercial name is NUR Macroprinters Ltd. The main office is
located at 12 Abba Hilel Silver St., 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 CT
Corporation System located at 1633 Broadway, New York, New York 10019.

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. Our ordinary shares have been traded on the Nasdaq National Market
since October 1995. Our ordinary shares are currently traded under the symbol
NURM. In November 2002, we received a compliance notice from The Nasdaq Stock
Market, Inc., stating that, for a period of 30 consecutive trading days, our ordinary
shares closed below the minimum bid price of $1.00 per share as required for continued listing
on The Nasdaq National Market. In accordance with Nasdaqs Marketplace Rules, we had
until May 5, 2003 to regain compliance with Nasdaqs continued listing requirements.
We have been unable to demonstrate compliance with the continued listing requirements and,
accordingly, have applied to transfer our securities to the Nasdaq SmallCap Market.

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

In
October 1999, we established NUR Pro Engineering Ltd., a joint venture in which we hold
50%. We manufacture and assemble the NUR Blueboard printers and NUR Fresco printers
through NUR Pro Engineering.

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.

10

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In
April 2001, we commenced implementation of a multiple phase restructuring plan in order to
align our cost structure to more conservative growth rates. The restructuring actions were
primarily related to the reorganization of operating activities, such as the
centralization of certain research and development operations, the relocation of certain
ink manufacturing activities, a reduction in workforce and a reduction in other
administrative costs. The restructuring plan was initiated with the consolidation of our
U.S. operations. NUR America, Inc. in Boston, MA and Salsa Digital Printers Ltd. in San
Antonio, TX were integrated into a single large facility in San Antonio, TX. The two
wholly owned subsidiaries operate side-by-side and share administrative and other
resources. In October 2001, we continued with phase two of the overall restructuring plan
by consolidating and streamlining our ink manufacturing operations. Our ink research and
development operations then located in Israel, Belgium and San Antonio, TX 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.

In
May 2002, in response to a decline in the sales of our products in the first quarter of
2002, we initiated a three-phase growth-renewal program, which included a corporate
reorganization plan, a further workforce reduction of approximately 15% of our employees,
salary cuts for most of the remaining employees, and expansion of our product portfolio.
We began implementation of the program in the second quarter of 2002. See ITEM 5:
Operating and Financial Review and ProspectsTrend InformationRestructuring
Plans.

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 the Company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 the Company or any of its subsidiaries until the new grant date.
2,027,166 ordinary shares, representing 93% of the outstanding options under the
Company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 implemented a plan to update our operations in the Asia Pacific region.
Our new strategy in the region involves working with third-party distributors that have a
strong presence in specific markets and areas. 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 is now responsible for sales and support of the NUR Fresco
product line to new customers throughout the Chinese market. We retained our existing
technical support engineers in China to service the needs of our customers. At the time we
appointed CAST, we also transferred our Asia Pacific headquarters to Hong Kong. This
restructuring process resulted in the termination of approximately twenty employees,
mainly in Shanghai. See ITEM 5: Operating and Financial Review and
ProspectsTrend InformationRestructuring Plans.

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On
April 1, 2003, Erez Shachar resigned his position as President and CEO of NUR. Mr. David
Amir, who has been working with the Company as a consultant for over a year, and was
responsible for the restructuring of our service and support organizations, replaced Mr.
Shachar. Prior to joining the Company, 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. Mr. Shachar will continue to serve as a senior consultant to the Company for a
one-year period.

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

# 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 and print substrates for use with all brands of wide and super wide format
digital printers.

In
July 2000, we purchased substantially all of the assets and assumed certain liabilities of
Salsa Digital, Ltd. and related entities, previously one of our competitors in the digital
printing market. As part of this asset purchase transaction, we acquired the rights to
manufacture and sell their line of printersthe NUR Salsa printers. These
printers complement the NUR line of products by offering a full range of entry-level
printers.

The
integrated company now consists of two 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. We have worldwide
marketing, sales and service subsidiaries in Europe, North America, South America and the Asia
Pacific region.

Our
super wide products are headed by the NUR Blueboard family of super wide format
printers. The NUR Blueboard printer, a second generation of super wide format
printers, was introduced by NUR in early 1997. The Blueboard printer can print on
substrates of variable widths from 0.9 to 5 meters (approximately 3 to 16 feet). The
Blueboard printer is based on continuous inkjet digital printing technology and is
designed for high throughput, high print quality, reliability and ease of use.

In
April 2000, we introduced the fourth and latest version of the Blueboard printers, the NUR
Blueboard HIQ+. The NUR Blueboard HIQ+ offers two optional packages for multiple
roll printing or double-sided printing for outdoor backlight applications and a digital
calibration system providing for ease of use.

The
NUR Salsa Ultima5000, the super wide format printer in our NUR Salsa Ultima family
of printers, offers production flexibility by allowing for both super wide print jobs (up
to 5 meters or approximately 16 feet) and wide format jobs. Its piezo drop-on-demand
technology provides the photorealistic printing quality needed for both super wide and
wide jobs that require up-close viewing. The NUR Salsa Ultima printers are an enhanced
version of the Salsa product line acquired in July 2000.

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In
October 2002, we announced the expected introduction of the latest version of the NUR
Salsa product line, the NUR Ultima HiQ. 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 will be available in two models, the NUR Ultima HiQ 3200 (3.2 meters or
approximately 10 feet wide) and the NUR Ultima HiQ 5000 (5 meters or approximately 16 feet
wide). The NUR Ultima printers have recently entered a beta test program and are expected
to be commercially released in the second half of 2003.

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 point-of-purchase displays, banners, 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 (approximately 6 feet);
the 3200 model outputs 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 instead of the standard 4-color inkset. 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.

We
also offer NUR Salsa Ultima wide format printers. The NUR Salsa Ultima wide format
digital printers include the NUR Salsa Ultima line of 32-head, piezo technology digital
printing systems. These systems are capable of printing on variable widths from 1.5 to 3.2
meters (approximately 5 to 10 feet).

In
November 2001, we introduced the NUR FabriGraph printers. NUR FabriGraph is a series
of production wide format inkjet printers designed specifically for textile applications.
The NUR FabriGraph series include the NUR FabriGraph DS3200, a 3.5 meters wide
(approximately 11 feet) printer and the NUR FabriGraph DS1500, a 1.5 meters wide
(approximately 5 feet) printer. NUR FabriGraph printers use piezo drop-on-demand inkjet
technology to print onto standard dye sublimation carrier substrates, for subsequent
transfer by conventional heat press to textile fabrics containing a minimum of 50%
polyester, as well as a range of rigid and flexible polyester-coated materials.

During
2002, we provided technical previews, at various tradeshows, of the NUR Tempo flatbed
digital printer in prototype form. The NUR Tempo, still under development, is intended to
print on a wide variety of both rigid and flexible materials including corrugated board,
fluted polypropylene, PVC, glass, polycarbonate and standard rolled media using UV-curable
inks. 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. In addition, the NUR Tempo is designed to print on rolled substrates as
well. We expect the NUR Tempo to enter beta testing in the second half of 2003.

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The
NUR Blueboard printers, the NUR Fresco, the NUR Salsa, the NUR Ultima and the NUR
Fabrigraph printers are sometimes referred to collectively herein as the Company
Printers.

We
also sell specialized inks and substrates for use with our printers. The inks sold by NUR
to our customers for use with the NUR Blueboard, NUR Fresco and the NUR Salsa Ultima
printers are resistant to water and ultraviolet rays and are well suited for indoor and
outdoor use without lamination. The specialized inks for use with the NUR Fabrigraph are
mainly suitable for indoor applications and do not offer outdoor durability without
lamination. The substrates we sell to our customers are also suitable for indoor and
outdoor use and are made of vinyl, PVC and various textiles.

We
sell our printers and related products primarily to commercial printers, design and
service firms, screen printers, commercial photo labs, outdoor media companies and trade
shops. The Companys Printers are installed in more than 600 sites throughout Europe,
North and South America, Africa and Asia.

# Industry Background

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

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

Traditional Wide Format and
Super Wide Format Printing Methods

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

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

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

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.

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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.
NURs Blueboard printers all use piezo continuous inkjet printing technology.

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. In September 1998, we
acquired from Meital Technologies Ltd. all rights (including all related assets) to
Meitals piezo drop-on-demand inkjet technologies for application in wide format
digital printers. 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
Salsa Ultima 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.

Dye
Sublimation Printing.Dye-sublimation is a process that uses heat-sensitive inks to
print on coated inkjet paper. The image is then transferred using a heat press onto a
polyester coated substrate. The image becomes an inherent part of the material. The NUR
FabriGraph printers utilize the dye-sublimation technology to allow for textile
applications of wide format digital printing.

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We
believe that our NUR Blueboard printers are currently the only commercially available
super wide format digital printers using piezo continuous inkjet technology. Although the
NUR Fresco is not the only continuous drop-on-demand printer available in the wide format
market, we believe that its productivity makes it particularly attractive to screen
printers. Our NUR Salsa Ultima printers complement our product line by offering a
full-range of printers at entry-level prices. The NUR FabriGraph rounds out our equipment
line with production-oriented printers designed for the short run, on demand, digital
printing of signage textiles such as flags, banners and tradeshow exhibits. We believe
that the Companys 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;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | replace
a  significant  portion of existing  large format screen  printers  with our large format
 digital                     inkjet printers;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  | be
our customers' vendor of choice for their ink and substrate 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 Companys Printers
and the sale of consumables used with the Companys Printers. The consumables consist
primarily of ink and substrates. 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.

Printers

Super Wide Format Digital
Printers

Since
1997, NUR has been marketing and selling the NUR Blueboard printer, a second-generation
super wide format printer that is capable of producing prints of up to 5 meters
(approximately 16 feet) in width with practically no limit on the length of the print. The
NUR Blueboard is designed for high throughput, high print quality, reliability and ease of
use. When wider widths of prints are required, the NUR Blueboard printer (as is the case
with the other our other printers) creates a print layout in sections that, when seamed
and placed together, create a continuous image due to the NUR Blueboard printers
high level of color consistency and accuracy. The NUR Blueboard printers are all based on
piezo continuous inkjet technology, and are particularly suitable for the super wide
format market due to our outdoor durable inks, color consistency, high reliability and
adaptability for use with a variety of substrate materials including vinyl, carpet,
canvas, tarpaulin and mesh.

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In
April 2000, we introduced the fourth and the latest of the NUR Blueboard printers, the NUR
Blueboard HIQ+. The NUR Blueboard HIQ+ offers a digital calibration system that provides
ease of use and two optional packages for multiple roll printing or double-sided printing
for outdoor backlight applications. The NUR Blueboard HIQ+ is available both as an upgrade
to existing NUR Blueboard printers and as a new product delivered from the manufacturer.

The
NUR Blueboard printers are marketed primarily to commercial printers, design and service
firms, screen printers, outdoor media companies and trade shops for shorter run, wide
format and super wide format printing. Our NUR Blueboard printers reproduce images with
visual resolutions of 70-150 dots per square inch, which allow for superior viewing from
distances of 5-10 feet or more, depending on the image file resolution. The NUR Blueboard
printers are capable of producing millions of distinctive colors. Thanks to the constant
ink monitoring and control built into its continuous inkjet printing technology, the NUR
Blueboard printers achieve a high level of color consistency for copies printed at
different times and under different environmental conditions in the shop. Generally,
depending upon the required print resolution, the NUR Blueboard printer operates at speeds
of up to 320 square feet per hour. The NUR Blueboard 2, the NUR Blueboard HiQ and the NUR
Blueboard HIQ+ operate at speeds of up to 650 square feet per hour.

The
NUR Salsa 5000 is a cost-effective super wide digital printer. NUR Salsa 5000 offers
production flexibility by allowing for both super wide print jobs (up to 5 meters or
approximately 16 feet wide) and wide format jobs. Its piezo drop-on-demand technology
provides the photorealistic printing quality needed for both super wide and wide jobs that
require up-close viewing. The NUR Salsa Ultima 5000, introduced in March 2002, is designed
to provide enhancements to the NUR Salsa printer in the areas of quality, color matching,
productivity, material handling and reliability. The NUR Salsa Ultima 5000 is available
both as an upgrade to existing NUR Salsa 5000 and as a new product delivered from the
manufacturer.

In
October 2002, we announced the expected introduction of the latest version of the NUR
Salsa product line, the NUR Ultima HiQ. 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 new models feature 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. The NUR
Ultima will be available in two models, the NUR Ultima HiQ 3200 (3.2 meters or
approximately 10 feet wide) and the NUR Ultima HiQ 5000 (5 meters or approximately 16 feet
wide). The NUR Ultima printers will be available both as an upgrade to existing NUR Salsa
series and as a new product delivered from the manufacturer.

The
NUR Ultima HiQ printers have recently entered a beta test program and are expected to be
commercially released in the second half of 2003.

We
believe the NUR Ultima HiQ complements our product line by bridging the gap between photo
realistic digital printing and production capabilities at entry-level prices.

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.

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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 instead of the standard 4-color inkset. 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 Salsa Ultima wide format printers include the NUR Salsa Ultima line of 32-head, piezo
technology digital printing systems. Various NUR Salsa Ultima models print up to eight
colors at up to 600 dots per square inch, in print widths of 5 feet, 8 feet and 10 feet,
offering production, enhanced photo realistic and photo high quality modes of operation.
With speeds up to 40 square meters (or approximately 410 square feet) per hour for
commercial output, the NUR Salsa Ultima series makes both one-offs and short-run jobs
less costly. This series of printers uses low-cost consumables and prints on a wide
selection of substrates, ensuring low operating costs. The NUR Ultima, which has recently
entered beta testing, will be available in a 3200 model printing outputs in widths up to
3.2 meters (or approximately 10 feet wide).

We
believe the NUR Salsa Ultima series complements our wide format product line by offering a
full a range of cost-effective wide format, photo realistic digital printers at
entry-level prices.

Dye Sublimation Wide Format
Digital Printers

In
November 2001, we introduced the NUR FabriGraph printers. NUR FabriGraph is a series
of production wide format inkjet printers designed specifically for textile applications.
The NUR FabriGraph series include the NUR FabriGraph DS3200, 3.5 meters (approximately 10
feet) wide printer and the NUR FabriGraph DS1500, 1.5 meters (approximately 5 feet) wide
printer. NUR FabriGraph printers use piezo drop-on-demand inkjet technology to print onto
standard dye sublimation carrier substrates, for subsequent transfer by conventional heat
press to textile fabrics containing a minimum of 50% polyester, as well as a range of
rigid and flexible polyester-coated materials.

The
NUR FabriGraph printers are capable of delivering an apparent print resolution of up to
600 dots per square inch on all textile fabrics containing a minimum of 50% polyester, as
well as a range of rigid and flexible polyester coated materials.

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Flatbed Digital Printers

During
2002, we provided technical previews, at various tradeshows, of the NUR Tempo flatbed
digital printer in prototype form. The NUR Tempo, still under development, is intended to
print on a wide variety of both rigid and flexible materials including corrugated board,
fluted polypropylene, PVC, glass, polycarbonate and standard rolled media using UV-curable
inks. 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. In addition, the NUR Tempo is designed to print on rolled substrates as
well. We expect the NUR Tempo to enter beta testing in the second half of 2003.

The Companys Printers  General

The
Companys Printers can be operated in a standalone 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 Companys 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.

The
Companys Printers can significantly reduce the set-up costs associated with each
print job, the skill level of the personnel required and the number of skilled personnel
required as compared to traditional methods of wide format and super wide format printing.
These advantages make wide format and super wide format short-run color printing
significantly more economical than conventional printing methods. Additionally, the
relatively quick turnaround for the printed product enables the Companys 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 Companys 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, 2000, 2001 and 2002, sales of the Companys Printers
accounted for approximately 65%, 54% and 51%, respectively, of NURs total
consolidated sales. Sales of spare parts used in the Companys Printers accounted for
approximately 2%, 5% and 6% of total sales in the years ended December 31, 2000,
2001 and 2002, respectively. Currently, the retail prices of the Companys Printers
generally range from $169,000 to $459,000 per machine.

Consumables

NUR
sells consumables (inks and printing substrates) primarily to the users of the
Companys Printers. Our wholly owned subsidiary NUR Media Solutions is responsible
for the sales of all NUR consumables, including both inks and substrates, in all of
Europe, the Middle East and Africa, North, Central and South America and the Asia Pacific
region.

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Inks

The
NUR Blueboard printers 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 NUR Blueboard,
through the utilization of the ink, can print on almost an unlimited variety of
substrates, including numerous types of paper, vinyl, cloth, textiles, mesh and metals.
The ink enables the output of the NUR Blueboard to be used both for indoor and outdoor
advertising. The ink for use with the NUR Blueboard is manufactured, exclusively for NUR
under the NUR brand name, by several ink manufacturers.

The
NUR Fresco printers, the NUR Salsa Ultima series and the NUR FabriGraph 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.

Until
October 2001, inks for the NUR Fresco printers were manufactured by Stillachem, a wholly
owned subsidiary of NUR. Stillachem focused on the development and manufacture of
specialized inks for drop-on-demand digital printing systems and inks for other digital
printers, including clear-coat varnishes for wide format and super wide format printers.
In October 2001, we consolidated and streamlined our ink manufacturing, research and
development operations. Our ink research and development operations previously located in
Israel, Belgium and San Antonio, TX were consolidated into a single facility in
Louvain-la-Neuve, Belgium. Inks for the NUR Fresco and NUR Salsa printers are now
manufactured by our wholly owned subsidiary Salsa Digital Printers in San Antonio, TX.

During
the years ended December 31, 2000, 2001 and 2002, sales of ink accounted for
approximately 20%, 26% and 26%, respectively, of NURs total sales.

Substrates

NUR
supplies substrates for use with our printers and ink through our wholly owned subsidiary
in Belgium, NUR Media Solutions. NUR Media Solutions sells substrates under the NUR brand
name that are manufactured for us by several different suppliers. The substrates are made
of vinyl, PVC, paper and mesh and are suited for indoor and outdoor use. The substrates
are distributed worldwide by our sales and service subsidiaries. All NUR-branded materials
are manufactured exclusively for NUR Media Solutions.

# 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., NUR Japan and NUR Media Solutions.

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.

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Through
NUR Media Solutions, we are working to develop, market and sell a wide range of advanced
consumables for our wide format and super wide format printers. Included in such
consumables are our 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, 2002, 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, 2002, we
had made royalty payments in respect of such grants to the Marketing Fund totaling
approximately $0.35 million.

# Production and Sources
of Supply

NUR
manufactures and assembles the NUR Blueboard and NUR Fresco printers through NUR Pro
Engineering, a 50% owned affiliate of NUR. Full system integration and acceptance and
quality control testing of the printers are conducted by us at the NUR Pro Engineering
facility located near our operations in Israel. 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 NUR Pro Engineerings
production capabilities or engage subcontractors to carry out certain of the manufacturing
or the assembly of our printers. NUR supplies NUR Pro Engineering with the inkjet heads
used in the NUR Blueboard printers, which we acquire from Imaje S.A., the sole
manufacturer and supplier of these components. With the NUR Fresco printer, most of the
components are available from several sources; however, the drop-on-demand inkjet
printheads used in the NUR Fresco printer are currently purchased exclusively from Modular
Ink Technology, a Swedish company.

The
NUR Salsa line of printers is assembled by our wholly owned subsidiary, Salsa Digital
Printers. Frames for the NUR Salsa printers are manufactured, primarily, by an
unaffiliated subcontractor, Gandi Innovations Corp., and the inkjet printheads for the NUR
Salsa are purchased exclusively from Modular Ink Technology.

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.

To
date, we manufacture the NUR Fresco, the NUR Salsa and the NUR FabriGraph inks at our
plant in San Antonio, USA. The ink for use with the NUR Blueboard is manufactured,
exclusively for NUR under the NUR brand name, by several ink manufacturers.

NUR
also supplies, through our wholly owned subsidiary in Belgium, NUR Media Solutions,
specialized substrates designed to work with the Companys Printers and our ink. NUR
sells substrates under the NUR brand name that are manufactured by several different
suppliers for us. The substrates are made of vinyl, PVC, paper and mesh and are suited for
indoor and outdoor use. To date, we have not experienced any material supply problems with
the substrates.

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# Service and Support

Installation,
post sale support and warranty services of our products, are provided by NUR America, NUR
Europe, (including the Middle East & Africa division), NUR Asia Pacific, NUR Shanghai,
NUR DO Brazil Ltda. and NUR Japan. In most cases, our warranty to our direct customers and
distributors covers defects in the Companys 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 Companys Printers for a period of five
years after the manufacturing date of the last NUR printer.

# 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.

We
have two research and development facilities, including a facility located at our
headquarters in Lod, Israel and a facility located in Louvain-la-Neuve, Belgium.

Total
research and development expenses, before royalty bearing grants, were approximately $15.0
million, $10.9million and $9.2 million in the years ended December 31, 2000, 2001
and 2002, respectively. In the year ended December 31, 2000, $4.3 million of these
expenses were due to a one-time write-off of in-process research and development related
to the Salsa Digital asset purchase transaction.

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. Initially, NUR relied on outside research
and development. We began our own research and development operations in early 1994.

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. As noted above, 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 $0.12 million as of December 31, 2002. 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 Companys Printers.

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, 2002, NUR Media Solutions had a contingent obligation to pay
royalties in the amount of $0.84 million.

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In
addition, between June 2001 and June 2003, NUR Media Solutions received and will continue
to receive 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.

In
the past, NUR has received grants from the Government of Israel, through the Office of the
Chief Scientist, 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 Office of the Chief Scientist in the years ended December 31,
2001 and December 31, 2002. The Office of the Chief Scientist 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 Office of the Chief Scientist.
As of December 31, 2002, we had a contingent liability to pay $0.26 million in future
royalty payments. 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 Office of the Chief Scientist.

# Competition

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

Our
main competitors in the super wide format arena are Vutek and Scitex Vision. Both
companies have introduced products that directly compete with the NUR Blueboard and NUR
Salsa Ultima super wide printers. In the wide format market, the main competitors are
Scitex, through its subsidiary, Scitex Vision Ltd., 3M Image Graphics, Vutek and Raster
Graphics Inc. These companies have introduced products that compete with the NUR Fresco
and NUR Salsa printers. In the market for Flatbed printers utilizing UV curable ink, the
main competitors are Durst Phototechnik, Inca Digital Printers, Leggett and Platt Digital
Technologies and Zund. These Companies have introduced products that will compete with the
NUR Tempo upon its commercial release. We have also witnessed the 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.

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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 Companys 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, 2002, we employed 355 persons worldwide including independent contractors,
 about fourteen percent of which
work in research and development. Approximately one third 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.

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 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.

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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.

# 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.

# Legal Proceedings

In
December 1999, Poalim Capital Markets Ltd., an Israeli company engaged in the business of
mediation and assistance in securities transactions, filed 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 the Company undertook to issue to Poalim Capital
Markets a warrant to acquire 11,000 ordinary shares of the Company 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., Mr. 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 peizo 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 the Company undertook to
pay the Abudi Parties $0.14 million for the complete and final settlement of this matter.

During
2002, pursuant to a collection effort conducted by our subsidiaries in the Asia Pacific
region, NUR Shanghai filed several lawsuits against its customers. As a result, three of
such customers filed claims against NUR Shanghai, in the aggregate amount of approximately
$0.4 million. We believe that the claims are without merit and NUR Shanghai is defending
itself vigorously against the claims.

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.

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# Organizational Structure

As
of December 31, 2002, 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                                     | 100%       | Amsterdam, Netherlands       
|NUR America Inc. (NUR America)                            | 100%       | Texas, United States         
|NUR Asia Pacific (Hong Kong) Ltd. (NUR Asia Pacific)      | 100%       | Hong Kong, China             
|NUR DO Brazil Ltda                                        | 100%       | Sao Paulo, Brazil            
|NUR Europe S.A. (NUR Europe)                              | 100%       | Brussels, Belgium            
|NUR Hungary Trading and Software Licensing Limited       
|Liability Company                                         | 100%       | Budapest, Hungary            
|NUR Macroprinters (Shanghai) Ltd. (NUR Shanghai)          | 100%       | Shanghai, China              
|NUR Media Solutions S.A. (NUR Media Solutions)            | 100%       | Brussels, Belgium            
|Salsa Digital Printers Ltd. (Salsa Digital Printers)      | 100%       | Texas, United States*        
|NUR Japan Ltd. (formerly Signtech Japan Ltd.) (NUR Japan) | 100%       | Tokyo, Japan                 
|NUR Pro Engineering Ltd (NUR Pro Engineering)             | 50%        | Rosh Ha'ain, Israel          
|Stillachem S.A. (Stillachem)                              | 100%       | Brussels, Belgium **         

---

|* | Salsa
Digital Printers does business as NUR Engineering USA.
|- | ------------------------------------------------------------

|** | 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 San Antonio,        TX by Salsa Digital Printers. The ink research and
development is to be continued by NUR Media Solutions.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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
Pro Engineering Ltd., a 50% owned affiliate, leases approximately 20,754 square feet in
Rosh Haain, Israel, for the manufacture and assembly of the NUR Blueboard and the
NUR Fresco printers. The Rosh Haain lease expires in October 2004.

United States

NUR
America leases office space in Newton, MA 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. During 2002,
NUR America sublet this space to a third party. The sublease expires in January 2011.

In
addition, NUR America leases and sub leases to a third party an additional 4,500 square
feet of office space in Newton, MA that served in the past as extra space for NUR
Americas headquarters. This lease was to expire in October 2008, however, NUR
America has exercised an option for termination of the lease by October 2003, without
penalty.

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As
part of our restructuring plan in 2001, we consolidated our U.S. operations. NUR America,
Inc. in Boston, MA and Salsa Digital Printers Ltd. in San Antonio, TX, were integrated
into a single large facility in San Antonio, TX.

Salsa
Digital Printers leases 67,250 square feet in San Antonio, TX for use as a manufacturing
facility for the Salsa product line and the NUR inks, as well as the headquarters for NUR
America, NUR Americas sales and marketing offices, and NUR Americas training
and service center. The San Antonio, TX lease expires in June 2006.

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 leases approximately 1,867 square feet office space in Louvain-la-Neuve,
Belgium for use as office space. The Louvain-la-Neuve lease expires in November 2009.
Pursuant to the liquidation of Stillachem and the transfer of its research and development
to NUR Media Solutions, NUR Media Solutions leased an additional space of 5,025 square
feet in Louvain-la-Neuve for use as its research and development center. This lease
expires in September 2003.

Asia Pacific

NUR
Shanghai previously leased approximately 25,833 square feet of space for use as its
headquarters, warehouse and demonstration center in a free trade zone in Shanghai, China.
In December 2002, the Company updated its Asia Pacific operations, resulting in, among
other things, the relocation of its Asia Pacific headquarters from Shanghai to Hong Kong.
Pursuant to this relocation the Shanghai lease was terminated and a termination fee of
approximately $13,000 was paid.

NUR
Shanghai also leased approximately 1,395 square feet of office space in Guangzhou and
approximately 1,023 square feet in Beijing. The Guangzhou and Beijing leases expired on
November 2002.

NUR
Asia Pacific leased office space of approximately 1,254 square feet in Hong Kong. This
lease expired in December 2002. Following the relocation of the Companys Asia
Pacific headquarters from Shanghai to Hong Kong, NUR Asia Pacific transferred its offices
to a new facility consisting of approximately 3,561 square feet. The lease for the new
facility will expire in November 2004.

In
addition, NUR Asia Pacific leased office space of approximately 1,162 square feet in
Singapore for use as a local sales office. The lease expired in March 2003. As a result of
the consolidation of the Singapore office to the new headquarters in Hong Kong, the lease
was not renewed.

Japan

NUR
Japan leases approximately 2,173 square feet of office space in Tokyo. The lease expires
February 2004.

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# ITEM 5: Operating and
Financial Review and Prospects

# 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 and substrates that are consumable products for the operation of
the Companys Printers. NURs total revenues declined from $121.9 million in the
year ended December 31, 2000 to $120.4 million in the year ended December 31, 2001, and to
$85.3 million in the year ended December 31, 2002.

We
carry out our research and development activities at two locations, our facilities in Lod,
Israel and in Belgium. NURs main sales and service activities are carried out
through our wholly owned subsidiaries, NUR Europe, located in Brussels, Belgium, NUR
America, located in San Antonio, TX (USA), NUR Asia Pacific located in Hong Kong, NUR DO
Brazil Ltda., located in Sao Paulo, Brazil, NUR Japan located in Tokyo, Japan and through
NUR Europes division of Middle East & Africa located in Belgium. 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 former Salsa Digital business is currently operated through Salsa Digital Printers
Ltd. and NUR Hungary Trading and Software Licensing Limited Liability Company, both of
which are wholly owned subsidiaries. NUR wholly owns NUR Media Solutions, located in
Brussels, Belgium, which develops, markets and sells advanced consumables for the
Companys Printers. NUR owns 50% of NUR Pro Engineering Ltd. located at Rosh
Haain Israel, which is our main subcontractor for the assembly of the NUR Blueboard
and NUR Fresco printers.

NUR
was incorporated as an Israeli corporation on July 29, 1987 and began operations in June
1991. Since October 1995, NURs ordinary shares have been traded on The Nasdaq
National Market. NUR is currently quoted on The Nasdaq National Market under the symbol
NURM. In November 2002, we received a compliance notice from The Nasdaq Stock
Market, Inc., stating that, for a period of 30 consecutive trading days, our ordinary
shares closed below the minimum bid price of $1.00 per share required for continued listing on
The Nasdaq National Market. In accordance with Nasdaqs Marketplace Rules, we had
until May 5, 2003 to regain compliance with Nasdaqs continued listing requirements.
We have been unable to demonstrate compliance with the continued listing requirements and,
accordingly, have applied to transfer our securities to The Nasdaq Small Cap Market.

Revenues
are derived from the sale of our printers, which include the NUR Blueboard printers, the
NUR Fresco printers, the NUR Salsa printers and the NUR FabriGraph printers, and from the
sale of inks, substrates, spare parts and related services.

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
continuation of the development of NUR Media Solutions, a subsidiary dedicated to the
development and marketing of consumables, mainly inks and clear coat varnishes for the use
with NURs printers.

29

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# Certain Critical
Accounting Policies

The
preparation of financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
On an on-going basis, the Company evaluates its estimates and judgments, including
allowance for doubtful accounts and inventory valuation. The Company bases its estimates
and judgments on historical experience and on various other factors that are believed to
be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Under different assumptions or conditions, actual results may
differ from these estimates.

NUR
believes the following critical accounting policies, among others, affect its more
significant judgments and estimates used in the preparation of its consolidated financial
statements.

NURs
consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in the U.S. For more information on NURs financial statements,
please see NURs consolidated financial statements as of December 31, 2002, which are
included as a part of this annual report on Form 20-F.

The
main sources of revenues for NUR are sales of the Companys Printers and related
consumable products. Revenues from sales of products are recognized upon delivery provided
that the collection of the resulting receivable is probable, there is persuasive evidence
of an arrangement, no significant obligations in respect of installation remain and the
price is fixed or determinable. NUR does not grant a right of return.

The
Company 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. The Company 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 the Company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, the Companys subsidiaries engage in the sale of trade receivables with
established commercial banking institutions. The Company provides the banking institutions
with an unlimited guarantee securing the obligations of the subsidiaries under the trade
receivables sale agreements. A total of $9.87 million and $10.18 million was sold to the
banks during the quarters ending December 31, 2002 and December 31, 2001, respectively.

30

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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. The Company has conducted an evaluation of its
intangible assets as of December 31, 2002, which resulted in an impairment of $10.87
million of the Companys intangible assets. 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. The Companys implementation of FAS 144 has resulted in the
impairment of most of its intangible assets. See ITEM 18: Financial
Statements.

In
April 2002, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections, (SFAS 145) which
rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt
and an amendment of that statement, and SFAS No. 64, Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements. SFAS No. 145 also rescinds SFAS No. 44,
Accounting for Intangible Assets for Motor Carriers. In addition, SFAS No. 145
amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency
between the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are similar to
sale-lease back transactions. SFAS No. 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002. The Company does not expect the adoption of SFAS No. 145
will have a material impact on its results of operations or financial position.

In
June 2002, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal
Activities, (SFAS No. 146) which addresses significant issues regarding the
recognition, measurement, and reporting of costs associated with exit and disposal
activities, including restructuring activities. SFAS No. 146 requires that costs
associated with exit or disposal activities be recognized when they are incurred rather
than at the date of a commitment to an exit or disposal plan. SFAS No. 146 is effective
for all exit or disposal activities initiated after December 31, 2002. The Company does
not expect the adoption of SFAS No. 146 to have a material impact on our results of
operations or financial position.

31

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In
November 2002, the Financial Accounting Standards Board issued FASB Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5,
57, and 107 and Rescission of FASB Interpretation No. 34 (FIN No. 45).
FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and
annual financial statements about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in issuing the
guarantee. FIN No. 45 does not prescribe a specific approach for subsequently measuring
the guarantors recognized liability over the term of the related guarantee. It also
incorporates, without change, the guidance in FASB Interpretation No. 34, Disclosure
of Indirect Guarantees of Indebtedness of Others, which is being superseded. The
disclosure provisions of FIN No. 45 are effective for financial statements of interim or
annual periods that end after December 15, 2002 and the provisions for initial recognition
and measurement are effective on a prospective basis for guarantees that are issued or
modified after December 31, 2002, irrespective of a guarantors year-end. The Company
does not expect the adoption of FIN No. 45 to have a material impact on its results of
operations or financial position.

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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 (dollars in thousands) by categories of activities and into
geographic markets in the years ended December 31, 2002, 2001 and 2000. The
Others category, below, includes, among other things, revenues generated by
the service of the Companys Printers.

|Year Ended December 31,       
|------------------------------
|
|Middle-East & Africa          
|Asia (except China)           
|China                         
|Europe                        
|North & Latin America  (except
|U.S.A.)                       
|                              
|U.S.A                         
|                              
|Total Revenues                
|                              
|                              

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

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# Results of Operations

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

|                                               | 2000(1) | 2001(2) | 2002 (3)
|---------------------------------------------- | ------- | ------- | --------
|Revenues                                       | 100%    | 100%    | 100%    
|Cost of sales of printers and related products | 52.6    | 59.8    | 67.3    
|One time inventory write-off                   | -       | 3.2     | 1.1     
|Gross profit                                   | 47.4    | 37.0    | 31.6    
|Research and development expenses              | 12.3    | 9.0     | 10.8    
|Research and development expenses, net         | 12.0    | 8.5     | 9.1     
|Selling expenses, net                          | 14.3    | 15.5    | 14.9    
|General and administrative ongoing expenses    | 10.5    | 11.1    | 14.1    
|General and administrative one time expenses   | -       | -       | 3.4     
|Amortization  and  impairment  of goodwill and
|other intangible assets                        | 1.1     | 2.4     | 15.1    
|Operating income (loss)                        | 9.5     | (3.4)   | (26.5)  
|Financial expenses, net                        | 1.1     | 2.8     | 1.6     
|Other income (expense), net                    | -       | 0.3     | 0.1     
|Taxes on income (tax benefit)                  | 1.0     | (0.2)   | -       
|Minority interest in earnings of a subsidiary  | -       | -       | -       
|Equity in earnings (losses) of affiliates, net | (0.4)   | 0.1     | -       
|Net income (loss)                              | 7.0     | (6.0)   | (28.2)  

---

|(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 Ltd. (6 months), NUR Hungary Trading and Software
Licensing                Limited Liability Company, NUR DO Brazil Ltda., Encre
Consumables B.V and NUR                Japan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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, NUR Japan
and Stillachem                (last eight months). In May 2001, we purchased the
remaining 49.9% of Stillachem                S.A. We previously owned 50.1% of this
subsidiary.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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# 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.

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 of $2.0 million, impairment of goodwill and other
intangible assets of $10.9 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 the Company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 decreasewas mainly due to
decline in interest rates paid by the Company in respect of long-term bank loans taken to
finance the cash portion of the Salsa Digital acquisition in 2000 and foreign exchange
gains.

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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.

# Year Ended December 31,
2001 Compared with Year Ended December 31, 2000

Revenues.       
          Revenues were approximately $120.4 million in the year ended December 31, 2001,
          compared to approximately $121.9 million in the year ended December 31, 2000.
          This decrease was attributable to a weakened macroeconomic environment, a
          slowdown in capital equipment investments and reduced demand for printing
          consumables.

Gross
Profit. Gross profit was approximately $48.5 million, excluding one-time inventory
write-offs of $4.0 million, and $44.5 million including such charges in the year ended
December 31, 2001, compared to $57.8 million in the year ended December 31, 2000. The
decrease in gross profits in 2001 was primarily due to a decline in our sales, which
subsequently led to an increase in the overhead and fixed costs in the cost of goods sold
as a percentage of sales. In addition, the gross margins decreased as a result of the
pressure we experienced on the price of our products throughout 2001.

Expenses.       
          Research and development costs, net of government grants, were approximately
          $10.2 million in the year ended December 31, 2001, compared to $14.6 million in
          the year ended December 31, 2000. The expenses in 2000 included a one-time $4.3
          million write-off of research and development in-process due to the Salsa
          Digital asset purchase transaction which was affected in July 2000. Accordingly,
          research and development expenses remained stable in 2001.

Selling
and marketing expenses were approximately $18.7 million in the year ended December 31,
2001, compared to approximately $17.4 million in the year ended December 31, 2000. As of
December 31, 2001, NUR received $1.27 million from the Marketing Fund for selling and
marketing expenses. 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 $19.5 million, including amortization of
goodwill and other intangible assets of $2.9 million and restructuring and other one-time
expenses of $3.2 million, for the year ended December 31, 2001, compared to approximately
$14.2 million in the year ended December 31, 2000. The restructuring consisted of a series
of strategic initiatives intended to further reduce costs and increase efficiency
following the acquisition of Salsa Digital, including the following: consolidating the
operations of NUR America and Salsa Digital Printing into one facility in San-Antonio, TX;
consolidating the operations of Stillachem into the facility of Salsa Digital Printing in
San Antonio; and, consolidating the Companys research and development operations
into the Companys facility in Lod, Israel.

Financial
expenses, net increased to $3.3 million in the year ended December 31, 2001 compared to
$1.4 million in the year ended December 31, 2000. This increasewas mainly due to
interest expenses in respect of long-term bank loans taken to finance the cash portion of
the Salsa Digital acquisition.

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Taxes.       
          Tax benefit was $(0.2) million in the year ended December 31, 2001, as compared
          to tax expenses of $1.2 million in the year ended December 31, 2000. The tax
          benefit was attributed to losses incurred by the Company in 2001.

# Impact of Inflation,
Devaluation and Fluctuation of Currencies

Most
of NURs sales are in U.S. dollars. 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 0% in 2000, increased to 1.4% in the year ended December
31, 2001, and increased to 6.7% in the year ended December 31, 2002. The NIS was devalued
against the U.S. dollar by approximately 2.7% in 2000, by approximately 9.3% in 2001, and
by approximately 7.3% in 2002. 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 4.737 for one-dollar U.S. on December 31, 2002. The representative
dollar exchange rate was NIS 4.416 on December 31, 2001 and NIS 4.041 on December 31,
2000.

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, 2000, 2001 and 2002 were
NIS, 4.024, 4.205 and 4.738 for one-dollar U.S., respectively. The exchange rate as of
April 29, 2003 was 4.571 for one dollar.

# Liquidity and Capital
Resources

During
the past several years, we have funded our operations primarily through the private sale
of our equity securities, commercial bank loans and through cash generated from
operations.

Operating
activities

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.

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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.

In
the year ended December 31, 2000, NUR had net income of $8.5 million. Net cash used in
operating activities was approximately $10.2 million. The main changes in NURs
working capital were (i) an increase of approximately $25.7 million in trade accounts
receivable, (ii) an increase of approximately $9.4 million in inventories, (iii) an
increase of approximately $7.2 million in trade payables, and (iv) an increase of
approximately $4.7 million in accrued expenses and other liabilities.

Investing
activities

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. Net cash used in
investing activities was approximately $21.8 million in the year ended December 31, 2000,
consisting mainly of $18.7 million in respect of the purchase of the Salsa Digital assets
and liabilities and $3.2 million for equipment.

Financing
activities

Net
cash provided by financing activities in the year ended December 31, 2002 was
approximately $5.8 million, deriving primarily from the sale, in January 2002, of an
aggregate of 2,333,333 ordinary shares in a private placement, at a price of $3.00 per
share, to the Investment Corp. of United Mizrahi Bank Ltd. generating total proceeds of
$7.0 million. The Investment Corp. also received warrants to purchase an additional
612,500 ordinary shares at an exercise price of $4.50 per share, exercisable until January
17, 2006. During 2002, the Company refunded approximately $1.7 million on its long term
loans.

NUR
maintained long and short-term credit facilities in an aggregate amount of approximately
$37.9 million at December 31, 2002. At December 31, 2001, NUR had approximately $33.7
million in long-term loans from banks and others, and $5.1 million in short-term bank
credit and short-term loans. NURs long-term loans are linked to the U.S. dollar and
the Euro bearing interest at a rate ranging between 4.5% and 6.00%. In February 2002, the
Company 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, the Company undertook, among other things, to
maintain four financial ratios. During 2002, the Company failed to meet a number of these
financial ratios as a result of a decrease in the Companys revenues. However, the
banks agreed in writing not to act upon their contractual rights pursuant to the defaults
mentioned above. In March 2003, three of these four financial ratios were amended. We
believe that the amendment of the financial ratios will allow a better alignment between
the financial ratios and the Companys current business plan. However, there can be
no assurance that the Company 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.

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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. The decrease in current assets is attributable
primarily to the decrease in accounts receivable.

As
of December 31, 2001, total current assets of NUR amounted to approximately $79.3 million,
out of which $12.4 million was in cash and cash equivalents, compared with total current
liabilities of approximately $37.4 million.

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

Net
cash provided by financing activities in the year ended December 31, 2000 was
approximately $42.1 million. In July and December 2000, we took long-term commercial bank
loans of $25 million and $10 million, respectively, primarily to finance the cash portion
of the Salsa Digital purchase and other acquisition costs. In September 2000, NUR
consummated a private placement through Investec Investment Banking-Israel. Several
investors purchased an aggregate of 748,223 ordinary shares at a price of $13.365 per
share for aggregate net proceeds of $9.4 million.

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 $4.2 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.

39

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NUR
has incurred operating losses during the last several quarters. 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.

# 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 two research and development facilities, a facility at our headquarters in Lod,
Israel, and a facility in Louvain-la-Neuve, Belgium.

Total
research and development expenses, before royalty bearing grants, were approximately $15.0
million, $10.9 million and $9.2 million, in the years ended December 31, 2000, 2001 and
2002, respectively. In the year ended December 31, 2000, $4.3 million of these expenses
were related to the purchase of assets from Salsa Digital, resulting in a one time $4.3
million write-off assigned to research and development. 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.

# Trend Information

Printers
sales

Revenues
from sales of the Companys Printers, which comprised 50.7% of the Companys
total revenues in 2002, declined by $22.1 million in 2002 compared to 2001. 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 2002, for example, we provided technical previews of the
NUR Tempo flatbed digital printer in prototype form. The NUR Tempo, still under
development, is intended to print on a wide variety of both rigid and flexible materials
including corrugated board, fluted polypropylene, PVC, glass, polycarbonate and standard
rolled media using UV-curable inks. We expect the NUR Tempo to enter beta testing in the
second half of 2003.

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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 26.4% in 2002 compared to
2001, due to a continued increase in the competitiveness of the consumables market during
2002 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.

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 2002 was mainly due to the decline of our sales coupled with
the difficulties we encountered when trying to meet this decline with an equal reduction
in the cost of goods sold.

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 Companys 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
Plans

During
2002, NUR implemented additional restructuring initiatives. First, NUR implemented a
corporate plan in order to create a more centralized, functional and cost-effective
organizational structure. Second, the Company reduced headcount by approximately 50
positions during the second quarter of 2002, and reduced salaries for most of the
remaining employees. Third, NUR relocated its Asian headquarters from Shanghai to Hong
Kong, resulting in employee lay-offs and other relocation costs. Total restructuring costs
for the year ended December 31, 2002 were $1.3 million.

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# ITEM 6: Directors,
Senior Management and Employees

# Directors and Senior
Management

The
executive officers, senior managers and directors of NUR are as follows:

|Name                      | Age | Position with NUR                                                     
|------------------------- | --- | ----------------------------------------------------------------------
|Dan Purjes (2)            | 53  | Chairman of the Board of Directors                                    
|Robert F. Hussey (1)(2)   | 54  | Director                                                              
|Oded Akselrod (6)         | 56  | Director                                                              
|Ilan Ben Gigi (5)         | 40  | Director                                                              
|Orit Leitman (1)(2)(4)    | 44  | Director                                                              
|Gideon Shenholz (1)(3)(4) | 49  | Director                                                              
|David Amir                | 46  | President and Chief Executive Officer                                 
|Hilel E. Kremer           | 41  | Vice President of Finance and Chief Financial Officer                 
|Eliahu Shalev             | 53  | Vice President of Research and Development and Chief Operating Officer

---

|(1) | Member
of NUR's Audit Committee.
|--- | --------------------------------

|(2) | Member
of NUR's Stock Option and Compensation Committee.
|--- | --------------------------------------------------------

|(3) | Member
of the NUR's Non-Employee Director Share Option Plan Committee.
|--- | ----------------------------------------------------------------------

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

|(5) | Elected
to serve on the Board of Directors pursuant to a voting arrangement between Dan Purjes
and Isal        Amlat Investments (1993) Ltd.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

|(6) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

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

Dan
Purjeshas served as the Chairman of the Board of the Company 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. Previously, Mr. Purjes was the
Chairman and Chief Executive Officer of Josephthal Group, Inc., the parent company of
Josephthal & Co. Inc. (Josepthal), an investment banking and brokerage
firm that was acquired in 2001 by Fahnestock & Co. Inc., now operating as 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 the Company 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 the Company 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., a publicly held
company.

Ilan
Ben Gigi has served as a Director of the Company 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.

Orit
Leitmanhas served as an External Director of NUR since November 2000. Ms. Leitman has
served as Vice President of Finance of Paradigm Geophysical Ltd. since April 1999. From
1992 to 1999, Ms. Leitman served as Corporate Treasurer of Scitex Corporation Ltd. Ms.
Leitman holds both a B.A. in Economics and an M.B.A. degree from the Tel-Aviv University.

Gideon
Shenholzhas served as an External Director of NUR since November 2000. Mr. Shenholz
has served as the Managing Director of Pegasus Technologies Ltd. since October 1995. Mr.
Shenholz is one of the two founders of Pegasus Technologies Ltd., established in 1991, and
one of the major shareholders in Pegasus Technologies Ltd. Prior thereto, from 1988 to
1991, Mr. Shenholz was a consultant in electronic warfare (EW), mainly to Tadiran Systems
Ltd. (EW division). From 1981 to 1988, Mr. Shenholz served as a senior manager in Tadiran
Systems Ltd. (EW division). Mr. Shenholz holds a B.Sc. Degree in Electronic Engineering
from Technion, Haifa (1976) and a B.A. degree in Psychology from Tel Aviv University
(1982).

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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.

Hilel
E. Kremerhas served as the Chief Financial Officer and Vice President of Finance of
NUR since December 1998. Mr. Kremer has also served as a Director of NUR Europe, NUR
America and NUR Media Solutions since December 1998, of NUR Asia Pacific since April 1999,
of Encre Consumables B.V since April 2000 and of NUR Hungary Trading and Software
Licensing Limited Liability Company and of Salsa Digital Printers since May 2000. As of
January 2001, Mr. Kremer has also served as a Director of NUR Japan since January 2001.
 Prior to joining NUR,
from 1993 to 1998, Mr. Kremer served in various management positions with Scitex
Corporation. Mr. Kremers last position with Scitex was Vice President of Finance and
Chief Financial Officer of Scitex Asia Pacific, and prior thereto, Mr. Kremer held several
positions in the finance organization of Scitex Europe. Prior to joining Scitex, Mr.
Kremer held various positions in the budgeting department of the Israeli Finance ministry.
Mr. Kremer holds a B.A. in Economics from Hebrew University, Jerusalem, and an M.B.A.
degree from INSEAD, France.

Eliahu
Shalevhas served as Vice President of Research and Development since March 2001, as
well as Chief Operating Officer since November 2001. 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.

# Compensation of Officers
and Directors

In
the year ended December 31, 2002, the aggregate compensation paid to the executive
officers and directors of NUR (a total of 11 persons) amounted to approximately $1.15
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 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.

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In
addition, a total of 695,334 options were granted in 2002 to executive officers and
directors to purchase ordinary shares, of which 670,334 were granted pursuant to the
executive officers' participation in the tender offer filed by the Company in May 2002. The
tender offer provided option holders with the right to cancel and exchange certain options
granted to them under the Companys 2000 Stock Option Plan, 1997 Stock Option Plan
and 1995 Israel Stock Option Plan. Of the 670,334 options granted to executive officers under the tender offer,
129,000 were granted pursuant to the cancellation of options granted in 2002. The 695,334 options
granted had a weighted average exercise price of $0.85 and have expiration dates in 2012.

Pursuant
to an employment agreement, Mr. Erez Shachar, in his capacity as President and Chief
Executive Officer of NUR, earned an annual salary of $213,459 during 2002. In addition,
for various services rendered to NUR Europe and NUR Media Solutions by Sorly
Ltd., a company wholly owned by Erez Shachar, NUR Europe and NUR Media Solutions
each paid Sorly Ltd. an the annual sum of $30,201.5 during 2002. Mr. Shachar resigned his
position as President and Chief Executive Officer of NUR on April 1, 2003, and is now
working with the Company as a consultant.

We
pay our non-employee and external 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 and non-external 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. Directors who are also
employees do not receive additional compensation for serving as directors. 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 Mr. Dan Purjes effective as of January 1, 2002. In his capacity
as Chairman of the Board, Mr. Purjes will receive an annual fee of $125,000 to be due and
paid in ordinary shares to Rockwood Group LLC., a company wholly owned by Mr. 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 Mr. 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 the Companys 1998 Share Option Plan for
Non-Employee Directors.

# Outstanding Options and
Warrants

As
of March 31, 2003, NUR had outstanding options under NURs stock option plans to
purchase a total of 1,970,904 of its ordinary shares. Of such options, 72,833 have been
issued under the 1995 Israel Stock Plan, 994,134 have been issued under the 1997 Stock
Option Plan, 95,001 have been issued under the 1998 Non-Employee Director Share Option
Plan and 808,936 have been issued under the 2000 Stock Option Plan. The options granted
under the 1995 Plan, the 1997 and the 2000 Plan are subject to various vesting
requirements and have been issued at exercise prices ranging from $0.35 to $13.50per 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.

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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 the Company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 the Company or any of its subsidiaries until the new grant date.
2,027,166 ordinary shares, representing 93% of the outstanding options under the
Company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.

As
of March 31, 2003, NUR had outstanding warrants exercisable into a total of 1,110,911
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 Mr. David Fuchs, (ii) 25,000
were issued to Cruttenden Roth Incorporated in connection with its role as qualified
independent underwriter in a registration of ordinary shares on behalf of certain
selling security holders, (iii) 15,000 were issued to Zamir & Barak in partial
consideration for legal services rendered on behalf of NUR, (iv) 37,411 were issued to
Investec Clali Trust Company Ltd. as placement agent in connection with NURs private
placement in September 2000, (v) 612,500 were issued to the Investment Corp. of United
Mizrahi bank Ltd. as part of the private placement in January 2002, (vi) 70,000 were
issued to Bank Hapoalim as part of the rescheduling of NURs long-term debts, (vii)
50,000 were issued to Bank Leumi as part of the rescheduling of NURs long-term debts
(viii) 140,000 were issued to Bank Hapoalim as part of the amendments of the covenants
governing the rescheduling of NURs long-term debts, (ix) 100,000 were issued to Bank
Leumi as part of the amendments of the covenants governing the rescheduling of NURs
long-term debts, and (x) 11,000 were issued to Poalim Capital Markets as part of the
settlement of the litigation discussed in ITEM 4: Legal Proceedings. The Fuchs
warrants are exercisable at $1.00. The Company extended the exercise period for the Fuchs warrants to December
2005 in consideration for certain services provided by Fuchs. The Cruttenden Roth warrants
are exercisable at $4.50 per share from February 2000 to February 2004. The Zamir &
Barak warrants are exercisable at $2.75 per share from January 2000 to January 2004. 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 warrauts are exercisable at $0.784 no later than
November 2006.

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Of
the options and warrants described above, directors and executive officers of NUR hold
options and warrants to purchase an aggregate of 956,168 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
1995 Israel 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 Board approval. The Board determines the employees and
consultants who are granted options under the 1995 Israel Stock Option Plan, the timing of
such grants, the terms thereof and the number of shares to be covered thereby. The Board
also determines the exercise price for ordinary shares subject to the performance and
consultants options under the 1995 Israel Stock Option Plan and the exercise price for the
service options; provided that in no case shall the exercise price of any service option
be less than 80% of the fair market value of such ordinary shares at the date of grant.
Service options usually vest over a four-year period. One-third of the service options
vest after the second annual anniversary of the date of grant with an additional one-third
vesting on the third and fourth anniversary of the date of grant, respectively.
Performance options vest under the same terms as applicable to the service options.
Consultants options vest over a specified period of time based on past or future services
rendered or performance targets to be achieved by NUR as determined by the Board.
Notwithstanding the foregoing, the consultants options expire ten years following the date
of grant. No option may be assigned or transferred except by will or the laws of descent
and distribution.

Under
the 1995 Israel Stock Option Plan, for Israeli employees, 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.

# 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.

The
1997 Stock Option Plan provides that it is to be administered by the Board or by a
committee appointed by the Board and is currently administered by the Stock Option and
Compensation Committee subject to Board approval. The Board has broad discretion to
determine the persons entitled to receive options under the 1997 Stock Option Plan, the
terms and conditions on which options are granted, and the number of ordinary shares
subject thereto, up to the maximum aggregate amount permitted under the 1997 Stock Option
Plan. The Board also has discretion to determine the purchase price to be paid upon the
exercise of an option granted under the 1997 Stock Option Plan.

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The
exercise price of the option shares under the 1997 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 1997 Stock Option Plan, 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 1997 Stock Option Plan;
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. Pursuant to the 1997 Stock
Option Plan, options shall vest over a three-year period, provided that the Board may
determine different vesting schedules.

The
options granted are subject to restrictions on transfer, sale, or hypothecation. All
options and ordinary shares issuable upon the exercise of options granted to Israeli
employees of NUR prior to January 1, 2003, are held in trust for a minimum of two years in
accordance with Section 102 of the Israel Income Tax Ordinance.

# 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.

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The
exercise price of the option shares under the 1998 Plan is 100% of the fair market of such
ordinary shares at the 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.

# 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. An aggregate amount of
not more than 2,000,000 ordinary shares is reserved for grants under the 2000 Stock Option
Plan, as amended. 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, 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, 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;
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. All options granted vest over
a three to four-year period at the discretion of the Board. One third of such options vest
after the first or second anniversary of the date of grant, one third after the second or
third anniversary, and the final third after the third or fourth anniversary of the date
of grant. Notwithstanding the foregoing, the Board may determine different vesting
schedules for consultant options in special circumstances.

49

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The
options granted are subject to restrictions on transfer, sale or hypothecation. Under the
2000 Stock Option Plan, for Israeli employees who were granted options prior to January 1,
2003, options and ordinary shares issuable upon the exercise of options granted to Israeli
employees of NUR can be 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 the Company to enter into indemnification agreements with each of its current
and future Directors. According to the terms of the indemnification agreements, the
Company 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 the Company or its
subsidiaries; and
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | reasonable
litigation expenses.
| | --- | -------------------------------

The
 indemnification  undertaking  shall be limited to certain  categories  of events and to
such monetary limitations  as set forth in the  indemnification  agreement.  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.

Board Practices

Terms of Directors

The
Board of Directors  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 Articles of
 Association.  The previous Annual Meeting was held on December 12, 2002. 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,  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  Articles  of Association and the Israeli Companies Law.

50

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Alternate Directors

The
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
Companies Law 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.

The
Israeli  Companies Law 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 National
 Market or 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 Orit Leitman,  Gideon Shenholz 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.

51

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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, 2002 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  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,
Orit Leitman and Robert F. Hussey.

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
 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
one member: Gideon Shenholz.

52

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Employees

As of  December  31,  2002,  we had
355  employees  and  independent  contractors  compared  to 404  employees  and
independent  contractors  as of December 31, 2001.  The 14% decrease was  primarily  due
to the  restructuring  and consolidation  of NUR's operations  during 2002. Of NUR's 355
employees and independent  contractors, as of December 31, 2002, 67 were in sales and
marketing,  52 were in research and  development,  83 were in customer  support, 83
were in operations  and production,  and 70 were in finance and  administration.  As of
December 31, 2002, we had 104  employees  located in Israel,  80  employees  located in
Belgium,  108  employees  located in the U.S.  and 63 employees located in Asia Pacific.
We believe our relations with employees are satisfactory.

Share Ownership

The
following table sets forth certain  information  regarding the beneficial  ownership of
NUR's ordinary shares  as of March 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 Shares
Beneficially Held(1) | Percent of Class
|------------------------ | ------------------------------------- | ----------------
|Dan Purjes(2)            | 4,906,057                             | 28.5            
|David Amir(3)            | -                                     | -               
|Hilel E. Kremer          | *                                     | *               
|Eliahu Shalev            | *                                     | *               
|Ilan Ben Gigi            | *                                     | *               
|Robert F. Hussey         | *                                     | *               
|Orit Leitman(4)          | -                                     | -               
|Gideon Shenholz(4)       | -                                     | -               
|Oded Akselrod(4)         | -                                     | -               

---

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

|(1) | As
used in this table, "beneficial ownership" means the sole or shared power to vote or
direct the voting        or to dispose or direct the disposition of any security. For
purposes of this table, a person is deemed to        be the beneficial owner of
securities that can be acquired within 60 days from March 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
17,205,779 ordinary shares        outstanding as of March 31, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | According
to Amendment No. 4 to Schedule 13-D filed by Mr. Purjes with the Securities and Exchange
       Commission on December 23, 2002, Mr. Purjes beneficially owned 4,906,057 ordinary
shares of NUR, or 28.5%        percent of the NUR's ordinary shares, as of December 23,
2002.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Under
the terms and conditions of David Amir's employment agreement, the Company has undertaken
a        contractual obligation to grant to David Amir, Chief Executive Officer and
President of the Company, an        option to purchase up to 400,000 ordinary shares of
the Company at market price on date of grant. The        options will be granted under
the 2000 Employee Stock Option Plan upon its amendment pursuant to the        Israeli tax
reform of 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Orit
Leitman, Gideon Shenholz and Oded Akselrod do not hold any ordinary shares or options to
purchase        ordinary shares of NUR.
|--- | -------------------------------------------------------------------------------------------------------------------------------------

53

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The
directors and officers of NUR hold, in the aggregate, options and warrants exercisable
into 956,168 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 the Company, 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 the Company. Robert Hussey has been granted
an additional 10,000 options on August 1, 2002. Doron Tsur, a Director of the Company as
of July 2001, was granted 834 options on July 2, 2001 and 10,000 options on August 1,
2002. Ilan Ben Gigi, a Director of the Company as of March 11, 2003, was granted 4,167
options on March 11, 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
the Company 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 March 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 Shares
Beneficially Owned | Percentage of Ordinary Shares
Beneficially Owned (1)
|---------------------------------------------- | ---------------------------------- | ----------------------------------------------------
|Dan Purjes (2)                                 | 4,906,057                          | 28.5%                                               
|Investment Corp. of United Mizrahi Bank Ltd. . | 2,333,333                          | 13.56%                                              
|                                               |                                    |                                                     

---

|(1) | Based
on a total of 17,205,779 ordinary shares outstanding as of March 31, 2003.
|--- | --------------------------------------------------------------------------------

|(2) | Dan
Purjes is the Chairman of NUR. According to Amendment No. 4 to Schedule 13-D filed by Mr.
Purjes with the        Securities and Exchange Commission on December 23, 2002, Mr.
Purjes beneficially owned 4,906,057 ordinary        shares of NUR, or 28.5% percent of
the NUR's ordinary shares, as of December 23, 2002
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As
of March 31, 2003, there were 77 record holders of ordinary shares,
of which 39 represented United States record holders holding
approximately 78.8% of the outstanding ordinary shares of NUR.

54

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# Related Party
Transactions

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, 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 meeting held on February 12, 2002, NURs
shareholders approved a Terms of Service agreement with Mr. Dan Purjes effective as of
January 1, 2002. In his capacity as Chairman of the Board, Mr. Purjes will receive an
annual fee of $125,000 to be due and paid in ordinary shares of the Company to Rockwood
Group LLC, a company wholly owned by Dan Purjes. Until decided otherwise by the
Company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 Mr. 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 the
Companys 1998 Share Option Plan for Non-Employee Directors.

In
October 2000, NUR loaned Hilel E. Kremer 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 of April 30, 2003, NIS 103,676.88 (approximately $22,742) was
outstanding under Mr. Kremers loan. In October 2000, NUR loaned Ron Michael NIS
80,700 (approximately $16,300). 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 Mr.
Michaels severance agreement, the Company agreed to forgive the loan including
all accrued linkage and interest.

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.

# ITEM 8: Financial
Information

See pages F-1 to F-44.

# ITEM 9: The Offer and
Listing

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

NURs
ordinary shares are quoted on the Nasdaq National Market under the symbol
NURM. NURs ordinary shares have been traded on the Nasdaq National
Market since October 1995. On November 2002, we received a compliance notice from The
Nasdaq Stock Market, Inc., stating that, for a period of 30 consecutive trading days, our
ordinary shares closed below the minimum bid price of $1.00 per share as required for
continued listing on The Nasdaq National Market. In accordance with Nasdaqs
Marketplace Rules, we had until May 5, 2003 to regain compliance with Nasdaqs
continued listing requirements. We have been unable to demonstrate compliance with the
continued listing requirements and, accordingly, have applied to transfer our securities
to The Nasdaq SmallCap Market.

55

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The
prices set forth below are high and low closing market prices for the ordinary shares of
NUR as reported by Nasdaq National Market 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 April 30, 2003. Such quotations reflect inter-dealer
prices, without retail markup, markdown, or commission and may not necessarily represent
actual transactions.

|                       |              |             
|---------------------- | ------------ | ------------
|Year                   | High (US)    | Low (US)    
|1998                   | $       4.50 | $       1.63
|1999                   | 13.00        | 2.38        
|2000                   | 21.00        | 7.31        
|2001                   | 9.75         | 2.29        
|2002                   | 3.61         | 0.50        
|                       |              |             
|2001                  
|First Quarter          | $       9.75 | $       5.94
|Second Quarter         | 6.30         | 3.75        
|Third Quarter          | 5.77         | 3.18        
|Fourth Quarter         | 3.74         | 2.29        
|                       |              |             
|2002                  
|First Quarter          | $       3.65 | $       2.47
|Second Quarter         | 2.79         | 0.80        
|Third Quarter          | 1.60         | 0.28        
|Fourth Quarter         | 0.99         | 0.50        
|                       |              |             
|2003                  
|First Quarter          | $       0.60 | $       0.25
|                       |              |             
|Most Recent Six Months | High         | Low         
|April 2003             | $       0.45 | $       0.3 
|March 2003             | 0.44         | 0.32        
|February 2003          | 0.41         | 0.25        
|January 2003           | 0.60         | 0.36        
|December 2002          | 0.99         | 0.51        
|November 2002          | 0.85         | 0.50        

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.

56

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

Set
forth below is a brief description of certain provisions contained in the Memorandum of
Association, the Amended and Restated Articles of Association as well as certain statutory
provisions of Israeli law. The Memorandum of Association and the Articles 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 NIS fifty million (50,000,000), 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, 5759-1999, 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).

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.

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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.

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.

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. To be
deemed adopted, a resolution requires the affirmative vote of shareholders present and
holding in person or by proxy a majority of the shares present. Certain resolutions (for
example, a resolution to amend the Articles or the Memorandum of Association) require the
affirmative vote of shareholders present in person or by proxy and holding shares
conferring at least 75% of the votes to be deemed adopted.

58

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On
August 18, 1999, pursuant to the purchase of 600,000 ordinary shares of the Company 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
the Companys board of directors. This agreement will terminate in the event that
either Isal holds less than 4% of the Company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 the Company and
of warrants exercisable for 612,500 ordinary shares of the Company 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 the Companys board of directors. This agreement will terminate in the
event that either Mizrahi holds less than 7% of the Company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
the Company 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 the company, 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.

59

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# C. Material Contracts

LOD Lease Agreement

We
entered into a lease agreement with A. Barzilai Investments and Assets Ltd. and Kamim
Investments and Assets Ltd., commencing on November 1, 2000, that provides for monthly
rent payments of $63,750, with each rent payment to be paid three months in advance. The
lease agreement has an initial term of five years. We have two separate two and one-half
year options to extend the lease. The rent for the first option period will increase 6%
from the current rental payment. The rent for the second option period will increase 7%
from the current rental payment.

Salsa Asset Purchase
Agreement

On
May 17, 2000, we entered into an Asset Purchase Agreement by and among Salsa Digital, Ltd.
(Salsa Digital) and Signtech Japan, Ltd., Salsa Digital DO Brasil, Ltda.,
Salsa Digital (Guangzhou) Ltd., Salsa Dubai Corp., Salsa Technology Pte Ltd.
(collectively, the Selling Subsidiaries), and NUR and Salsa Digital Printers
Ltd. and NUR Hungary Trading and Software Licensing Limited Liability Company (together
the Purchasing Subsidiaries). The Asset Purchase Agreement was amended as of
June 30, 2000, to, among other things, add NUR Asia Pacific Ltd., NUR Europe S.A. and
Encre Consumables B.V as Purchasing Subsidiaries.

Pursuant
to the Asset Purchase Agreement, the Purchasing Subsidiaries acquired all of the rights,
title and interests in Salsa Digitals purchased assets, and acquired an option to
purchase the rights, title and interests in all or a portion of the purchased assets held
by each Selling Subsidiary, or at our or the Purchasing Subsidiaries option, 100% of
the outstanding capital stock of some or all of the Selling Subsidiaries in lieu thereof.
Purchased assets included, without limitation, all cash and cash equivalents, all
furniture, fixtures, improvements, equipment and all other tangible personal property, all
accounts receivable, all claims and rights relating to the purchased assets, all
intellectual property relating to the business of Salsa Digital, all rights and interests
under all contracts, leases or permits which the Purchasing Subsidiaries elected to
assume, and all other assets except for the excluded assets. Excluded assets included,
without limitation, all bank accounts held by Salsa Digital (with certain enumerated
exceptions) and certain deposits and prepaid expenses. NUR and the Purchasing Subsidiaries
are solely liable for the liabilities related to trade payables, operational liabilities
directly relating to the business of Salsa Digital and/or the purchased assets, and as
further set forth in the Asset Purchase Agreement. All other liabilities remain the
responsibility of Salsa Digital. The purchase price paid was $30,000,000, which consisted
of a cash payment of $20,000,000 and the delivery of 666,667 NUR ordinary shares to Salsa
Digital. The Purchasing Subsidiaries did not elect to exercise the option to purchase any
of the purchased assets or outstanding capital stock of the Selling Subsidiaries. NUR
filed a registration statement on Form F-3, which became effective on December 22, 2000,
to permit the resale of the shares sold as described above.

Long Term Loan Agreements
and Recent Amendments

In
July 2000, in order to finance the acquisition of Salsa Digital, the Company 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.

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In
February 2002, the Company signed an amendment to the long-term loan agreements with both
banking institutions, providing for the rescheduling of the repayment terms of the
remaining long-term loans. According to the rescheduling agreements, the remaining long
term loans of $15.0 million at Bank Leumi and $17.5 million at Bank Hapoalim carry
interest rates of Libor plus 1.75% per annum on $13.0 million and Libor plus 2.25% per
annum on $2.0 million at Bank Leumi, and of Libor plus 2.0% per annum on the $17.5 million
at Bank Hapoalim. As of March 31, 2003 $16.25 million was outstanding under the Bank
Hapoalim loan and $14.30 million was outstanding under the Bank Leumi loan.

The
long-term loans are secured by a floating lien on all assets of the Company. Under the
terms of the long-term loan rescheduling agreements, the long-term loans are further
secured by a negative pledge of the assets of NURs subsidiaries. Both the long-term
loan agreements and the rescheduling agreements 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 the Company or its subsidiaries. The long-term loan agreements and the
rescheduling agreements are governed by the laws of the State of Israel.

Under
the terms of the rescheduling agreements, the Company and its subsidiaries undertook,
among other things, the following:

| |  | To
close a private placement of no less than $7.0 million by March 30, 2002.
| | - | ----------------------------------------------------------------------------

| |  | 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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | To
issue an option to  purchase  up to  70,000  ordinary  shares  and an option to  purchase
 up to 50,000          ordinary  shares of the Company to Bank Hapoalim and Bank Leumi,
 respectively.  Both option warrants will          be exercisable until February 2006 at
$5.00 per ordinary share.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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During
2002, the Company failed to meet a number of the financial ratios as a result of a
decrease in the Companys revenues. However, the banks have agreed in writing not to
act upon their contractual rights pursuant to the defaults mentioned above. In March 2003,
the Company signed agreements with Bank Hapoalim and Bank Leumi to amend certain terms of
the rescheduling agreements. Under the amended terms of the rescheduling agreements, the
Company and its subsidiaries have undertaken, among other things, the following:

| |  | To
maintain an equity of no less than $20.0 million or 20% of the Company's  tangible
 assets during 2003,          no less than $22.0  million  or less than 24% of the
 Company's  tangible  assets in 2004 and no less than          $27.0 million or less than
27% of the Company's tangible assets in 2005.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | To
prevent  short-term  credit from exceeding 70% of the Company's net accounts  receivable
aged less than          180 days or exceeding $19.0 million.  The Company is entitled,
 however, to borrow an additional sum of up          to $3.0 million from non-banking
institutions.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | To
maintain at the end of each quarter a cash balance of at least $9.0 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
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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | To
issue an option to  purchase  up to 140,000  ordinary  shares and an option to  purchase
 up to 100,000          ordinary  shares of the Company to Bank Hapoalim and Bank Leumi,
 respectively.  Both option warrants will          be exercisable until March 2007 at
$0.34 per ordinary share.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | To
further  secure the  Company's  outstanding  credit by a guarantee  in favor of the banks
issued by the          Company's subsidiaries.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------

# D. Exchange Controls

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

# E. Taxation

# Israeli Taxation,
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 our
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.

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# 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).

# 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.

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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 or royalties, 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
seven 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.

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.

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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%- 20% (or less based on the percentage of foreign ownership of the company), for
additional periods of five, six and eight 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 1999 and will terminate in the year 2006. 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% to 20% 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 (15%  20%), 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
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).

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# Tax Benefits for
Research and Development

Israeli
tax law allows under certain conditions a tax deduction in the year incurred for
expenditures (including non-depreciable capital expenditures) in scientific research and
development projects, if the expenditures are approved by the relevant Israeli Government
Ministry (determined by the field of research) and the research and development is for the
promotion of the enterprise and is carried out by or on behalf of the company seeking such
deduction. Expenditures not so approved are deductible over a three-year period. However,
according to Israeli Supreme Court decisions, expenditures made out of the proceeds of
government grants are not deductible, i.e., NUR will be able to deduct the unfunded
portion of the research and development expenditures and not the gross amount.

# 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:

| |  | deduction
of purchases of know-how and patents over an eight-year period for tax purposes;
| | - | ------------------------------------------------------------------------------------------

| |  | right
to elect,  under specified  conditions,  to file a consolidated tax return with
additional related Israeli Industrial Companies; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------

| |  | 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.

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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. Due to the zero inflation that prevailed in
Israel in 2000, such adjustments to taxable income will not be required for the year 2000.

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.

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 or listed on a stock
exchange in a country appearing in a list approved by the Controller of Foreign Currency
and we qualified as an Industrial Company.

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.

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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.

# 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.

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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, corporations owning ten percent or more (by vote or value) of the
Companys ordinary shares, 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 indirect consequences to
holders of equity interests in investors in ordinary shares. ACCORDINGLY, PERSONS
CONSIDERING THE PURCHASE OF ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS
OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS.

For
purposes of this discussion, Company refers to NUR Macroprinters Ltd., and
U.S. Holder means a holder of ordinary shares that is a citizen or resident of
the United States, a partnership or corporation 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 U.S. Holder.

# 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 ordinary 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. 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.

70

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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.

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.

71

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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.

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.

72

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Information
Reporting. For taxable years beginning after February 5, 1999, under limited
circumstances, U.S. Holders are required to report certain acquisitions of ordinary shares
from NUR to the IRS on IRS Form 926, and that nonreporting may subject the U.S. Holder to
substantial 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.

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 31% 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.

73

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F.
          Dividends and paying agents

Not Applicable.

# G. Statement by experts

Not Applicable.

# H. Documents on display

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

You
may review a copy of our filings with the SEC, including exhibits and schedules, and
obtain copies of such materials at the SECs public reference room at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W, Washington, D.C. 20549. You may also obtain copies
of such materials from the Public Reference Section of the SEC, Room 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. Although we make many of our filings with the SEC electronically, as a foreign
private issuer we are not obligated to do so.

You
may read and copy any reports, statements or other information that we file with the SEC
at the addresses indicated above and you may also access them electronically at the web
site set forth above. 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.

# ITEM 11: Quantitative
and Qualitative Disclosures About Market Risk

Market
risks relating to the Companys operations result primarily from weak economic
conditions in the markets in which the Company 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."

74

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During
2002, the Company entered into non-hedging forward and options contracts. The transactions
resulted in a loss through December 31, 2002 of approximately $1.6 million, which is
included in the statements of operations as financial loss.

In
addition, on June 28, 2002 the Company entered into a call/put option agreement in the
amount of approximately $10.0 million, to be executed on June 28, 2003. During 2002, the
Company recognized gain in the statements of operations of approximately $0.22 million.

Interest Rate

The
Companys exposure to market risk due to changes in interest rates relates primarily
to the Companys long-term loans interest rate variation. As of December 31, 2001, we
had a balance of $20.0 million and $15.0 million of long term loans carrying annual interest rates of
Libor + 0.7% and Libor + 0.85%, respectively. Changes in the Libor interest rate might
affect our financial expenses. In February 2002, the Company signed an amendment to the
long-term loan agreements providing for the rescheduling of the repayment periods of the
remaining long-term loans. According to the long-term loans rescheduling agreements, the
remaining long term loans of $17.5 million at Bank Hapoalim and $15.0 million at Bank
Leumi carry interest rates of Libor plus 1.75% per annum on $13.0 million and Libor plus
2.25% per annum on $2.0 million at Bank Leumi, and of Libor plus 2.0% per annum on the
remaining $17.5 million at Bank Hapoalim.
As of March 31, 2003 $ 16.25 million was outstanding under the Bank Hapoalim loan
and $14.30 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.

75

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# PART II

# ITEM 13: Defaults,
Dividend Arrearages and Delinquencies

In
February 2002, the Company 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, the Company undertook, among
other things, to maintain certain financial ratios. As a result of the decrease in its
revenues during 2002, the Company did not meet some of the financial ratios. However, the
banks have agreed in writing not to act upon their contractual rights pursuant to the
Companys defaults mentioned above. Most of the above mentioned financial ratios have
been amended by an agreement signed between the Company and each of the banks in March
2003. We believe that the amendment of the financial ratios will allow a better alignment
between the financial ratios and the Companys current business plan. For more
information see ITEM 10.C: Material Contracts.

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

Not Applicable.

# ITEM 15: Controls and
Procedures

a.        The
Companys Chief Executive Officer and Chief Financial Officer have
          conducted an evaluation of the Companys disclosure controls and
procedures           (as defined in Rules 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of           1934) within 90 days of the date of 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 the Company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.

b.       
          There were no significant changes in the Companys internal controls or in
          other factors that could significantly affect these controls subsequent to the
          date of their evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.

76

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# ITEM 16: Reserved

# 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.

77

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# ITEM 19: Exhibits

|       |                                                                                                                                                                       
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number | Description                                                                                                                                                           
|3.1    | Memorandum of Association of the Registrant, in Hebrew with a translation to English(1)                                                                               
|3.2    | Amended and Restated Articles of Association of the Registrant(10)                                                                                                    
|3.3    | Certificate of Name Change(2)                                                                                                                                         
|4.1    | Specimen Certificate for ordinary shares(1)                                                                                                                           
|4.2    | Forms of Placement Agent's Warrant Agreement and Certificate(3)                                                                                                       
|4.3    | Forms of Qualified Independent Underwriter's Warrant Agreement and Certificate(3)                                                                                     
|4.4    | Form of Warrant Agreement between the Registrant and Barak Zamir, Advocates(4)                                                                                        
|4.5    | Form of Share and Warrant Purchase Agreement dated January 17, 2002 between the
Registrant and The Investment Corp. of United Mizrahi Bank Ltd.(12)                   
|4.6    | Form of Warrant Agreement dated January 17, 2002 between the Registrant and The
 Investment Corp. of United Mizrahi Bank Ltd.(12)                                     
|4.7    | Form of Registration Rights Agreement dated January 17, 2002 between the Registrant and The
Investment Corp. of United Mizrahi Bank Ltd.(12)                          
|4.8    | Form of Warrant Agreement dated February 12, 2002 between the Registrant and Bank
 Hapoalim B.M.(12)                                                                  
|4.9    | Form of Registration Rights Agreement dated February 12, 2002 between Registrant and
 Bank Hapoalim B.M.(12)                                                          
|4.10   | Form of Warrant Agreement dated February 12, 2002 between the Registrant and Bank Leumi
 le-Israel Ltd.(12)                                                           
|4.11   | Form of Registration Rights Agreement dated February 12, 2002 between Registrant and
 Bank Leumi le-Israel(12)                                                        
|4.12   | Form of Warrant Agreement dated November 21, 2002 between the Registrant and Poalim
 Capital Markets & Investments Ltd.                                               
|4.13   | Form of Registration Rights Agreement dated November 7, 2002 between the Registrant and
 Poalim Capital Markets & Investments Ltd.                                    
|4.14   | Form of Warrant Agreement dated March 11, 2003 between the Registrant and Bank
 Hapoalim B.M.                                                                         
|4.15   | Form of Registration Rights Agreement dated March 11, 2003 between Registrant and Bank
 Hapoalim B.M.                                                                 
|4.16   | Form of Warrant Agreement dated March 11, 2003 between the Registrant and Bank Leumi
 le-Israel Ltd.                                                                  
|4.17   | Form of Registration Rights Agreement dated March 11, 2003 between Registrant and Bank
 Leumi le-Israel                                                               
|10.1   | 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)
|10.2   | Amendment to the 1995 Israel Stock Option Plan(3)                                                                                                                     

78

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|Number | Description                                                                                                                                                                                                                                                                                                                                                                       
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.3   | 1997 Stock Option Plan(5)                                                                                                                                                                                                                                                                                                                                                         
|10.4   | 1998 Non-Employee Director Share Option Plan(6)                                                                                                                                                                                                                                                                                                                                   
|10.5   | 2000 Stock Option Plan(11)                                                                                                                                                                                                                                                                                                                                                        
|10.6   | Lease Agreement for office space in Brussels, Belgium between Nivellease, S.A. and the Registrant dated November 26, 1996(3)                                                                                                                                                                                                                                                      
|10.7   | Lease Agreement for office space in Newton Centre, Massachusetts between WHTR Real
 Estate Limited Partnership and the Registrant dated July 10, 1998(3)                                                                                                                                                                                                                          
|10.8   | Distribution Agreement between Imaje S.A. and the Registrant dated June 26, 1995(1)                                                                                                                                                                                                                                                                                               
|10.9   | Settlement Agreements relating to Moshe Nurie and his affiliated companies(3)                                                                                                                                                                                                                                                                                                     
|10.10  | Bank Hapoalim Loan Agreements(12)                                                                                                                                                                                                                                                                                                                                                 
|10.11  | Bank Hapoalim Rescheduling Loan Agreement dated February 10, 2002(12)                                                                                                                                                                                                                                                                                                             
|10.12  | Bank Leumi le-Israel Loan Agreements(12)                                                                                                                                                                                                                                                                                                                                          
|10.13  | Bank Leumi le-Israel Rescheduling Loan Agreement dated February 11, 2003(12)                                                                                                                                                                                                                                                                                                      
|10.14  | Bank Hapoalim Amendment to the Rescheduling Loan Agreement dated March 11, 2003                                                                                                                                                                                                                                                                                                   
|10.15  | Bank Leumi le-Israel Amendment to the Rescheduling Loan Agreement dated March 12, 2003                                                                                                                                                                                                                                                                                            
|10.16  | Form of confidentiality agreement(3)                                                                                                                                                                                                                                                                                                                                              
|10.17  | The Founders Agreement dated September 30, 1999 among Gera Eiron, Ogen Dialogix Ltd.
 and the Registrant(10)                                                                                                                                                                                                                                                                      
|10.18  | Assembly Agreement dated October 4, 1999 between NUR Pro Engineering and the Registrant(10)                                                                                                                                                                                                                                                                                       
|10.19  | Lod Lease Agreement dated January 11, 2000 between A. Barzilai Investments and Assets
 Ltd. and Kamim Investments and Assets Ltd. and the Registrant(10)                                                                                                                                                                                                                          
|10.20  | 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(8)
|10.21  | Amendment No. 1 to Asset Purchase Agreement dated as of June 30, 2000(9)                                                                                                                                                                                                                                                                                                          
|10.22  | Lease Agreement dated July 1, 2001 by and between RAM Global Ltd. and Salsa Digital Printers(12)                                                                                                                                                                                                                                                                                  
|21.1   | List of Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                            
|23.1   | Consent of Kost Forer & Gabbay (S-8)                                                                                                                                                                                                                                                                                                                                              
|23.2   | Consent of Kost Forer & Gabbay (F-3)                                                                                                                                                                                                                                                                                                                                              
|99.1   | Certification of Principal Executive Officer                                                                                                                                                                                                                                                                                                                                      
|99.2   | Certification of Principal Financial Officer                                                                                                                                                                                                                                                                                                                                      

79

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

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

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

|(4) | Previously
filed with NUR's Form 20-F for the year ended December 31, 1999 and incorporated by
reference        herein.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(5) | Previously
filed with NUR's Form 20-F for the year ended December 31, 1997 and incorporated by
reference        herein.
|--- | -----------------------------------------------------------------------------------------------------------------------

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

|(7) | [Intentionally
left blank].
|--- | ---------------------------

|(8) | Previously
filed with NUR's Form 6-K/A dated May 22, 2000 and incorporated by reference herein.
|--- | -----------------------------------------------------------------------------------------------

|(9) | Previously
filed with NUR's Form 6-K/A dated July 7, 2000 and incorporated by reference herein.
|--- | -----------------------------------------------------------------------------------------------

|(10) | Previously
filed with NUR's Form 20-F for the year ended December 31, 2000 and incorporated by
reference        herein.
|---- | -----------------------------------------------------------------------------------------------------------------------

|(11) | Previously
filed with NUR's Schedule TO-I (File No. 5-56015) on May 16, 2002 and incorporated by
reference        herein.
|---- | -------------------------------------------------------------------------------------------------------------------------

|(12) | Previously
filed with NUR's Form 20-F for the year ended December 31, 2001 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.

80

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# 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 AmirPresident and Chief Executive Officer
| |  | ------------------------------------------------------------------------------------------------------

Dated: May 15, 2003

CERTIFICATIONS

# CERTIFICATION OF
PRINCIPAL EXECUTIVE OFFICER

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., the
          registrant;

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

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

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

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

81

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

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

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

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

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

6.       
          The registrants other certifying officers and I have indicated in this
          annual report whether there were significant changes in internal controls or in
          other factors that could significantly affect internal controls subsequent to
          the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

| |  | /S/ David Amir
David AmirChief Executive Officer(Principal Executive Officer)
| |  | -------------------------------------------------------------------------------------------



82

---

---

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Hilel E. Kremer, 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., the
          registrant;

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

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

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

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

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

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

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

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

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

83

---

---

6.       
          The registrants other certifying officers and I have indicated in this
          annual report whether there were significant changes in internal controls or in
          other factors that could significantly affect internal controls subsequent to
          the date of our most recent evaluation, including any corrective actions with
          regard to significant deficiencies and material weaknesses.

Date: May 15, 2003

| |  | /S/ Hilel E. Kremer
Hilel E. KremerChief Financial Officer(Principal Financial Officer)
| |  | -----------------------------------------------------------------------------------------------------

84

---

---

# EXHIBIT INDEX

# B. Exhibits

|       |                                                                                                                                                    
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Number | Description                                                                                                                                        
|3.1    | Memorandum of Association of the Registrant, in Hebrew with a translation to English(1)                                                            
|3.2    | Amended and Restated Articles of Association of the Registrant(10)                                                                                 
|3.3    | Certificate of Name Change(2)                                                                                                                      
|4.1    | Specimen Certificate for ordinary shares(1)                                                                                                        
|4.2    | Forms of Placement Agent's Warrant Agreement and Certificate(3)                                                                                    
|4.3    | Forms of Qualified Independent Underwriter's Warrant Agreement and Certificate(3)                                                                  
|4.4    | Form of Warrant Agreement between the Registrant and Barak Zamir, Advocates(4)                                                                     
|4.5    | Form of Share and Warrant Purchase Agreement dated January 17, 2002 between the
Registrant and The Investment Corp. of United Mizrahi Bank Ltd.(12)
|4.6    | Form of Warrant Agreement dated January 17, 2002 between the Registrant and The
 Investment Corp. of United Mizrahi Bank Ltd.(12)                  
|4.7    | Form of Registration Rights Agreement dated January 17, 2002 between the Registrant and The
Investment Corp. of United Mizrahi Bank Ltd.(12)       
|4.8    | Form of Warrant Agreement dated February 12, 2002 between the Registrant and Bank
 Hapoalim B.M.(12)                                               
|4.9    | Form of Registration Rights Agreement dated February 12, 2002 between Registrant and
 Bank Hapoalim B.M.(12)                                       
|4.10   | Form of Warrant Agreement dated February 12, 2002 between the Registrant and Bank Leumi
 le-Israel Ltd.(12)                                        
|4.11   | Form of Registration Rights Agreement dated February 12, 2002 between Registrant and
 Bank Leumi le-Israel(12)                                     
|4.12   | Form of Warrant Agreement dated November 21, 2002 between
 the Registrant and Poalim
 Capital Markets & Investments Ltd.                           
|4.13   | Form of Registration Rights Agreement dated November 7, 2002 between the Registrant and
 Poalim Capital Markets & Investments Ltd.                 
|4.14   | Form of Warrant Agreement dated March 11, 2003 between the Registrant and Bank
 Hapoalim B.M.                                                      
|4.15   | Form of Registration Rights Agreement dated March 11, 2003 between Registrant and Bank
 Hapoalim B.M.                                              
|4.16   | Form of Warrant Agreement dated March 11, 2003 between the Registrant and Bank Leumi
 le-Israel Ltd.                                               
|4.17   | Form of Registration Rights Agreement dated March 11, 2003 between Registrant and Bank
 Leumi le-Israel                                            

85

---

---

|Number | Description                                                                                                                                                                                                                                                                                                                                                                       
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1   | 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)                                                                                                                                                                                                            
|10.2   | Amendment to the 1995 Israel Stock Option Plan(3)                                                                                                                                                                                                                                                                                                                                 
|10.3   | 1997 Stock Option Plan(5)                                                                                                                                                                                                                                                                                                                                                         
|10.4   | 1998 Non-Employee Director Share Option Plan(6)                                                                                                                                                                                                                                                                                                                                   
|10.5   | 2000 Stock Option Plan(11)                                                                                                                                                                                                                                                                                                                                                        
|10.6   | Lease Agreement for office space in Brussels, Belgium between Nivellease, S.A. and the Registrant dated November 26, 1996(3)                                                                                                                                                                                                                                                      
|10.7   | Lease Agreement for office space in Newton Centre, Massachusetts between WHTR Real
 Estate Limited Partnership and the Registrant dated July 10, 1998(3)                                                                                                                                                                                                                          
|10.8   | Distribution Agreement between Imaje S.A. and the Registrant dated June 26, 1995(1)                                                                                                                                                                                                                                                                                               
|10.9   | Settlement Agreements relating to Moshe Nurie and his affiliated companies(3)                                                                                                                                                                                                                                                                                                     
|10.10  | Bank Hapoalim Loan Agreements(12)                                                                                                                                                                                                                                                                                                                                                 
|10.11  | Bank Hapoalim Rescheduling Loan Agreement dated February 10, 2002(12)                                                                                                                                                                                                                                                                                                             
|10.12  | Bank Leumi le-Israel Loan Agreements(12)                                                                                                                                                                                                                                                                                                                                          
|10.13  | Bank Leumi le-Israel Rescheduling Loan Agreement dated February 11, 2003(12)                                                                                                                                                                                                                                                                                                      
|10.14  | Bank Hapoalim Amendment to the Rescheduling Loan Agreement dated March 11, 2003                                                                                                                                                                                                                                                                                                   
|10.15  | Bank Leumi le-Israel Amendment to the Rescheduling Loan Agreement dated March 12, 2003                                                                                                                                                                                                                                                                                            
|10.16  | Form of confidentiality agreement(3)                                                                                                                                                                                                                                                                                                                                              
|10.17  | The Founders Agreement dated September 30, 1999 among Gera Eiron, Ogen Dialogix Ltd.
 and the Registrant(10)                                                                                                                                                                                                                                                                      
|10.18  | Assembly Agreement dated October 4, 1999 between NUR Pro Engineering and the Registrant(10)                                                                                                                                                                                                                                                                                       
|10.19  | Lod Lease Agreement dated January 11, 2000 between A. Barzilai Investments and Assets
 Ltd. and Kamim Investments and Assets Ltd. and the Registrant(10)                                                                                                                                                                                                                          
|10.20  | 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(8)
|10.21  | Amendment No. 1 to Asset Purchase Agreement dated as of June 30, 2000(9)                                                                                                                                                                                                                                                                                                          
|10.22  | Lease Agreement dated July 1, 2001 by and between RAM Global Ltd. and Salsa Digital Printers(12)                                                                                                                                                                                                                                                                                  
|21.1   | List of Subsidiaries of the Registrant                                                                                                                                                                                                                                                                                                                                            
|23.1   | Consent of Kost Forer & Gabbay (S-8)                                                                                                                                                                                                                                                                                                                                              
|23.2   | Consent of Kost Forer & Gabbay (F-3)                                                                                                                                                                                                                                                                                                                                              
|99.1   | Certification of Principal Executive Officer                                                                                                                                                                                                                                                                                                                                      
|99.2   | Certification of Principal Financial Officer                                                                                                                                                                                                                                                                                                                                      

86

---

---

---

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

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

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

|(4) | Previously
filed with NUR's Form 20-F for the year ended December 31, 1999 and incorporated by
reference        herein.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(5) | Previously
filed with NUR's Form 20-F for the year ended December 31, 1997 and incorporated by
reference        herein.
|--- | -----------------------------------------------------------------------------------------------------------------------

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

|(7) | [Intentionally
left blank].
|--- | ---------------------------

|(8) | Previously
filed with NUR's Form 6-K/A dated May 22, 2000 and incorporated by reference herein.
|--- | -----------------------------------------------------------------------------------------------

|(9) | Previously
filed with NUR's Form 6-K/A dated July 7, 2000 and incorporated by reference herein.
|--- | -----------------------------------------------------------------------------------------------

|(10) | Previously
filed with NUR's Form 20-F for the year ended December 31, 2000 and incorporated by
reference        herein.
|---- | -----------------------------------------------------------------------------------------------------------------------

|(11) | Previously
filed with NUR's Schedule TO-I (File No. 5-56015) on May 16, 2002 and incorporated by
reference        herein.
|---- | -------------------------------------------------------------------------------------------------------------------------

|(12) | Previously
filed with NUR's Form 20-F for the year ended December 31, 2001 and incorporated by
reference        herein.
|---- | -----------------------------------------------------------------------------------------------------------------------

87

---

---

# DRAFT: 5.5.03

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# CONSOLIDATED FINANCIAL STATEMENTS

# AS OF DECEMBER 31, 2002

# 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 | F-6        
|Consolidated Statements of Cash Flows         | F-7 - F-9  
|Notes to Consolidated Financial Statements    | F-10 - F-44



---

---

ERNST
&YOUNG

# REPORT OF INDEPENDENT
AUDITORS

# To the Shareholders of

# NUR MACROPRINTERS LTD.

We have audited the accompanying consolidated balance sheets of NUR Macroprinters Ltd. ("the Company") and its
subsidiaries as of December 31, 2001 and 2002 and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These
financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, 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, 2001
and 2002 and the consolidated results of their operations and cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Also, in
our opinion, the related financial statement schedules, when considered in relation to the basic financial
statements taken as whole, present fairly in all material respects the information set forth therein.

|Tel-Aviv, Israel
March 11, 2003 | KOST FORER & GABBAY
A Member of Ernst & Young Global
|------------------------------- | ----------------------------------------------------

F-2

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# CONSOLIDATED BALANCE
SHEETS

---

# U.S. dollars in thousands

|                                                                         | December 31,
|------------------------------------------------------------------------ | ------------
|
|ASSETS                                                                   |             
|                                                                         |             
|CURRENT ASSETS:                                                          |             
|Cash and cash equivalents                                                |             
|Short-term restricted cash                                               |             
|Trade receivables (net of allowance for doubtful accounts of $ 3,922 and |             
|$ 5,768 as of December 31, 2001 and 2002, respectively)                  |             
|Other accounts receivable and prepaid expenses (Note 3)                  |             
|Inventories (Note 4)                                                     |             
|                                                                         |             
|Totalcurrent assets                                                      |             
|                                                                         |             
|LONG-TERM INVESTMENTS:                                                   |             
|Long-term trade receivables (Note 5)                                     |             
|Investments in affiliate (Note 6)                                        |             
|Restricted long-term bank deposits (Note 7)                              |             
|Severance pay fund                                                       |             
|Long-term prepaid expenses                                               |             
|                                                                         |             
|Totallong-term investments                                               |             
|                                                                         |             
|PROPERTY, PLANT AND EQUIPMENT, NET (Note 8)                              |             
|                                                                         |             
|GOODWILL AND OTHER INTANGIBLE ASSETS, NET (Note 9)                       |             
|Goodwill, net                                                            |             
|Technology and other intangible assets, net                              |             
|                                                                         |             
|                                                                         |             
|                                                                         |             
|                                                                         |             
|                                                                         |             
|DEFERRED INCOME TAXES (Note 16g)                                         |             
|                                                                         |             
|Totalassets                                                              |             
|                                                                         |             

*)    
          Reclassified.

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)

|                                                                | December 31,
|--------------------------------------------------------------- | ------------
|
|LIABILITIES AND SHAREHOLDERS' EQUITY                            |             
|                                                                |             
|CURRENT LIABILITIES:                                            |             
|Short-term bank credit and short-term loans (Note 10)           |             
|Current maturities of long-term loans (Note 12)                 |             
|Trade payables                                                  |             
|Trade payables to related parties (Note 14a)                    |             
|Other accounts payable and accrued expenses (Note 11)           |             
|Customer advances                                               |             
|                                                                |             
|Totalcurrent liabilities                                        |             
|                                                                |             
|LONG-TERM LIABILITIES:                                          |             
|Long-term loans, net of current maturities (Note 12)            |             
|Accrued severance pay                                           |             
|                                                                |             
|Totallong-term liabilities                                      |             
|                                                                |             
|COMMITMENTS AND CONTINGENT LIABILITIES (Note 13)                |             
|                                                                |             
|SHAREHOLDERS' EQUITY (Note 15):                                 |             
|Share capital                                                   |             
|Ordinary shares of NIS 1 par value:                             |             
|Authorized: 50,000,000 shares as of December 31, 2001 and 2002; |             
|Issued and outstanding: 14,751,753 and 17,155,859 shares as of  |             
|December 31, 2001 and 2002, respectively                        |             
|Additional paid-in capital                                      |             
|Accumulated other comprehensive loss                            |             
|Accumulated deficit                                             |             
|                                                                |             
|Totalshareholders' equity                                       |             
|                                                                |             
|Totalliabilities and shareholders' equity                       |             
|                                                                |             

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

F-4

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# CONSOLIDATED STATEMENTS
OF OPERATIONS

---

# U.S. dollars in
thousands (except per share data)

|                                                                          | Year ended December 31,
|------------------------------------------------------------------------- | -----------------------
|
|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                                                       |                        
|                                                                          |                        
|Totalcost of revenues                                                     |                        
|                                                                          |                        
|Gross profit                                                              |                        
|                                                                          |                        
|                                                                          |                        
|Operating expenses:                                                       |                        
|Research and development, net (Note 18a)                                  |                        
|Selling and marketing                                                     |                        
|General and administrative:                                               |                        
|Ongoing expenses                                                          |                        
|Doubtful debts expenses resulting from relocation of operations (Note 1f) |                        
|Amortization and impairment of goodwill (Note 2j, k, l)                   |                        
|Amortization and impairment of technology and other                       |                        
|intangible assets (Note 2j, k, l)                                         |                        
|Restructuring charges (Note 1e)                                           |                        
|                                                                          |                        
|Totaloperating expenses                                                   |                        
|                                                                          |                        
|Operating income (loss)                                                   |                        
|Financial expenses, net (Note 18b)                                        |                        
|Other income (expenses), net                                              |                        
|                                                                          |                        
|Income (loss) before taxes on income (tax benefit)                        |                        
|Taxes on income (tax benefit) (Note 16)                                   |                        
|                                                                          |                        
|                                                                          |                        
|Income (loss) before equity in earnings (losses) of affiliates            |                        
|Equity in earnings (losses) of affiliate, net                             |                        
|                                                                          |                        
|                                                                          |                        
|Net income (loss)                                                         |                        
|                                                                          |                        
|Basic net earnings (loss) per share (Note 18c)                            |                        
|                                                                          |                        
|Diluted net earnings (loss) per share (Note 18c)                          |                        
|                                                                          |                        

|(a) | Cost
of sales includes purchases from related parties for the years ended
                    December 31, 2000, 2001 and 2002 in the amounts of $ 16,378 and
                    $ 13,819 and $ 9,026, 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

---

# U.S. dollars in
thousands (except share data)

|                                                                              | Number of
Ordinary
shares
outstanding | Share
capital | Additional
paid-in
capital | Accumulated
other
comprehensive
loss | Retained
earnings
(accumulated
deficit) | Total
comprehensive
income
(loss) | Total
shareholders'
equity
|----------------------------------------------------------------------------- | ------------------------------------- | ------------- | -------------------------- | ------------------------------------ | --------------------------------------- | --------------------------------- | --------------------------
|
|Balance as of January 1, 2000                                                 | 11,774,573                            | $2,940        | $17,702                    | $  (114)                             | $(2,665)                                |                                   | $ 17,863                  
|Comprehensive income:                                                        
|Net income                                                                    | -                                     | -             | -                          | -                                    | 8,493                                   | $ 8,493                           | 8,493                     
|Other comprehensive loss:                                                    
|Foreign currency translation adjustments                                      | -                                     | -             | -                          | (464)                                | -                                       | (464)                             | (464)                     
|                                                                              |                                       |               |                            |                                      |                                         |                                   |                           
|Total comprehensive income                                                    | -                                     | -             | -                          | -                                    | -                                       | $ 8,029                           | -                         
|                                                                              |                                       |               |                            |                                      |                                         |                                   |                           
|Issuance of shares related to the  acquisition of Salsa Group, net (Note  1b) | 666,667                               | 164           | 9,274                      | -                                    | -                                       |                                   | 9,438                     
|Issuance of shares related to a private                                      
|placement, net                                                                | 748,223                               | 186           | 9,255                      | -                                    | -                                       |                                   | 9,441                     
|Exercise of warrants, net                                                     | 597,487                               | 147           | 1,694                      | -                                    | -                                       |                                   | 1,841                     
|Exercise of options                                                           | 738,968                               | 181           | 1,080                      | -                                    | -                                       |                                   | 1,261                     
|Amortization of stock compensation                                            | -                                     | -             | 52                         | -                                    | -                                       |                                   | 52                        
|                                                                              |                                       |               |                            |                                      |                                         |                                   |                           
|Balance as of December 31, 2000                                               | 14,525,918                            | 3,618         | 39,057                     | (578)                                | 5,828                                   |                                   | 47,925                    
|Comprehensive loss:                                                          
|Net loss                                                                      | -                                     | -             | -                          | -                                    | (7,216)                                 | $(7,216)                          | (7,216)                   
|Other comprehensive loss:                                                    
|Foreign currency translation adjustments                                      | -                                     | -             | -                          | (204)                                | -                                       | (204)                             | (204)                     
|                                                                              |                                       |               |                            |                                      |                                         |                                   |                           
|Total comprehensive loss                                                      | -                                     | -             | -                          | -                                    | -                                       | $(7,420)                          | -                         
|                                                                              |                                       |               |                            |                                      |                                         |                                   |                           
|Exercise of options, net                                                      | 225,835                               | 56            | 436                        | -                                    | -                                       |                                   | 492                       
|                                                                              |                                       |               |                            |                                      |                                         |                                   |                           
|Balance as of December 31, 2001                                               | 14,751,753                            | 3,674         | 39,493                     | (782)                                | (1,388)                                 |                                   | $ 40,997                  
|Comprehensive loss:                                                          
|Net loss                                                                      | -                                     | -             | -                          | -                                    | (24,065)                                | (24,065)                          | (24,065)                  
|Other comprehensive loss:                                                    
|Foreign currency translation adjustments                                      | -                                     | -             | -                          | (504)                                | -                                       | (504)                             | (504)                     
|                                                                              |                                       |               |                            |                                      |                                         |                                   |                           
|Total comprehensive loss                                                      |                                       |               |                            |                                      |                                         | (24,569)                          |                           
|                                                                              |                                       |               |                            |                                      |                                         |                                   |                           
|Issuance of shares, net                                                       | 2,404,106                             | 528           | 6,204                      | -                                    | -                                       |                                   | 6,732                     
|                                                                              |                                       |               |                            |                                      |                                         |                                   |                           
|Balance as of December 31, 2002                                               | 17,155,859                            | $4,202        | $45,697                    | $(1,286)                             | $(25,453)                               |                                   | 23,160                    
|                                                                              |                                       |               |                            |                                      |                                         |                                   |                           

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

|                                                     | Year ended December 31,
|---------------------------------------------------- | -----------------------
|
|Cash flows from operating activities:                |                        
|                                                     |                        
|Net income (loss)                                    | $   8,493              
|Adjustments to reconcile net income (loss) to net   
|cash used in operating activities:                  
|Depreciation, amortization and impairment of        
|goodwill, technology and other intangible assets     | 3,156                  
|Write-off of property and equipment                  | -                      
|Loss (gain) on sale of property and equipment        | (25)                   
|Deferred income taxes, net                           | 26                     
|Amortization of deferred stock compensation          | 52                     
|Accrued severance pay, net                           | 138                    
|Equity in losses (earnings) of affiliates, net       | 719                    
|In process research and development write-off        | 4,300                  
|Decrease (increase) in trade receivables             | (25,683)               
|Decrease (increase) in other accounts receivable and
|prepaid expenses                                     | (2,519)                
|Decrease (increase) in inventories                   | (9,409)                
|Decrease (increase) in long-term trade receivables   | (2,387)                
|Decrease (increase) in long-term related parties'   
|accounts                                             | (618)                  
|Decrease (increase) in long-term prepaid expenses    | (155)                  
|Increase (decrease) in trade payables                | 7,216                  
|Increase (decrease) in trade payables from related  
|parties                                              | 2,565                  
|Increase (decrease) in other accounts payable and   
|accrued expenses                                     | 4,722                  
|Decrease in customer advances                        | (829)                  
|                                                     |                        
|Net cash used in operating activities                | (10,238)               
|                                                     |                        

*)    
          Reclassified.

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

F-7

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# CONSOLIDATED STATEMENTS
OF CASH FLOWS

---

# U.S. dollars in thousands

|                                                              | Year ended December 31,
|------------------------------------------------------------- | -----------------------
|
|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               | 105                    
|Purchase of property and equipment                            | (3,227)                
|Proceeds from sale of property and equipment                  | 14                     
|Payment for the acquisition of Salsa Group (1)                | (18,674)               
|Proceeds from acquisition of consolidated subsidiary, net (2) | -                      
|                                                              |                        
|                                                              |                        
|Net cash used in investing activities                         | (21,782)               
|                                                              |                        
|                                                              |                        
|Cash flows from financing activities:                        
|                                                              |                        
|Proceeds from issuance of shares and warrants, net            | 8,879                  
|Proceeds from exercise of options and warrants, net           | 3,102                  
|Short-term bank credit and short-term loans, net              | (2,076)                
|Proceeds from long-term loans                                 | 35,646                 
|Principal payment of long-term loans                          | (3,417)                
|                                                              |                        
|Net cash provided by financing activities                     | 42,134                 
|                                                              |                        
|Effect of exchange rate changes on cash and cash equivalents  | (85)                   
|                                                              |                        
|Increase (decrease) in cash and cash equivalents              | 10,029                 
|Cash and cash equivalents at the beginning of the year        | 9,190                  
|                                                              |                        
|Cash and cash equivalents at the end of the year              | $ 19,219               
|                                                              |                        

*)    
          Reclassified.

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

F-8

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# CONSOLIDATED STATEMENTS
OF CASH FLOWS

---

# U.S. dollars in thousands

|                                                                  | Year ended December 31,
|----------------------------------------------------------------- | -----------------------
|
|(1)Payment for the acquisition of Salsa Group:                    |                        
|Fair value of assets  acquired and  liabilities  assumed at the   |                        
|date of acquisition was as follows                               
|Working capital (excluding cash and cash equivalents)             | $   4,666              
|Property and equipment                                            | 2,216                  
|Long-term prepaid expenses                                        | 53                     
|Technology                                                        | 9,672                  
|Assembled work-force                                              | 1,478                  
|Customer list                                                     | 3,094                  
|Goodwill                                                          | 3,195                  
|In-process research and development                               | 4,300                  
|                                                                  |                        
|                                                                  | 28,674                 
|Less - amount acquired by issuance of shares                      | (10,000)               
|                                                                  |                        
|                                                                  | $ 18,674               
|                                                                  |                        
|(2)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)        | $          -           
|Long-term trade receivables                                       | -                      
|Property and equipment                                            | -                      
|Technology                                                        | -                      
|Long-term loans                                                   | -                      
|Excess of losses over investment in an affiliate                  | -                      
|                                                                  |                        
|                                                                  | $    (110)             
|                                                                  |                        
|(3) Supplemental disclosure of cash flows activities:             |                        
|Cash paid during the year for:                                   
|Interest                                                          | $      585             
|                                                                  |                        
|Income taxes                                                      | $      423             
|                                                                  |                        
|Non-cash investing activities:                                   
|Purchase of property and equipment                                | $      483             
|                                                                  |                        

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

F-9

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands (except per share data)

# NOTE 1:- GENERAL

| | a. | NUR
Macroprinters Ltd. And subsidiaries (collectively, the Company)
          develops, manufactures, sells and provides 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 Company 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 Europe) in Belgium, NUR America Inc. (NUR
America) in the U.S., NUR Asia Pacific Ltd. (NUR Asia Pacific) in Hong
Kong and NUR Macroprinters (Shanghai) Co. Ltd. (NUR Shanghai) in the Peoples
Republic of China.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | NUR
Media Solutions S.A. (NUR Media Solutions), a wholly-owned subsidiary, is
engaged in developing and marketing consumables for the Companys printers.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | NUR
Pro Engineering Ltd., a 50% joint venture, is engaged in the assembly of the Companys
printers (see Note 6). Under the establishment agreements, the Company has the option to
purchase the other 50% of NUR Pro Engineering or to sell its 50%, if certain conditions
as described in the agreements, are met.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 1999, the Company established Stillachem S.A. (Stillachem), a joint
venture with a third party of which the Company owns 50.1%. Stillachem is engaged in
development and manufacture of special inks for digital printing systems. During the
second quarter of 2001 the Company acquired the remaining 49.9% of the shares of
Stillachem. The transaction was accounted for by the purchase method of accounting. Pro
forma information in accordance with APB-16 has not been provided since the revenues for
2000 and 2001, were not material in relation to total consolidated revenues. The
operations of Stillachem are included in the consolidated statements from the second
quarter of 2001.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
operations of Stillachem were transferred to NUR Media Solution and Salsa, whose
operations are currently inactive.
| | -----------------------------------------------------------------------------------------------------------------------

| | In
connection with the acquisition, the Company recorded an amount of $ 700 as technology to
be amortized over a period of 5 years.
| | -----------------------------------------------------------------------------------------------------------------------------------

| | In
July 2000, the Company established a wholly-owned subsidiary named Salsa Digital Printers
Ltd. (Salsa Digital Printers) in San Antonio, Texas, as part of the Salsa
Group acquisition (See Note 1b). In addition, the Company established a wholly-owned
subsidiary in Hungary named NUR Hungary Trading and Software Licensing LLC. (HOC).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-10

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands (except per share data)

# NOTE 1:- GENERAL (Cont.)

| | As
part of the Salsa Group acquisition (see Note 1b), the Company acquired the shares of NUR
Japan, Ltd. (Signtech Japan), a wholly-owned subsidiary in Japan. In November
2000, the Company established a wholly-owned subsidiary in Brazil named NUR Do Brazil (NUR
Brazil). Both companies are engaged in the marketing of the Companys products
as well as in providing support services in their countries of domicile.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Acquisition
of Salsa Group:
| | -- | ---------------------------

| | On
May 17, 2000, the Company entered into an acquisition agreement with a U.S. partnership,
Salsa Ltd., and its wholly-owned subsidiaries (Salsa Group). According to the
agreement, the Company and its subsidiaries acquired as of July 3, 2000, all the assets
and assumed certain liabilities of the Salsa Group and all of the outstanding shares of
Signtech Japan in consideration of $ 20,000 in cash and $ 10,000 through the
issuance of 666,667 Ordinary shares of the Company. In addition, the Company incurred
other costs directly related to the acquisition amounting to approximately $ 400. The
total acquisition cost amounted to $ 30,400.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Salsa
Group was engaged in the development, manufacturing and selling of digital printing
systems for on-demand, short-run, wide format and super wide format printing, and also in
selling of related consumable products.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
operations generated by the acquired net assets of Salsa Group are included in the
consolidated statements commencing the third quarter of 2000.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------

| | The
acquisition was accounted for by the purchase method of accounting. Accordingly, the
purchase price has been allocated according to the fair value of the assets acquired and
liabilities assumed and resulted in the recording of goodwill of approximately $ 3,195,
which was amortized until December 31, 2001 on a straight-line basis (see also Note 2l
and 9). As to impairment of goodwill and intangible assets in 2002, see notes 2j, k and l.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
connection with the above-mentioned acquisition, the Company recorded in the third
quarter of 2000, a one-time research and development expense of $ 4,300 to write-off the
in-process research and development acquired from Salsa Group, for which technological
feasibility has not yet been established and for which no alternative future use exists.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-11

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands (except per share data)

# NOTE 1:- GENERAL (Cont.)

| | The
following is a summary of the fair value of the assets acquired:
| | --------------------------------------------------------------------

|                                                     |         
|---------------------------------------------------- | --------
|
|Working capital, net                                 | $  6,392
|Property and equipment                               | 2,216   
|Long-term prepaid expenses                           | 53      
|Goodwill (see Note 9b)                               | 4,673   
|Technology and other intangible assets (see Note 9a) | 12,766  
|In-process research and development                  | 4,300   
|                                                     |         
|                                                     | $30,400 
|                                                     |         

| | The
following represents the unaudited pro-forma results of operations for the year ended
December 31, 2000, assuming that the Salsa Group acquisition had been consummated as of
January 1, 2000:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | Year ended
December 31,
2000
|------------------------------ | ----------------------------
|
|Revenues                       |                             
|                               |                             
|Net income                     |                             
|                               |                             
|Basic net earnings per share   |                             
|                               |                             
|Diluted net earnings per share |                             
|                               |                             

| | c. | The
Company purchases some of the ink and all of the ink-jet printerheads 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 supplying or a change in           credit terms
could have a material adverse effect on the Companys results           of
operations and financial position.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-12

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands (except per share data)

# NOTE 1:- GENERAL (Cont.)

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

| | During
the first and fourth quarters of 2001 and the second and fourth quarters of 2002 the
Company decided to perform a series of strategic initiatives intending to further reduce
costs and increase efficiency. As a result, approximately 60 and 72 positions were
eliminated by the Company in the years 2001 and 2002, respectively. In addition, during
the first quarter of 2001 and the fourth quarter of 2002 the Company wrote-off $ 3,989
and $ 975 of its inventories, 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 level.
| | -- | --------------------------------------------------------------------------

| | b) | Relocating
operations in Asia Pacific from China to Hong Kong.
| | -- | --------------------------------------------------------------

| | In
connection with SFAS No. 144, Accounting for the impairment or Disposal of Long
Lived Assets and Emerging Issues Task Force (EITF) Issue 94-3 Liability
Recognition for certain Employee Termination Benefits and Other Costs to Exit an Activity
(including certain costs in Restructuring), and Staff Accounting Bulletin No. 100, Restructuring
and Impairment Charges the Company recorded during the years 2001 and 2002
restructuring charges of $ 3,237 and $ 1,300, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
components and the classification of the restructuring charges and the write-offs
associated with the restructuring charges for the years ended 2001 and 2002 are as
follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                         | Year ended December 31,
|---------------------------------------- | -----------------------
|
|
|Restructuring charges:                   |                        
|Employee termination and severance costs | $1,881                 
|Write-off of property and equipment      | 636                    
|Other exit costs                         | 720                    
|                                         |                        
|                                         |                        
|                                         | $3,237                 
|                                         |                        

F-13

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands (except per share data)

# NOTE 1:- GENERAL (Cont.)

| | f. | Doubtful debt expenses resulting from relocation of operations:
| | -- | ---------------------------------------------------------------

| | In
2002, as a result of difficulties faced in the operations in China, and relocating its
operation from China to Hong Kong, the Company expected an increase in the difficulty of
collecting its trade receivables in China and as a result recorded additional provision
for doubtful debts in the amount of $ 2,881, which is presented as a one time doubtful
debt expense among general and administrative expenses.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# NOTE 2:- SIGNIFICANT
ACCOUNTING POLICIES

| | The
Companys consolidated financial statements have been prepared in accordance with
generally accepted accounting principles 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
accompanying consolidated financial statements have been prepared in U.S dollars (dollars).
The dollar is the currency of the primary economic environment in which the operations of
the Company, NUR America, Salsa Digital Printers, HOC, NUR Do Brazil, and NUR Pro
Engineering are conducted. The majority of sales is made in dollars and the majority of
purchases of materials and components is invoiced and paid in dollars. In addition, a
substantial portion of costs is incurred in dollars or paid in dollars. Accordingly, the
Companys management believes that the dollar is the primary currency of the
economic environment in which the Company and the above-mentioned entities operate. Thus,
the functional and reporting currency of the Company and these subsidiaries is the dollar.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accordingly,
transactions and balances denominated in dollars are presented at their original amounts.
Monetary accounts maintained in currencies other than the dollar are remeasured into
dollars in accordance with Statement of Financial Accounting Standard No. 52, Foreign
Currency Translation (SFAS No. 52). All transaction gains and losses of
the remeasurement of monetary balance sheet items denominated in non-dollar currencies
are reflected in the statements of operations as financial income or expenses, as
appropriate.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
financial statements of all other subsidiaries, whose functional currency is not the U.S
dollar, have been translated into dollars. All balance sheet accounts have been
translated using the exchange rates in effect at the balance sheet date. Statement of
operations amounts have been translated using the average exchange rate for the period.
The resulting translation adjustments are reported as a component of accumulated other
comprehensive loss in shareholders equity.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-14

---

---

# 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.)

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

| | The
consolidated financial statements include the accounts of the Company and its
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 a
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 or technological obsolescence and for market
prices lower than cost (See note 1e). 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 date of transaction and reported at
the net amounts in the accompanying financial statements. Imputed interest is recognized,
using the effective interest method as a component of interest income in the accompanying
statements.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | Investments
in affiliates:
| | -- | --------------------------

| | The
investment in NUR Pro Engineering, over which the Company owns 50% and can exercise
significant influence, is presented using the equity method of accounting.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Management
periodically reviews the carrying value of the investments. If this review indicates that
the cost is not recoverable, the carrying value is reduced to its estimated fair value.
As of December 31, 2002, no impairment losses have been identified.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-15

---

---

# 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.)

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

| | 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.
| | --------------------------------------------------------------------------------------------------------

| | The
annual depreciation rates are as follows:
| | ---------------------------------------------

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

| | j. | The
Companys long-lived assets and certain identifiable intangibles are
          reviewed for impairment in accordance with 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. (See note 1e).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | k. | Intangible
assets:
| | -- | ------------------

| | Intangible
assets arising from the acquisition prior to July 1, 2001, are being amortized on a
straight-line basis over their useful life. Acquired technology is amortized over 5
years, and customer list is amortized over 7 years. The Company performed an impairment
test during the fourth quarter of 2002, and accordingly recognized an impairment loss of
$ 6,995 (see Note 9a).
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | l. | Goodwill:
| | -- | ---------

| | Goodwill
represents excess of the costs over the net assets of businesses acquired. Goodwill
arising from acquisitions prior to July 1, 2001, was amortized until December 31, 2001,
on a straight-line basis over 10 years. As from January 1, 2002, pursuant to Statement of
Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets(SFAS
No, 142) tested for impairment on adoption and at least annually thereafter or
between annual tests in certain circumstances, and written down when impaired, rather
than being amortized as previous accounting standards required. Goodwill attributable to
each of the reporting unit is tested
for impairment by comparing the fair value of each reporting unit with its carrying
value. Fair value is determined using discounted cash flows, market multiples and market
capitalization. Significant estimates used in the methodologies include estimates of
future cash flows, future short-term and long-term growth rates, weighted average cost of
capital and estimates of market multiples for the reportable unit. The Company performed
the impairment test during the fourth quarter of 2002 and, accordingly, recognized an
impairment loss of $ 3,876.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-16

---

---

# 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.)

| | m. | Revenue
recognition:
| | -- | --------------------

| | The
Company generates revenues from sale of its products and from services to its products.
| | -------------------------------------------------------------------------------------------

| | Revenues
from sales of products are recognized in accordance with Staff Accounting Bulletin No.
101 Revenue Recognition in Financial Statements (SAB. No 101)
upon delivery provided that the collection of 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
right of return.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | On
occasion, customers request delayed shipment, usually due to scheduling of systems
integration and/or lack of storage space at the customers facilities during the
implementation. In such bill and hold transactions, the Company recognizes revenue when
the criteria of Staff Accounting Bulletin No. 101 are satisfied.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Revenues
from service contracts are recognized ratably over the term of the agreements.
| | ---------------------------------------------------------------------------------------

| | Revenues
from 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.
| | --------------------------------------------------------------------------------------------------------

| | n. | Warranty
costs:
| | -- | ---------------

| | The
Company provides a warranty of up to six months, at no extra charge. A provision is
recorded for probable costs in connection with warranties, based on the Companys
experience (in respect of most of these costs the Company has warranties from its
suppliers).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Changes
in the Companys liability during the period are as follows:
| | --------------------------------------------------------------------

|                                                  |         
|------------------------------------------------- | --------
|
|Balance at the beginning of the year              | $(1,365)
|Warranties issued during the year                 | 1,858   
|Changes in liability for warranty during the year | (1,820) 
|                                                  |         
|                                                  |         
|Balance at the end of the year                    | $(1,327)
|                                                  |         

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.)

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

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

| | p. | Government
grants:
| | -- | ------------------

| | Royalty-bearing
grants from the Government of Israel and from the government of Belgium for funding
approved research and development projects and for funding marketing activities are
recognized at the time the Company is entitled to such grants, on the basis of the
related costs incurred and included as a deduction of research and development, and
selling and marketing expenses, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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
deduction of research and development expenses.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | q. | Income
taxes:
| | -- | -------------

| | The
Company and its subsidiaries account 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 Company and its subsidiaries provide a valuation allowance, if
necessary, to reduce deferred tax assets to their estimated realizable value.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | Financial
instruments that potentially subject the Company and its subsidiaries 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 loans to an affiliate.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Companys cash and cash equivalents consist primarily of U.S. dollar, New Israeli
Shekel (NIS) and Euro amounts deposited in banks. Cash and cash equivalents
and restricted short and long term bank deposits are invested in major banks primarily in
Israel, the United States, Asia and Belgium. Such deposits in the United States may be in
excess of insured limits and are not insured in other jurisdictions. Management believes
that the financial institutions that hold the Companys investments are financially
sound, and, accordingly, minimal credit risk exists with respect to these investments.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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
trade receivables and the long-term trade receivables of the Company and its subsidiaries
are derived mainly from sales to customers located primarily in America, U.S.A., Asia,
China and Europe. Management believes that credit risks are moderated by the diversity of
its end-customers and geographic sales areas. The Company performs ongoing credit
evaluations of its customers financial condition. An allowance for doubtful accounts is
determined with respect to specific debts that the Company has determined to be doubtful
of collection. The Company also insures some of its trade receivables. As for collection
difficulties in China, see Note 1f.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has provided a long-term loan to its affiliate, amounting to $ 284 and $ 282 as
of December 31, 2001 and 2002, 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
Company engages in the sale, with recourse of certain of its trade receivables with
established commercial banking institutions. As of December 31, 2002, a total amount of $ 9,838
was sold to the banks.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has no significant off-balance-sheet concentration of credit risk such as foreign
exchange contracts, option contracts or other foreign hedging arrangements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | s. | Severance
pay:
| | -- | --------------

| | The
Companys liability for severance pay is calculated pursuant to Israeli 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 may be withdrawn only upon the fulfillment of the obligation pursuant to
Israeli 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, 2000, 2001 and 2002 amounted to approximately $ 306,
$ 1,426 and $ 716, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------

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

| | The
following methods and assumptions were used by the Company and its subsidiaries 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, short-term bank credit, short-term loans, trade
payables and other accounts payable approximate their fair value, due to the short term
maturity of such instruments.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-19

---

---

# 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
carrying amounts of the Company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 Companys
incremental investment rates for similar type of investment arrangements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
carrying amount of the Companys long-term loans approximates their fair value. The
fair value was estimated using discounted cash flow analyses, based on the Companys
incremental borrowing rates for similar type of borrowing arrangements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of foreign currency transactions (used for non-hedging purposes) made during
2002 was estimated by obtaining quotes from investment bankers.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

| | u. | Advertising
costs:
| | -- | ------------------

| | The
Company expenses advertising costs as incurred. Advertising expenses for the years ended
December 31, 2000, 2001 and 2002 were $ 662, $ 554 and $ 261, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | v. | Basic
and diluted net earnings (loss) per share:
| | -- | ------------------------------------------------

| | Basic
net earnings (loss) per share is computed based on the weighted average number of
Ordinary shares outstanding during each year. Diluted net earnings (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
earnings (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 earnings (loss) per share was
310,200, 931,736 and 1,194,630 for the years ended December 31, 2000, 2001 and 2002,
respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | w. | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-20

---

---

# 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.)

| | Under
Statement of Financial Accounting Standard No. 123 Accounting for Stock-Based
Compensation (SFAS No. 123), pro forma information regarding net income and
earnings per share is required, 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 2000, 2001 and 2002: risk-free interest rates of 6.0% for 2000, 2.0% for
2001 and 2.0% for 2002; dividend yields of 0% for 2000, 2001 and 2002; volatility factors
of the expected market price of the Companys Ordinary shares of 0.66 for 2000, 0.74
for 2001 and 0.78 for 2002; and an expected life of the option of 10 years for each year.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|                                           | December 31,
|------------------------------------------ | ------------
|
|Net income (loss) as reported              | $      8,493
|                                           |             
|Deduct:Stock-based compensation expense   
|determined under fair value method for all
|awards, net of related tax effects         | $     62,268
|                                           |             
|Pro forma net income                       | $      6,225
|                                           |             
|Earnings per share:                       
|Basic, as reported                         | $       0.65
|                                           |             
|                                           |             
|Basic pro forma                            | $       0.47
|                                           |             
|Diluted, as reported                       | $       0.57
|                                           |             
|                                           |             
|Diluted pro forma                          | $       0.42
|                                           |             

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | x. | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-21

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands

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

| | 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
2002, the Company entered into non-hedging forward and options contracts to hedge certain
of its balance sheet exposure against changes in foreign currency exchange rates. The
agreements, which were executed during 2002, resulted in a loss, through December 31,
2002, of approximately $ 1,600, which was included in the statements of operations as
financial loss.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
addition, on June 28, 2002, the Company entered into call/put option agreement in the
amount of approximately $ 10,000, to be executed on June 28, 2003. The gain resulted
which was included in the statements of operations during 2002 was approximately $ 221.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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. | Implementation
of new accounting standards and their impact on the financial           statements:
| | -- | --------------------------------------------------------------------------------------------------

| | In
November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57, and 107 and
Rescission of FASB Interpretation No. 34 (FIN No. 45). FIN No. 45
elaborates on the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has issued.
It also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in issuing the
guarantee. FIN No. 45 does not prescribe a specific approach for subsequently measuring
the guarantors recognized liability over the term of the related guarantee. It also
incorporates, without change, the guidance in FASB Interpretation No. 34, Disclosure
of Indirect Guarantees of Indebtedness of Others, which is being superseded. The
disclosure provisions of FIN No. 45 are effective for financial statements of interim or
annual periods that end after December 15, 2002 and the provisions for initial
recognition and measurement are effective on a prospective basis for guarantees that are
issued or modified after December 31, 2002, irrespective of a guarantors year-end.
The Company does not expect the adoption of FIN No. 45 to have a material impact on its
results of operations or financial position.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 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
$ 633 and $ 1,328 as of December 31, 2001 and 2002,           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 |             
|                  |             
|                  |             
|                  |             

| | As
for inventories write-off see Note 1e.
| | -----------------------------------------

# 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                     |             
|Fifth year                      |             
|                                |             
|                                |             
|Less - current maturities       |             
|                                |             
|                                |             
|                                |             

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

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 6:- INVESTMENTS IN
AFFILIATES

| | 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                 |             
|                                         |             
|                                         |             
|                                         |             

| | (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 linked to the 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. The Company 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 as of December 31, 2002 will mature in 2004, are
linked to the U.S. dollar and bear weighted average interest at a rate of 4%.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 8:- PROPERTY, PLANT
AND EQUIPMENT, NET

| | 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:      |             
|Machinery and equipment        |             
|Motor vehicles                 |             
|Office furniture and equipment |             
|Buildings                      |             
|Leasehold improvements         |             
|                               |             
|                               |             
|                               |             
|Depreciated cost before grants |             
|Less - grants                  |             
|                               |             
|Depreciated cost               |             
|                               |             

| | b. | Depreciation
expenses for the years ended December 31, 2000, 2001 and 2002           amounted to $ 1,614,
$ 3,014 and $ 2,860, respectively. (As for           impairment, see Note 1e).
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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 9:- GOODWILL,
TECHNOLOGY AND OTHER INTANGIBLE ASSETS, NET

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

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

|                          | December 31,
|------------------------- | ------------
|
|Original amounts:         |             
|Technology (1)            |             
|Customer list (1)         |             
|Patent rights             |             
|                          |             
|                          |             
|                          |             
|Accumulated amortization: |             
|Technology                |             
|Customer list             |             
|Patent rights             |             
|                          |             
|                          |             
|                          |             
|Amortized cost            |             
|                          |             

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

|     | December 31,
|---- | ------------
|
|2003 |             
|2004 |             
|2005 |             
|2006 |             
|2007 |             
|     |             
|     |             
|     |             
|     |             

| | (1) | $
12,766, resulting from the acquisition of Salsa Group, and $ 700           resulting
from the acquisition of Stillachem in 2001.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------

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 9:- GOODWILL AND
OTHER INTANGIBLE ASSETS, NET (Cont.)

| | b. | Goodwill:
| | -- | ---------

| | The
changes in the carrying amount of goodwill for the year ended December 31, 2002 are as
follows:
| | ---------------------------------------------------------------------------------------------------

|                                | 
|------------------------------- | 
|
|Balance as of January 1, 2002   | 
|Impairment losses               | 
|                                | 
|                                | 
|Balance as of December 31, 2002 | 
|                                | 

| | *) | Includes
an amount of $ 1,160 of assembled workforce, net that was classified           as
goodwill effective January 1, 2002. The assembled workforce results from the
          acquisition of Salsa Group.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
unaudited results of operations presented below for the three years ended December 31,
2000, 2001 and 2002, respectively, reflect the impact on results of operations had the
Company adopted the non-amortization provisions of SFAS No. 142 effective January 1, 2000:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                        | Year ended December 31,
|----------------------- | -----------------------
|
|Reported net loss       | $8,493                 
|Goodwill amortization   | 265                    
|                        |                        
|                        |                        
|Adjusted net loss       | $8,758                 
|                        |                        
|                        |                        
|Basic loss per share:  
|Reported net loss       | $0.65                  
|Goodwill amortization   | 0.02                   
|                        |                        
|                        |                        
|Adjusted net loss       | $0.67                  
|                        |                        
|                        |                        
|Diluted loss per share:
|Reported net loss       | $0.57                  
|Goodwill amortization   | 0.02                   
|                        |                        
|                        |                        
|Adjusted net loss       | $0.59                  
|                        |                        
|                       

| | c. | Amortization
and impairment goodwill, technology and other assets for the years           ended
December 31, 2000, 2001 and 2002 were $ 1,542, $ 2,955 and           $ 12,885,
respectively.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-27

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands (except share and per share data)

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

|                       | Linkage     | Interest rate | December 31.
|---------------------- | ----------- | ------------- | ------------
|
|
|                       | NIS-        |               |             
|Short-term bank credit | unlinked    | 5.1           | 11.7        
|Short-term bank loans  | U.S. dollar | 5.23          | 3.37        
|Short-term bank loans  | Euro        | 5.23          | -           
|                       | NIS-        |               |             
|Short-term bank credit | unlinked    |               | 11.2        
|                       |             |               |             
|                       |             |               |             
|                       |             |               |             

| | The
weighted average interest rate as of December 31, 2001 and 2002 was 5.1% and 8.2%,
respectively.
| | ----------------------------------------------------------------------------------------------------

| | The
total authorized credit line is $ 16,250 at December 31, 2002, which was fully
utilized.
| | --------------------------------------------------------------------------------------------

# NOTE 11:- OTHER ACCOUNTS
PAYABLE AND ACCRUED EXPENSES

|                               | December 31,
|------------------------------ | ------------
|
|Employees and payroll accruals | $  2,476    
|Government Authorities         | 1,187       
|Royalties payable              | 1,082       
|Warranty                       | 1,365       
|Accrued expenses               | 3,935       
|                               |             
|                               | $  10,045   
|                               |             
|                              

# NOTE 12:- LONG-TERM LOANS

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

|                          | Linkage    | Interest rate | December 31.
|------------------------- | ---------- | ------------- | ------------
|
|
|From banks                | U.S.dollar | 6.00          | 4.5         
|                          |            |               |             
|From leasing companies    | Euro       | 4.95          | 4.95        
|                          |            |               |             
|                          |            |               |             
|Less - current maturities |            |               |             
|                          |            |               |             
|                          |            |               |             
|                          |            |               |             

F-28

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands (except share and per share data)

# NOTE 12:- LONG-TERM
LOANS (Cont.)

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

|                                | December 31,
|------------------------------- | ------------
|
|First year (current maturities) | $  2,057    
|                                |             
|Second year                     | 2,064       
|Third year                      | 4,070       
|Fourth year                     | 24,874      
|Fifth year and thereafter       | 712         
|                                |             
|                                | 31,720      
|                                |             
|                                | $33,777     
|                                |             

| | c. | During
the first quarter of 2002, the Company entered into agreements with the           banks
according to which the banks agreed to reschedule the repayment dates of           the
Companys long-term loans and bank credit.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
part of the agreements signed with the banks, the Company had paid a commission in the
amount of $ 54 for the rescheduling of the loans and agreed to certain covenants.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | Throughout
2002, the Company did not comply with certain terms of the covenants           discussed
in c above.
| | -- | ---------------------------------------------------------------------------------------------------------------

| | The
Company received the banks approval in writing, not to act upon their contractual rights,
on the Companys abovementioned default. 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March, 2003, the Company signed new agreements with the banks, according to which new
covenants were settled. The new covenants are as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 1. | To
maintain an equity of no less than $ 20 thousand of the Companys
               tangible assets during 2003, no less than $ 22 thousand or less than 24%
of the                Companys tangible assets in 2004 and no less than $ 27
thousand or less                than 27% of the Companys tangible assets in 2005.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | To
prevent short-term credit from exceeding 70% of the Companys net
               accounts receivable aged less than 180 days or exceeding $ 19 thousand.
The                Company is entitled, however, to borrow an additional sum of up to $ 3
thousand                from non-banking institutions.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-29

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands (except share and per share data)

# NOTE 12:- LONG-TERM
LOANS (Cont.)

| | 3. | To
maintain at the end of each quarter a cash balance of at least $ 9 thousand.
| | -- | -------------------------------------------------------------------------------

| | 4. | To
refrain from merging, consolidating, amalgamating or entering into any other
          form of business combination with a third party, or liquidating of dissolving.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | 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.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 6. | To
issue an option to purchase up to 140,000 Ordianry shares and an option to
          purchase up to 100,000 Ordinary shares of the Company to Bank Hapoalim and Bank
          Leumi, respectively. Both option warrants will be exercisable until March 2007
          at $ 0.34 per Ordinary share.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 7. | To
further secure the Companys outstanding credit by a guarantee in favor           of
the banks issued by the Companys subsidiaries.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------

# 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,
|------------------- | -----------------------
|2003                | $1,317                 
|2004                | 1,278                  
|2005                | 1,192                  
|2006                | 249                    
|2007 and thereafter | 202                    
|                    |                        
|                    | $4,238                 
|                    |                        

| | Total
rent expenses for the years ended December 31, 2000, 2001 and 2002 were $ 900, $ 1,778
and $ 1,570, respectively.
| | -----------------------------------------------------------------------------------------------------------------------

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 13:- COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)

| | 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, also           bearing 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, a subsidiary, NUR Media 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Total
royalties accrued or paid amounted to $ 432, $ 180 and $ 67 for the years
ended December 31, 2000, 2001 and 2002, respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2002, the Company and NUR Media Solutions have a contingent obligation to
pay royalties in the amount of $ 1,100.
| | ------------------------------------------------------------------------------------------------------------------------------------

| | 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 bear 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, 2002, the Company paid an aggregate amount of $ 346.
| | -----------------------------------------------------------------------

| | As
of December 31, 2002, the Company has a contingent obligation to pay royalties in the
amount of $ 929.
| | ---------------------------------------------------------------------------------------------------------

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

| | 1. | As
collateral for its liabilities to the banks, the Company placed 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 $595 secures letters
of credit (See note 2e).
| | -- | ---------------------------------------------------------------------------

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 13:- COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.)

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

| | 1. | In
December 1999, a claim was filed against the Company in the amount of           $ 330
regarding a breach of an agreement to pay finders fee in connection           with a
private placement in 1999. In November 2002, the Company reached an           agreement
with the claimant according to which the Company issued to the           claimant 11,000
warrants with respect of the settlement of the lawsuit.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | In
September 2000, a claim in the amount of approximately $ 4,950 was filed
          against the Company and Meital and the CEOs of the companies (jointly and
          severally), according to which Meital breached a contract, and the Company
          caused Meital to such breach of contract. In May 2002 the parties reached an
          out-of-court settlement whereby the Company paid $ 140 for the complete and
          final settlement of this matter.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | During
2002, the Company filed three lawsuits against customers of NUR           Shanghai. As a
result, the customers filed lawsuits against the Company, in the           amount of $
392. Based on its legal counsel opinion, management did not record           any
provision with respect to these claims.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | Other:
| | -- | ------

| | In
March 2003, the Company signed a termination and settlement agreement with its CEO,
according to which he will receive retirement bonus and non compete fee in the total
amount of $ 116. In addition, he will provide to the Company consulting services, for a
period of 12 months, for a monthly fee of $ 14.5
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 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 amounts receivable, see Note 5,           as for
advances to a supplier, see Note 3).
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | A
company wholly-owned by the Companys CEO rendered services to certain
          subsidiaries. The Company and its subsidiaries expenses during the years
          2000, 2001 and 2002 in respect of such services amounted to approximately $ 40,
          $ 73 and $ 60, respectively.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | d. | On
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           issuance
of Ordinary shares of the Company. In 2002, in respect of this           agreement,
70,773 Ordinary shares were issued.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | a. | 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | In
July 2000, the Company issued 666,667 Ordinary shares of NIS 1 par value           each
to the former owners of Salsa Group as a partial consideration for the
          acquisition in a value of $ 10,000 (see Note 1b).
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | In
September 2000, the Company effected a private offering of its securities.           In
the private offering, the Company issued 748,223 Ordinary shares of NIS 1 par
          value each in consideration of $ 10,000 (excluding issuance expenses).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | d. | 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | e. | 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, 2002 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 ten years from 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 (Cont.)

| | 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 common stock at the date of grant (as defined in the stock option plan). Each option
usually expires after ten 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 ten 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
2000, 2001 and 2002, the Company granted to directors (including the Chairman of the
Board of Directors) 40,000, 20,834 and 10,000 options, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Under
the Companys 1995, 1997, 1998 and 2000 plans, the Company reserved for issuance
500,000, 2,200,000, 250,000 and 2,000,000 Ordinary shares, respectively. As of December
31, 2002, 23,261, 290,496, 1,195,266, and 99,166 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
May 2002, the Company announced that it had commenced offering 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
1 new option for every cancelled one 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 stock price at the date of grant.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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 (Cont.)

| | 2. | A
summary of the Companys share option activity (except consultants) at
          December 31, 2002 for the Plans is as follows:
| | -- | ---------------------------------------------------------------------------------------------------------------------------------

|                                     |             | Options outstanding
|------------------------------------ | ----------- | -------------------
|
|Balance as of December 31, 1999      | 480,961     | 2,174,399          
|                                     |             |                    
|Additional stock option plans        | 1,000,000   | -                  
|Options granted (358 employees,     
|4 directors and 1 consultant)        | (1,069,900) | 1,069,900          
|Options exercised                    | -           | (738,968)          
|Options forfeited                    | 102,132     | (102,132)          
|                                     |             |                    
|                                     |             |                    
|Balance as of December 31, 2000      | 513,193     | 2,403,199          
|                                     |             |                    
|Options granted (29 employees and 3 
|directors)                           | (505,734)   | 505,734            
|Options exercised                    | -           | (225,835)          
|Options forfeited                    | 569,530     | (569,530)          
|                                     |             |                    
|                                     |             |                    
|Balance as of December 31, 2001      | 576,989     | 2,113,568          
|                                     |             |                    
|Increase of 2000 stock option plan   | 1,000,000   | -                  
|Options granted (166 employees and 2
|directors)                           | (1,670,966) | 1,670,966          
|Options forfeited or cancelled       | 1,702,166   | (1,702,166)        
|                                     |             |                    
|                                     |             |                    
|                                     |             |                    
|Balance as of December 31, 2002      | 1,608,189   | 2,082,368          
|                                     |             |                    

| | The
number of options exercisable as of December 31, 2000, 2001 and 2002 was 951,212,
1,095,851 and 1,474,122, respectively.
| | ----------------------------------------------------------------------------------------------------------------------------

| | The
weighted average exercise price of options exercisable as of December 31, 2000, 2001 and
2002 is $ 3.25, $ 4.51 and $ 1.60, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------

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 (Cont.)

| | 3. | The
options outstanding as of December 31, 2002 have been separated into ranges           of
exercise price, as follows:
| | -- | ------------------------------------------------------------------------------------------------------------------------

|Range of
exercise price | Options
outstanding
as of
December 31,
2002 | Weighted

average
remaining
contractual
life | Weighted
average
exercise
price | Options

exercisable
as of
December 31,
2002 | Weighted
average
exercise
price of
exercisable
options
|----------------------- | ------------------------------------------- | -------------------------------------------- | ------------------------------- | -------------------------------------------- | ------------------------------------------------------
|
|0.72-0.73               | 1,366,466                                   | 9.97                                         | 0.72                            | 858,210                                      | 0.72                                                  
|1.00-1.50               | 330,833                                     | 4.53                                         | 1.24                            | 297,333                                      | 1.21                                                  
|1.938-2.50              | 195,000                                     | 4.92                                         | 2.11                            | 195,000                                      | 2.11                                                  
|2.75-3.2                | 24,500                                      | 6.57                                         | 2.83                            | -                                            | -                                                     
|4.4-4.7                 | 26,000                                      | 8.59                                         | 4.62                            | 22,000                                       | 4.65                                                  
|5.50-7.5                | 108,402                                     | 6.16                                         | 7.10                            | 74,412                                       | 6.92                                                  
|12.1-13.5               | 31,167                                      | 6.36                                         | 13.01                           | 27,167                                       | 13.14                                                 
|                        |                                             |                                              |                                 |                                              |                                                       
|                        |                                             |                                              |                                 |                                              |                                                       
|                        | 2,082,368                                   |                                              | 1.52                            | 1,474,122                                    | 1.60                                                  
|                        |                                             |                                              |                                 |                                              |                                                       

| | 4. | Compensation
expenses that have been recorded in the consolidated statements of           operations
in 2000, 2001 and 2002 were $ 52, $ 0 and $ 0,           respectively.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | 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  | $8.99                                        
|                 |                                              
|Weighted average
|fair value on   
|grant date       | $7.04                                        
|                 |                                              

| | f. | Stock
warrants and options to consultants:
| | -- | ------------------------------------------

| | The
Companys outstanding warrants as of December 31, 2002, are as follows:
| | ---------------------------------------------------------------------------

|Issuance date                | Number of
warrants
issued | Exercise
price
per share | Warrants

exercisable | Expiration

date
|---------------------------- | ------------------------- | ------------------------ | --------------------- | ----------------
|
|January 2000     (1)         | 15,000                    | $         2.75           | 15,000                | January 2004    
|February 2000   (2)          | 25,000                    | $           4.5          | 25,000                | February 2004   
|September 2000 (3)           | 37,411                    | $       13.36            | 37,411                | September 2005  
|January 2002     (4)         | 612,500                   | $           4.5          | 612,500               | January 2006    
|February 2002   (5)          | 120,000                   | $           5.0          | 120,000               | February 2006   
|November 2002 (6)            | 11,000                    | $         0.78           | 11,000                | November 2006   
|                             |                           |                          |                       |                 
|Total number of warrants and
|options to consultants       | 820,911                   |                          | 820,911               |                 
|                             |                           |                          |                       |                 

F-36

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands (except share and per share data)

# NOTE 15:-
SHAREHOLDERS EQUITY (Cont.)

| | (1) | The
Company issued warrants to its consultant, in connection with legal           services
provided to the Company. Due to immateriality, no compensation expenses           have
been recorded in the financial statements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Following
a registration statement of Form F-1, the Company issued warrants to           its
qualified independent underwriter.
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (3) | As
part of the private placement effected in 2000, the Company granted warrants           to
the placement agent (see c above).
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (4) | As
part of the private placement effected in 2002, the Company granted warrants           to
the investor (see d above).
| | --- | ------------------------------------------------------------------------------------------------------------------------

| | (5) | As
part of the loans rescheduling agreements signed in 2002, the Company granted
warrants to the banks. As to warrant to be issued in 2003, see Note 12d.
Due to immateriality, no compensation expenses have been recorded in the financial statements.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | As
part of a settlement of a lawsuit, the Company granted warrants to the           claimant
(see Note 13d.1).
| | --- | --------------------------------------------------------------------------------------------------------------

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

| | In
the event that cash dividends are declared in the future, such dividends will be paid in
NIS. 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.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | h. | On
November 2002, the Company received a compliance notice from the Nasdaq           Stock
Market, Inc. which stated that for a period of 30 consecutive trading days           the
Companys ordinary shares closed below the minimum price of $1.00 per
          share as required. Until May 5, 2003 the Company had to regain compliance with
          the Nasdaqs continued listing requirements. The Company was unable
          to comply with the continued listing requirements on or before May 5, 2003, accordingly, it has applied
 to transfer its securities to The Nasdaq SmallCap Market.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-37

---

---

# 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
years for the first and second 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 and three years of benefits is taxable at
the rate of 15% to 20%.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 abovementioned conditions, the period of benefits for the first and
second plans commenced in 1994 and 1999, respectively. The period pf benefits for the
third plan have not yet commenced. The first plan will terminated in 2003 and the second
plan will terminate in 2009.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
entitlement to the above benefits is conditional upon the Company fulfilling the
conditions stipulated by the above law, regulations published thereunder and the
instruments 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% to 20% for an Approved
Enterprise based on the percentage of foreign ownership of the Company).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has decided to permanently invest 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.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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%.
| | --------------------------------------------------------------------------------------------------------------------------------------

F-38

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands

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

| | 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 the Israeli 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 the Israeli 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 claim 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

F-39

---

---

# 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.)

| | e. | 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 tax expense (tax benefit)      | 3,669                  
|computed at the rate of 36%               
|Increase (decrease) in taxes:             
|Approved enterprise (1)                    | (3,226)                
|Reduced statutory tax rate of a subsidiary | (3,232)                
|Non-deductible expenses and other          | 313                    
|Carryforward loss, generated during the   
|year for which a valuation allowance      
|was provided                               | 3,917                  
|Utilization of operating carryforward tax 
|losses from prior years                    | (197)                  
|                                           |                        
|                                           |                        
|Actual tax expense (tax benefit)           | 1,244                  
|                                           |                        
|                                           |                        
|(1) Basic net earning (loss) per share     |                        
|amounts of the tax benefits resulting     
|from the "Approved Enterprise"            
|benefits                                   | 0.25                   
|                                           |                        
|                                           |                        
|Diluted net earnings (loss) per share     
|amounts of the tax benefits resulting     
|from the "Approved Enterprise"            
|benefits                                   | 0.22                   
|                                           |                        

| | f. | Taxes
on income (benefit) included in the statements of operations:
| | -- | -------------------------------------------------------------------

|          |          |          |        
|--------- | -------- | -------- | -------
|
|Current:  |          |          |        
|Domestic  | $   474  | $      - | $     -
|Foreign   | 744      | 472      | 77     
|          |          |          |        
|          |          |          |        
|          | $1,218   | $ 472    | 77     
|          |          |          |        
|          |          |          |        
|Deferred:
|Domestic  | 26       | (656)    | (43)   
|Foreign   | -        | (7)      | -      
|          |          |          |        
|          |          |          |        
|          | $     26 | $(663)   | (43)   
|          |          |          |        
|          |          |          |        
|          | $1,244   | $(191)   | 34     
|          |          |          |        

F-40

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in thousands

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

| | g. | 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 Company and its subsidiariesdeferred
tax assets are as follows:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                   | December 31,
|-------------------------------------------------- | ------------
|
|Net operating losses and deductions carryforward   | $ 10,271    
|Others                                             | 300         
|                                                   |             
|Net deferred tax assets before valuation allowance | 10,571      
|                                                   |             
|Valuation allowance (1)                            | (9,025)     
|                                                   |             
|Net deferred tax assets                            | $   1,546   
|                                                   |             
|Domestic                                           | $   1,546   
|Foreign                                            | -           
|                                                   |             
|                                                   | $   1,546   
|                                                   |             
|Presented as follows:                             
|Current assets                                     | -           
|Long-term assets                                   | $   1,546   
|                                                   |             
|                                                   | $   1,546   
|                                                   |             

| | (1) | The
Company and its subsidiaries have provided valuation allowances in respect           of
deferred tax assets resulting from tax losses carryforward and other           temporary
differences. Due to history of losses management believes it is more           likely
than not that deferred tax regarding the losses carryforward and other
          temporary differences will not be realized.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | As
of December 31, 2002, the Company had available deductions aggregating to $ 5,923.
| | -------------------------------------------------------------------------------------

| | Additional
carryforward losses of NUR America and Salsa Digital Printers, in the amount of $ 7,129,
which are located in the U.S., will expire in 2021. Utilization of the 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-41

---

---

# 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, 2002
aggregating to approximately $ 7,597, which have no expiration date.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2002 NUR Europe and NUR Media Solutions had available carryforward losses
aggregating to approximately $ 11,036, which have no expiration date.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | i. | Income
(loss) before income taxes consists of the following:
| | -- | ------------------------------------------------------------

|         | Year ended December 31,
|-------- | -----------------------
|
|Domestic | $ 10,275               
|Foreign  | (84)                   
|         |                        
|         | $ 10,191               
|         |                        
|        

# NOTE 17:- CUSTOMERS AND
GEOGRAPHIC INFORMATION

| | The
Company manages its business on the basis of one reportable segment. See Note 1a for a
brief description of the Companys business.
| | ---------------------------------------------------------------------------------------------------------------------------------------

| | This
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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following presents total revenues for the years ended December 31, 2000, 2001 and 2002
based on the end customers location and long-lived assets as of December 31, 2000,
2001 and 2002:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                | 2000       | 2001     | 2002      
|--------------- | ---------- | -------- | ----------
|
|Israel          | $    1,856 | $  1,554 | $    1,873
|Asia (except   
|China)          | 13,870     | 147      | 20,338    
|China           | 12,353     | 462      | 13,492    
|America (except
|the U.S.A.)     | 28,251     | -        | 15,999    
|U.S.A           | 19,529     | 7,298    | 22,960    
|Europe          | 41,289     | 13,787   | 41,757    
|Others          | 4,776      | -        | 3,958     
|                |            |          |           
|                | $121,924   | $23,248  | $120,377  
|                |            |          |           

F-42

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands

# NOTE 17:- REPORTABLE
SEGMENTS DATA (Cont.)

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

|           | Year ended December 31,
|---------- | -----------------------
|
|Printers   | $  79,521              
|Ink        | 24,101                 
|Substrates | 12,013                 
|Others     | 6,289                  
|           |                        
|           | $121,924               
|           |                        

| | Major
customer data as a percentage of total revenues:
| | ------------------------------------------------------

| | The
Company 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 (1)   | $15,077                
|Less - participation of the Israeli and
|Belgian governments in research and    
|development projects                    | 451                    
|                                        |                        
|                                        | $14,626                
|                                        |                        
|                                       

| | (1) | Including
write-off of in process research and development resulting from the           acquisition
of Salsa Group in the amount of $ 4,300 for the year ended           December 31,
2000.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-43

---

---

# NUR MACROPRINTERS LTD.
AND ITS SUBSIDIARIES

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

---

# U.S. dollars in
thousands (except per share data)

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

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

|                                                | Year ended December 31,
|----------------------------------------------- | -----------------------
|
|Expenses:                                       |                        
|Interest on short-term bank credit  and charges | $(1,024)               
|Interest on long-term loans                     | (581)                  
|Foreign currency translation differences (1)    | (1,353)                
|                                                |                        
|                                                | (2,958)                
|                                                |                        
|Income:                                        
|Interest on bank deposits and other             | 163                    
|Foreign currency translation differences (1)    | 1,372                  
|                                                |                        
|                                                | 1,535                  
|                                                |                        
|                                                | $(1,423)               
|                                                |                        

| | (1) | Include
losses from non-hedging forward and options contracts. (See note 2x).
| | --- | -----------------------------------------------------------------------------

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

|                                            | Year ended December 31,
|------------------------------------------- | -----------------------
|
|Numerator:                                  |                        
|Net earnings (losses) available to         
|shareholders of ordinary shares             | $         8,493        
|                                            |                        
|Numerator for diluted net earnings         
|(losses) per share - earnings available to 
|shareholders of Ordinary shares             | $         8,493        
|                                            |                        
|Denominator:                               
|Weighted average number of ordinary        
|shares (denominator for basic net earnings 
|(loss) per share)                           | 13,150,110             
|Effect of dilutive securities:             
|Employee and non-employee                  
|stock options and warrants                  | 1,643,217              
|                                            |                        
|Denominator for diluted net earnings (loss)
|per share                                   | 14,793,327             
|                                            |                        

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

# SCHEDULE OF VALUATION AND QUALIFYING
 ACCOUNTS AT DECEMBER 31, 2002

|                                | Balance at
Beginning of
Period | Provision for
Doubtful
Accounts | Write-off of
Previously
Provided
Accounts | Balance at
End of
Period
|------------------------------- | ------------------------------ | ------------------------------- | ----------------------------------------- | ------------------------
|                                |                                |                                 |                                           |                         
|
|Year Ended December 31, 2002    |                                |                                 |                                           |                         
|Allowance for Doubtful Accounts |                                | $3,922                          |                                           | $3,464                  
|Year Ended December 31, 2001    |                               
|Allowance for Doubtful Accounts |                                | $4,593                          |                                           | $   753                 
|Year Ended December 31, 2000    |                               
|Allowance for Doubtful Accounts |                                | $1,290                          |                                           | $3,450                  

Other schedules are omitted because they are not required or the required information is shown in the
financial statements or notes thereto.

F-44

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