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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 20-F /A

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

| | For the fiscal year
  ended December 31, 2002 |  | Commission File
  File No.
| | --------------------------------------------- |  | --------------------------

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NEXUS TELOCATION SYSTEMS LIMITED(Exact name of
Registrant as specified in its charter
and translation of Registrants name into English)

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Israel(Jurisdiction
of incorporation or organization)

1 Korazin Street,
Givatayim 53583 Israel(Address of
principal executive offices)

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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 0.03 nominal
value per share(Title of Class)

Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act:  None

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

11,289,932

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:
          YesþNoo

Indicate
by check mark which financial statements the registrant has elected to follow:

Item
17oItem
18þ

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This Annual Report on Form 20-F contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.The
use of the words projects, expects, may, plans or intends, or words
of similar import, identifies a statement as forward-looking. The forward-looking statements included herein are
based on current expectations that involve a number of risks and uncertainties.
These forward-looking statements are based on the assumption that Nexus
Telocation Systems Limited (we or the Company or Nexus) will not lose a
significant customer or customers or experience increased fluctuations of
demand or rescheduling of purchase orders, that our markets will continue to
grow, that our products will remain accepted within their respective markets and
will not be replaced by new technology, that competitive conditions within our
markets will not change materially or adversely, that we will retain key
technical and management personnel, that our forecasts will accurately
anticipate market demand, and that there will be no material adverse change in
our operations or business. Assumptions relating to the foregoing involve
judgments with respect to, among other things, future economic, competitive and
market conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. In
addition, our business and operations are subject to substantial risks which
increase the uncertainty inherent in the forward-looking statements. In light
of the significant uncertainties inherent in the forward-looking information
included herein, the inclusion of such information should not be regarded as a
representation by us or any other person that our objectives or plans will be
achieved. Factors that could cause actual results to differ from our
expectations or projections include the risks and uncertainties relating to our
business described in this annual report at Item 3.Risk Factors.

------------

We have prepared our consolidated financial statements in
United States dollars and in accordance with accounting principles generally
accepted in Israel (Israeli GAAP). As applicable to our consolidated
financial statements for all fiscal periods for which financial data is
presented herein, such accounting principles conform in all material respects
to accounting principles generally accepted in the United States (U.S. GAAP),
except as indicated in Note 16 to our consolidated financial statements
included herein. All references herein to dollars or $ are to United States
dollars, and all references to Shekels or NIS are to New Israeli Shekels.

2

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|PART I |         |                                                            | 5                                                        
|------ | ------- | ---------------------------------------------------------- | ---------------------------------------------------------
|       |         |                                                            |                                                          
|       | ITEM 1. | IDENTITY OF DIRECTORS,
  SENIOR MANAGEMENT 
  AND ADVISORS | 5                                                        
|       |         |                                                            |                                                          
|       | ITEM 2. | OFFER STATISTICS AND
  EXPECTED TIMETABLE                  | 5                                                        
|       |         |                                                            |                                                          
|       | ITEM 3. | KEY INFORMATION                                            | 5                                                        
|       |         |                                                            |                                                          
|       |         | A.                                                         | SELECTED FINANCIAL DATA                                  
|       |         |                                                            |                                                          
|       |         | B.                                                         | CAPITALIZATION AND
  INDEBTEDNESS                        
|       |         |                                                            |                                                          
|       |         | C.                                                         | REASONS FOR THE OFFER AND
  USE OF PROCEEDS              
|       |         |                                                            |                                                          
|       |         | D.                                                         | RISK FACTORS                                             
|       |         |                                                            |                                                          
|       | ITEM 4. | INFORMATION ON THE COMPANY                                 | 14                                                       
|       |         |                                                            |                                                          
|       |         | A.                                                         | HISTORY AND DEVELOPMENT OF
  THE COMPANY                 
|       |         |                                                            |                                                          
|       |         | B.                                                         | BUSINESS OVERVIEW                                        
|       |         |                                                            |                                                          
|       |         | C.                                                         | ORGANIZATIONAL STRUCTURE                                 
|       |         |                                                            |                                                          
|       |         | D.                                                         | PROPERTY, PLANTS AND
  EQUIPMENT                         
|       |         |                                                            |                                                          
|       | ITEM 5. | OPERATING AND FINANCIAL
  REVIEW AND
  PROSPECTS           | 20                                                       
|       |         |                                                            |                                                          
|       |         | A.                                                         | OPERATING RESULTS                                        
|       |         |                                                            |                                                          
|       |         | B.                                                         | LIQUIDITY AND CAPITAL
  RESOURCES                        
|       |         |                                                            |                                                          
|       |         | C.                                                         | RESEARCH AND DEVELOPMENT                                 
|       |         |                                                            |                                                          
|       |         | D.                                                         | TREND INFORMATION                                        
|       |         |                                                            |                                                          
|       | ITEM 6. | DIRECTORS, SENIOR
  MANAGEMENT AND
  EMPLOYEES             | 27                                                       
|       |         |                                                            |                                                          
|       |         | A.                                                         | DIRECTORS AND SENIOR
  MANAGEMENT                        
|       |         |                                                            |                                                          
|       |         | B.                                                         | COMPENSATION                                             
|       |         |                                                            |                                                          
|       |         | C.                                                         | BOARD PRACTICES                                          
|       |         |                                                            |                                                          
|       |         | D.                                                         | EMPLOYEES                                                
|       |         |                                                            |                                                          
|       |         | E.                                                         | SHARE OWNERSHIP                                          
|       |         |                                                            |                                                          
|       | ITEM 7. | MAJOR SHAREHOLDERS AND
  RELATED PARTY
  TRANSACTIONS      | 31                                                       
|       |         |                                                            |                                                          
|       |         | A.                                                         | MAJOR SHAREHOLDERS                                       
|       |         |                                                            |                                                          
|       |         | B.                                                         | RELATED PARTY TRANSACTIONS                               
|       |         |                                                            |                                                          
|       |         | C.                                                         | INTERESTS OF EXPERTS AND
  COUNSEL                       
|       |         |                                                            |                                                          
|       | ITEM 8. | FINANCIAL INFORMATION                                      | 32                                                       
|       |         |                                                            |                                                          
|       |         | A.                                                         | CONSOLIDATED STATEMENTS
  AND OTHER FINANCIAL INFORMATION
|       |         |                                                            |                                                          
|       |         | B.                                                         | SIGNIFICANT CHANGES                                      
|       |         |                                                            |                                                          
|       | ITEM 9. | THE OFFER AND LISTING                                      | 32                                                       
|       |         |                                                            |                                                          
|       |         | A.                                                         | OFFER AND LISTING DETAILS                                
|       |         |                                                            |                                                          
|       |         | B.                                                         | PLAN OF DISTRIBUTION                                     

3

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|         |          | C.                                                                               | MARKETS                                  | 33
|-------- | -------- | -------------------------------------------------------------------------------- | ---------------------------------------- | --
|         |          |                                                                                  |                                          |   
|         |          | D.                                                                               | SELLING SHAREHOLDERS                     | 33
|         |          |                                                                                  |                                          |   
|         |          | E.                                                                               | DILUTION                                 | 33
|         |          |                                                                                  |                                          |   
|         |          | F.                                                                               | EXPENSES OF THE ISSUE                    | 33
|         |          |                                                                                  |                                         
|         | ITEM 10. | ADDITIONAL INFORMATION                                                           | 33                                      
|         |          |                                                                                  |                                          |   
|         |          | A.                                                                               | SHARE CAPITAL                            | 33
|         |          |                                                                                  |                                          |   
|         |          | B.                                                                               | MEMORANDUM AND ARTICLES OF
  ASSOCIATION | 34
|         |          |                                                                                  |                                          |   
|         |          | C.                                                                               | MATERIAL CONTRACTS                       | 36
|         |          |                                                                                  |                                          |   
|         |          | D.                                                                               | EXCHANGE CONTROLS                        | 36
|         |          |                                                                                  |                                          |   
|         |          | E.                                                                               | TAXATION AND GOVERNMENT
  PROGRAMS       | 36
|         |          |                                                                                  |                                          |   
|         |          | F.                                                                               | DIVIDENDS AND PAYING
  AGENTS            | 40
|         |          |                                                                                  |                                          |   
|         |          | G.                                                                               | STATEMENT BY EXPERTS                     | 40
|         |          |                                                                                  |                                          |   
|         |          | H.                                                                               | DOCUMENTS ON DISPLAY                     | 40
|         |          |                                                                                  |                                          |   
|         |          | I.                                                                               | SUBSIDIARY INFORMATION                   | 40
|         |          |                                                                                  |                                         
|         | ITEM 11. | QUANTITATIVE AND
  QUALITATIVE DISCLOSURES
  ABOUT MARKET RISK                   | 40                                      
|         |          |                                                                                  |                                         
|         | ITEM 12. | DESCRIPTION OF SECURITIES
  OTHER THAN EQUITY
  SECURITIES                       | 41                                      
|         |         
|PART II  | 41      
|         |          |                                                                                  |                                         
|         | ITEM 13. | DEFAULTS, DIVIDEND
  AVERAGES AND
  DELINQUENCIES                                | 41                                      
|         |          |                                                                                  |                                         
|         | ITEM 14. | MATERIAL MODIFICATIONS TO
  THE RIGHTS OF
  SECURITY HOLDERS AND USE OF PROCEEDS | 41                                      
|         |          |                                                                                  |                                         
|         | ITEM 15. | CONTROLS AND PROCEDURES                                                          | 41                                      
|         |          |                                                                                  |                                         
|         | ITEM 16. | [RESERVED]                                                                       | 42                                      
|         |          |                                                                                 
|PART III |          | 42                                                                              
|         |          |                                                                                  |                                         
|         | ITEM 17. | FINANCIAL STATEMENTS                                                             | 42                                      
|         |          |                                                                                  |                                         
|         | ITEM 18. | FINANCIAL STATEMENTS                                                             | 42                                      
|         |          |                                                                                  |                                         
|         | ITEM 19. | EXHIBITS                                                                         | 42                                      
|         |          |                                                                                  |                                          |   

4

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PART I.

ITEM
1.               IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM
2.               OFFER
STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.               KEY
INFORMATION

A.          SELECTED
FINANCIAL DATA

The
selected financial data is incorporated by reference to Item 5 of this annual
report and should be read in conjunction with our consolidated financial
statements and the notes thereto, which are set forth in Item 18  Financial
Statements and are incorporated by reference, and the other financial
information appearing in Item 5 of this annual report.

B.          CAPITALIZATION
AND INDEBTEDNESS

Not applicable.

C.          REASONS
FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

D.          RISK
FACTORS

Our
business, operating results and financial condition could be seriously harmed
due to any of the following risks, among others.  If we do not successfully address the risks to which we are
subject, we could experience a material adverse effect on our business, results
of operations and financial condition and our share price may decline.  We cannot assure you that we will successfully
address any of these risks

General
Risks Affecting our Subsidiaries and Us

This
annual report and statements that we may make from time to time may contain
forward-looking information. There can be no assurance that actual results will
not differ materially from our expectations, statements or projections. Factors
that could cause actual results to differ from our expectations, statements or
projections include the risks and uncertainties relating to our business described
below.

We
have a history of operating losses.

We
have incurred a net loss in each year of our existence. In December 2002, our
accumulated deficit was approximately $86.1 million.  Since 2000, we have incurred the following approximate annual net
losses:  $20.5 million in 2000 (out of this total loss of $20.5
million, $13.0 million resulted from a one time, cash less write-off), $8.5
million in 2001 and $7.6 in 2002.
We have suffered substantial losses from our fully owned subsidiary, NexusData,
Inc. (NexusData). Although we discontinued the operations of NexusData in the
third quarter of 2002 and sold NexusData in February 2003 (see Item 4 Recent
Developments) and even though we are in a process of reducing of our operational
on-going expenses, we may not achieve or sustain significant revenues on a
quarterly or annual basis in the future. If we continue to sustain prolonged
operating losses, we may have to cease our operations.

5

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Our
future operations depend on our ability to obtain additional financing.

We
have historically financed our operations through public and private placements
of equity and debt securities, cash generated from the sales of our systems,
grants for research and development projects and bank credit lines. We believe
that our current assets, together with anticipated cash generated from
operations and the bank credit lines, will sufficiently allow us to continue
our operations as a going concern. We cannot assure you that we will obtain
additional financing on satisfactory terms, if at all. If we issue any equity
or convertible debt securities, this may substantially dilute the interests of
our current shareholders. If our future capital requirements are greater than the
cash we obtain from our business and available financing, if any, we may, among
other things, be required to significantly reduce our research, development,
product commercialization, marketing or other activities.

Due
to the recent downturn in the world economy, the securities markets in general
have recently experienced increased volatility, which has particularly affected
the securities and operations of many high-technology companies, including
companies that have a significant presence in Israel. Although the volatility
of these companies securities has often been unrelated to the operating
performance of these companies, they may experience difficulties in raising
additional financing required to effectively operate and grow their businesses.
Such failure and the volatility of the securities markets in general have affected our ability to realize investments at favorable
terms. The recent cessation of operations of Ubinet, our Chilean investee ,
reflects this risk through the failure of the local majority partners to
continue raising money for our technology operations. Our operations in Miami,
funded by the same partners from Chile, were similarly terminated due to their
inability to meet their financing obligations. In addition, our Argentinean
subsidiary, Tracsat, is experiencing difficulties in attracting investments
from local partners and bank credit lines despite its business achievements,
primarily due to the economic and political conditions in Argentina. Under some
circumstances, if we are unable to secure additional financing, we may have to
stop our operations.

We
depend on a small number of customers and business partners.

We
depend on a small number of customers and business partners and our future
depends on our ability to maintain our existing customers and business partners
and attract new customers and business partners. For the twelve months ended
December 31, 2002, approximately 80% of our business was generated by three of
our customers (See further in Notes 1 and Note 14(b)(3) to our consolidated
financial statements). In light of our sale of NexusData, we no longer engage
in the automated meter reading industry and our operations are concentrated on
our LBS activities. Furthermore, the commercialization of our LBS operations in
the United States, China, and Chile were halted mainly due to our partners
inability to finance their operation. 
In addition, although our customer in Venezuela has been successfully
operating our LBS system, this customer has halted its issuance of purchase
orders from us due to the foreign currency restrictions imposed on the
Venezuelan economy. Therefore, our operations are currently focused on the
continued sales of our products and services in Israel and in Argentina through
our Argentinean subsidiary, Tracsat S.A.

Our
operations are primarily concentrated on one industry and in one territory.

Since
the change in ownership and management in April 2003 (see Item 4 Recent Developments),
we have decided to primarily focus our marketing efforts on the sale of Stolen
Vehicle Recovery products and services in Latin America. Consequently, there
are fewer outlets for us to generate future revenues. While our SVR operations
have been our most significant source of revenue, we no longer offer a
diversified array of products and solutions. The concentration of our
operations on one facet of the locations-based industry exposes us to
considerable risk were this business line to undergo a rapid downturn.

We
depend on others to manufacture our systems and we rely on a single-source
supplier for the manufacture of our end units.

We
do not have manufacturing facilities for our end unit devices. Most of the components
of our systems are manufactured for us by independent manufacturers abroad and
are assembled by a turn-key subcontractor located in Israel, and there is no
certainty that this subcontractor will be able to continue to provide us with
manufacturing and assembly services in the future in light of its current
financial position. Our reliance on independent contractors, especially those
located in foreign countries, involves a number of risks, including:

6

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| |  | reduced control over
  delivery schedules, quality assurance, manufacturing yields and cost;
| | - | --------------------------------------------------------------------------------------------
| |  | reduced manufacturing
  flexibility due to last moment quantities changes;                  
| |  | transportation delays and
  interruptions;                                                  
| |  | political and economic
  disruptions;                                                       
| |  | the imposition of tariffs
  and export controls on our products;                            
| |  | work stoppages;                                                                             
| |  | changes in government
  policies; and                                                       
| |  | the loss of molds and
  tooling in the event of a dispute with a manufacturer.              

Our
agreements with our suppliers are generally short-term in nature and may be terminated
with little or no notice. If a supplier of ours were to terminate its
relationship with us, we may be compelled to seek additional sources to
manufacture certain of the components of our systems. Although we believe that
most of the components of our systems may be readily acquired from numerous
suppliers, we cannot assure you that we would be successful in entering into
arrangements with other suitable independent manufacturers without
significantly affecting our sales in the interim period.

We may not be able to adapt to
evolving industry standards, customer preferences and new technologies.

The
market for wireless communications systems has been characterized by rapid
technological developments and evolving industry standards. Our ability to
increase revenue in the future depends on the commercial success of our Stolen
Vehicles Recovery (SVR) systems and on our ability to adapt to changing
technologies, industry standards and customer preferences in a timely and cost
effective manner. We have focused our development on our location based
security and management services in the areas of SVR systems and Industrial
Monitoring (Scada), and we have discontinued our research and development and
marketing efforts of our two-way paging systems due to overall market
considerations.

We rely on operators of existing paging
networks to provide our Location Based Solutions systems.

One
of the benefits of our AVL and Industrial and Monitoring Control (IMU) systems
is that they utilize existing one-way paging networks, as their down link
interface, and therefore do not require a large initial investment in
infrastructure. In order for us to take advantage of this benefit, our domestic
customers, operators and us will need to enter into and maintain strategic
relationships with wireless communications companies that control existing
paging infrastructure or already provide one-way paging services to large
numbers of customers.

We
may not be able to successfully compete in the extremely competitive markets
for our products.

We
face intense competition in the markets in which we operate. Our primary
competitors in the market for automatic vehicle location systems are
OmniTracks, @Track, Onstar, Satellite Security (Global Guard), Trackvehicle and
others. These companies are employing a combination of GPS (satellite-based
location technology) over cellular-like systems. The systems offered by these
companies use satellite-based technologies which usually require the use of
tracking receivers installed in vehicles that work in conjunction with map
display and fleet management software, position reporting formats, and other
communications hardware and components.

Several
companies, including Lo-Jack and Ituran, offer vehicle location systems
utilizing land-based radio networks, in limited areas, that resemble our
solutions. Some offer a similar solution to Nexus and others, like Lo-Jack, use
VHF based messaging unit, without a wide area network, which is sold to
customers and is connected via radio to local law enforcement communication
networks.

7

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Some
of our other competitors offer location based services which conform with the
recent FCC ruling, requiring mobile phones to be equipped with e911
capabilities, such as True Position, Xypoint, CPS and SnapTrack.  In the industrial monitoring market, our
main competitor is Motorola (MOSCAD systems).

Most
of our competitors have substantially greater capital resources and larger
research and development staffs, facilities, marketing and distribution
networks, name recognition and more extensive customer bases than us. While we
plan to continue to improve our products and provide greater functionality than
our products currently provide, we cannot guarantee that we will successfully
differentiate our products from those of our competitors or that the
marketplace will consider our products superior to alternative products. In
addition, our competitors may develop products that render our products
obsolete or less competitive.

We
are subject to several risks as a result of our international sales

To
date, we have sold our products and systems in, Venezuela, USA, Israel, the
Netherlands, Russia and Argentina.  We
are subject to the risks inherent in international business activities,
including changes in the political and economic environment, unexpected changes
in regulatory requirements, foreign exchange controls, tariffs and other trade
barriers and burdens of complying with a wide variety of foreign laws and
regulations. In addition, if for any reason exchange, price controls or other
restrictions on conversion of foreign currencies were imposed, our business
could be negatively impacted. Moreover, certain of our international affiliates
have experienced the following difficulties:

| |  | A severe and rapid
  currency devaluation in Argentina adversely affected Tracsats US dollar
  results. This was mainly due to its inability to increase its peso-denominated
  prices to its customers, while its major costs of inventory and
  infrastructure are denominated in US dollars.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Due to the current
  political instability in Venezuela, the Venezuelan government has imposed
  foreign exchange controls, which have effectively led to the cessation of
  purchase orders of our SVR products and services by our main customer in
  Venezuela.                              

The
technology and standards in the industry in which we operate change rapidly and
the introduction of products using new technology and the emergence of new
industry standards and practices could negatively impact our business.

The
wireless communications industry is characterized by rapid technological
changes. The introduction of products using new technology and the emergence of
new industry standards and practices could make our products less competitive
and cause us to reduce the prices of our products. There are several wireless
communications technologies, including cellular telephone, personal communications
services, specialized mobile radio and mobile satellite services which may be
implemented in the future for applications competitive with the applications we
provide. Although these technologies are currently more expensive than ours,
future implementation and technological improvements could lead to the
production of systems which are competitive with, or superior to ours.

We
cannot assure you that we will timely or successfully develop new or enhanced
products, which will effectively compete with such potential products. Our
business will be negatively impacted if we do not develop technologically
competitive products, which respond to customer needs and are priced
competitively.

Our
products employ proprietary technology, which is difficult to protect and which
may infringe on the intellectual property rights of third parties.

Our
success and our ability to compete greatly depend on our proprietary
technology. We rely on a combination of patent and trade secret laws, together
with non-disclosure agreements and licensing arrangements to establish and
protect proprietary rights in our products. We have been granted certain
patents in the United States and elsewhere; however, we have not invested significant
resources to constantly update and maintain our proprietary technology. We
cannot assure you that these efforts will successfully protect our technology
because:

8

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| |  | the laws of some foreign
  countries may not protect our proprietary rights as fully as do the laws of
  the United States;                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if a competitor were to
  infringe on our proprietary rights, enforcing our rights may be time
  consuming and costly, diverting managements attention and our resources;                                           
| |  | measures like entering
  into non-disclosure agreements afford only limited protection;                                                                                                                              
| |  | unauthorized parties may
  attempt to copy aspects of our products and develop similar products or to
  obtain and use information that we regard as proprietary; and                                                
| |  | our competitors may
  independently develop or patent technologies that are substantially
  equivalent or superior to our technology, duplicate our technologies or
  design around our intellectual property rights.

In
addition, others may assert infringement claims against us. The cost of
responding to infringement claims could be significant, regardless of whether
the claims are valid.

The
use of our systems is subject to international regulations.

The
use of our systems is subject to regulatory approvals of government agencies in
each of the countries in which our systems are operated, including the State of
Israel. We thus obtained in 2001 a regulatory acceptance from the FCC for our
vehicular end-unit device (RMU) and for our SVR receiving base station. Our
operators typically must obtain authorization for each country in which these
systems are installed. While, in general, applicants have not experienced
problems in obtaining regulatory approvals to date, the regulatory schemes in
each country are different and may change from time to time. We cannot
guarantee that approvals, which our operators have obtained, are or will remain
sufficient in the view of regulatory authorities. In addition, we cannot assure
you that operators of our systems will obtain licenses and approvals on a
timely basis in all jurisdictions in which we wish to sell our systems or that
restrictions on the use of our systems will not be unduly burdensome.

Our
potential growth depends, to a great extent, on the success of our domestic
business partners to commercialize our technology and services.

The
commercialization of our systems in each territory in which we operate our
business is performed and controlled by the operators in each of these
territories who license our technology, purchase our infrastructure, market our
services and end units and provide technical support in their territories. In
addition to Tracsat, we do not control any of the other operators. The
implementation of their business plans depends mainly on their marketing
strategies, their future financial stability and the specific requirements and
circumstances in their territories. As we have not implemented a direct sales
approach for the end units, our consecutive end unit sales , future system upgrades and
future infrastructure extensions reflect their penetration rate and successful
sale growth. Our sales and royalties, where applicable, from such territories
depend on our operators continuous success and their continuous decision to
offer these services and products in their respective territories. To date,
such operations are essentially limited to Israel, and if we were to experience
any setbacks with our domestic business partners operating in these
territories, this would have a material adverse effect on our business.

We
may not be able to retain or attract key managerial, technical and research and
development personnel that we need to succeed.

Our
success has largely depended and will depend in the future on our skilled
professional and technical employees, substantially all of whom have written
employment agreements. The competition for these employees is intense. We may
not be able to retain our present employees, or recruit additional qualified
employees, as we require them.

9

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High
levels of inventory could adversely affect our gross margins.

Due
to higher sales forecasts than actually will be realized and cancellations of
orders from customers, we may find ourselves with a higher level of inventory
than we currently need. For the twelve months ended December 31, 2002, we
incurred inventory write-offs of $324,000. As a result of this high level of
inventory, we may be exposed to the risk of a decrease in the value of the
inventory should the price of this inventory drop and our gross margins will be
adversely affected. Furthermore, in the event that we maintain large amounts of
inventory, certain products, if warehoused for too long, might be rendered
obsolete due to modification and improvement of our products, which might cause
us to continue to incur inventory write-offs.

Our
new major shareholder has a controlling stake in the Company.

Pursuant
to the share purchase agreement of March 2003 between Nexus and DBSI
Investments Ltd. (DBSI) by which DBSI and other investors invested
approximately $2.6 million in our company, DBSI Investments Ltd. owns 59% (on a
fully diluted basis) of our issued and outstanding shares, which gives DBSI a controlling
share in the company (see Item 4 Recent Developments). Clal Industries, our
former dominant shareholder, now holds only 0.9% of our share capital following
the DBSI investment. Pursuant to the amendment to our manufacturing agreement
concluded in March 2003 with AMS Electronics Ltd. (AMS), AMS was issued 12.9%
of our issued and outstanding shares (on a fully diluted basis) and executed a
proxy in favor of DBSI such that DBSI would control 71.6% of the shares of the
company.  DBSI effectively controls
matters requiring the approval of our shareholders. Furthermore, DBSI has the right to appoint four out of our
seven directors on our Board of Directors, and thus effectively controls our
Board of Directors.

We
do not expect to distribute cash dividends.

We
do not anticipate paying cash dividends in the foreseeable future. Our Board of
Directors will decide whether to declare any cash dividends in the future based
on the conditions then existing, including our earnings and financial
condition. According to the Israeli Companies Law, a company may distribute
dividends out of its profits, so long as the company reasonably believes that
such dividend distribution will not prevent the company from paying all its
current and future debts. Profits, for purposes of the Companies Law, means the
greater of retained earnings or earnings accumulated during the preceding two
years.

The
market price of our ordinary shares has been, and may continue to be, very
volatile.

The
market prices of our ordinary shares have fluctuated widely. The following
factors, among others, may significantly impact the market price of our
ordinary shares:

| |  | announcements of
  technological innovations or new products by us or our competitors;                              
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | developments or disputes
  concerning patents or proprietary rights;                                                
| |  | publicity regarding actual
  or potential results relating to products under development by us or our
  competitors;
| |  | regulatory development in
  the United States, Israel and other countries;                                          
| |  | delays in our testing and
  development schedules;                                                                  
| |  | events or announcements
  relating to our collaborative relationship with others;                                   
| |  | economic, political and
  other external factors; and                                                               
| |  | period-to-period
  fluctuations in our operating results.                                                           

In
addition, the securities markets in general have experienced volatility, which
has particularly affected the market prices of equity securities of many
companies and companies that have a significant presence in Israel. This
volatility has often been unrelated to the operating performance of such
companies.

Our
Shares have been delisted from the Nasdaq SmallCap Market.

In
August 2002, our shares were delisted from the Nasdaq SmallCap Market and are
now traded on the OTC Bulletin Board because the company failed to comply with
the net tangible assets or stock holders equity requirements for continued
listing set forth in the Market Place Rule 4310(c)(2)(B). Consequently, selling
and buying our securities will be more difficult because of delays in the
timing of transactions and greater difficulty in selling securities and
obtaining accurate quotations. Furthermore, broker-dealers are subject to an
SEC rule that imposes additional sales practice requirements on broker-dealers
who sell low-priced securities to persons other than established customers and
institutional accredited investors. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchasers written agreement to the transaction prior to
sale. These factors may affect the ability of broker-dealers to sell our
ordinary shares and of shareholders to sell our ordinary shares in the secondary
market and in turn could result in lower prices and larger spreads in the bid
and ask prices for our ordinary shares than might otherwise be obtained.

10

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Corporate
governance scandals and new legislation could increase the cost of our operations.

As
a result of recent corporate governance scandals and the legislative and
litigation environment resulting from those scandals, the costs of being a
public company in general are expected to increase in the near future. New legislation,
such as the recently enacted Sarbanes-Oxley Act of 2002, will have the effect
of increasing the burdens and potential liabilities of being a public reporting
company. This and other proposed legislation may increase the fees of our
professional advisors and our insurance premiums.

We
will no longer publicize our quarterly financial statements.

As
a foreign private issuer, we are only required to publicize our annual
financial statements. However, to date, we have disclosed unaudited quarterly
financial statements as a customary practice. In order to minimize general
costs, we have decided to discontinue this practice. From now on, we will only
publish our annual financial information as required by law. As a result, investors
will no longer be able to receive periodic financial information on a quarterly
basis. This will in turn affect their ability to assess the condition of our
results and operations.

Conditions
in Israel affect our operations.

We
are incorporated under the laws of the State of Israel, and the majority of our
offices are located in Israel. We are directly affected by the political,
economic and military conditions affecting Israel. Any major hostilities
involving Israel or the interruption or curtailment of trade between Israel and
its present trading partners could materially adversely affect our business,
financial condition and results of operations. Israels economy has been
subject to numerous destabilizing factors, including a period of rampant
inflation in the early to mid-1980s, low foreign exchange reserves,
fluctuations in world commodity prices, military conflicts and civil unrest.
Since the establishment of the State of Israel in 1948, a state of hostility has
existed, varying in degree and intensity, between Israel and the Arab
countries. In addition, Israel and companies doing business with Israel have
been subject to an economic boycott by the Arab countries. Although Israel has
entered into agreements with some Arab countries and the Palestinian Authority,
and various declarations have been signed in connection with efforts to resolve
some of the economic and political problems in the Middle East, there has been
a significant increase in violence since September 2000 which has continued
with varying levels of severity through 2003, and negotiations between Israel
and Palestinian representatives have ceased. The
political and security situation in Israel may result in certain parties with
whom we have contracts claiming that they are not obligated to perform their
commitments under those agreements pursuant to force majeure provisions.  Any hostilities involving Israel or the
interruption or curtailment of trade between Israel and its present trading
partners could adversely affect our operations and could make it more difficult
for us to raise capital. Furthermore, many of our employees, R&D center and
facility and those of many of our subcontractors are located in Israel, which
is currently experiencing civil unrest, terrorist activity and military action.
Since we do not have a detailed disaster recovery plan that would allow us to
quickly resume business activity, we could experience serious disruptions if
acts associated with this conflict result in any serious damage to our
facilities. Our business interruption insurance may not adequately compensate
us for losses that may occur and any losses or damages incurred by us could
have a material adverse effect on our business. We cannot give any assurance that security and political conditions
will not have such an effect in the future. Any future armed conflicts or
political instability in the region would likely negatively affect business
conditions and harm our results of operations

11

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Furthermore,
all non-exempt male adult permanent residents of Israel especially under the
age of 45, including some of our office holders and employees, are obligated to
perform military reserve duty and may be called to active duty under emergency
circumstances. Recently, there has been a significant call up of military
reservists, and it is possible that there will be additional call-ups in the
future.  While we have operated
effectively despite these conditions in the past, we cannot assess the impact
these conditions may have on us in the future, particularly if emergency
circumstances occur. Our operations could be disrupted by the absence for a
significant period of one or more of our executive officers or key employees or
a significant number of our other employees due to military service. Any
disruption in our operations would harm our business.

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

A
major part of our costs in Israel are not denominated in dollars and may be
influenced from the rate of devaluation of the New Israeli Shekel, while most
of our sales are denominated or made in U.S. dollars.  This exposes us to market risk from changes in foreign exchange
rates  as against the U.S. dollar. Our dollar costs in Israel may increase if
inflation in Israel exceeds the devaluation of the NIS against the dollar or if
the timing of such devaluation lags behind inflation in Israel. Resulting from
the strong devaluation of the NIS against the dollar during 2002, the Consumer
Price Index has steadily risen. For further discussion of such devaluation, see
Item 5, Impact of Inflation and
Devaluation on Results of Operations, Liabilities and Assets and Item 11, Quantitative
and Qualitative Disclosures About Market Risk.
There can be no assurance that we
will not incur losses from such fluctuations.

We
have been participating in R&D, marketing and other programs through which
we received or may be entitled to grants and tax benefits.

We
have received certain grants, programs and tax benefits from the Israeli
Government, the European Union and the BIRD Foundation.  To remain eligible for these grants,
programs and tax benefits, we must comply with certain conditions. In addition,
some of these programs may restrict our right to manufacture products or
transfer our technology outside of Israel. If we do not meet these conditions
in the future, the benefits we receive could be canceled and we may have to
refund payments previously received under these programs. We cannot guarantee
that these programs and tax benefits will be continued in the future, at their
current levels or at all. In January 2003, we received a letter from the Israel
Investment Center asserting that we did not fully implement our approved
investment program and as such, all of the benefits we received under this
approved investment program may be cancelled. If these programs and tax
benefits are ended, our business, financial condition and results of operations
could be adversely affected.

We
have been and may continue to be negatively affected by the aftermath of the
September 11 events.

Terrorist
attacks that occurred in New York and Washington, D.C., on September 11, 2001,
the war in Iraq and other acts of violence or war have affected and may
continue to materially affect the markets on which our securities trade, the
markets in which we operate, our operations and profitability.  In the aftermath of the September 11, 2001
terrorist attacks on the United States, the United States-led coalition of
nations commenced a series of retaliatory military strikes in Afghanistan upon
strategic installations of the Taliban regime, and governmental intelligence
authorities issue from time to time warnings of the imminent threat of further
attacks against civilian and military installations. On March 17, 2003, a
coalition of countries led by the United States and the United Kingdom commenced
large-scale military action against Iraq with the avowed purpose of effecting a
change in the Iraqi regime. This conflict has now ended with the collapse of
the regime of Saddam Hussein. These attacks and armed conflicts, as well as the
uncertainty surrounding these issues, have had, and we expect will continue for
the unforeseeable future to have, an adverse effect on the global economy, and
could result in a disruption of our business or that of our customers. In
addition, these events may discourage foreign travel to Israel, which could
detrimentally affect our business. Thus far, in 2002,
market instability caused a significant slow-down in the demand for our
products.

12

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Service
and enforcement of legal process.

Service
of process upon directors and officers of the Company and the Israeli experts
named herein, all of who reside outside the United States, may be difficult to
effect within the United States. Furthermore, since the majority of our assets
are located outside the United States, any judgment obtained against us in the
United States may not be enforceable within the United States. We have been
informed by our legal counsel in Israel, Yigal Arnon & Co., that there is
doubt as to the enforceability of civil liabilities under the Securities Act
and the Exchange Act in original actions instituted in Israel. However, subject
to certain time limitations, Israeli courts may enforce United States final
executory judgments for liquidated amounts in civil matters obtained after due
trial before a court of competent jurisdiction (according to the rules of
private international law currently prevailing in Israel) which enforces
similar Israeli judgments, provided that: (i) due service of process has been
effected; (ii) such judgments or the enforcement thereof are not contrary to
the law, public policy, security or sovereignty of the State of Israel; (iii)
such judgments were not obtained by fraud and do not conflict with any other
valid judgment in the same matter between the same parties; and (iv) an action
between the same parties in the same matter is not pending in any Israeli court
at the time the lawsuit is instituted in the foreign court.

Risks Affecting Our Subsidiaries

We
depend on the success of Tracsat S.A., our subsidiary in Argentina

Revenues
generated by our subsidiary in Argentina, Tracsat, have been consistently
growing since the beginning of 2002. We depend on the ability of Tracsat to
maintain its success and market penetration. We cannot assure you that Tracsat
will be able to successfully maintain its achievements because it depends on
many factors, many of which Tracsat do not control, such as:

          General
political and economic circumstances in Argentina  as of 2002, Tracsat has
been negatively effected by a severe and rapid currency devaluation in
Argentina.

          Trends
in the Argentinean insurance industry.

          Rate
of car theft, value of cars and other inherent factors related to the Stolen
Vehicle Recovery Business.

          Competition
and customer satisfaction.

Tracsat
depends on a small number of customers and business partners.

Tracsat
depends on a small number of customers and business partners and its future
depends on its ability to maintain existing customers and business partners and
attract new customers and business partners. Revenues in Argentina are mainly
generated from two customers. If any of our current customers cease to do
business with us, or if we fail to attract new customers or business partners
our operations could seriously be harmed or we may have to cease operations
altogether under certain circumstances.

The volatile exchange rate
between the Argentinean Peso and the U.S. dollar may negatively impact the
results of our operations.

Due
to the increasing impact of the results of Tracsat on our consolidated
financial results, and the fact that most of its revenues are not denominated
in dollars the significant devaluation in the Argentinean Peso and continuing
economic instability in Argentina could have a severe negative effect on the
business and overall profitability of Tracsat. Because we depend on the
profitability of Tracsat, our business could also be severely damaged as a
consequence. Under certain circumstances we may be forced to cease operations
as a result

13

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The
future operations of our subsidiaries may depend on their ability to obtain
additional financing.

Although
Tracsat has reached its operational stage through our effective management
efforts, it still depends on our financial support, primarily due to economic
conditions in Argentina. We cannot assure our continuous ability to finance
Tracsat or to find other finance alternatives for Tracsat in a timely manner,
especially with respect to the prevailing economic conditions in Argentina.
Tracsats future operations may be materially affected if we do not continue to
provide it with additional funding at the rates currently being made by us.

ITEM 4.    INFORMATION ON THE COMPANY

A.          HISTORY
AND DEVELOPMENT OF THE COMPANY

We
develop, manufacture and market low energy and cost effective wireless communications
and location based information systems through the application of digital
spread spectrum technologies. Our security and safety services business is
predominantly performed through our business partners in Israel and Latin
America.

The
Company was founded in 1991 by BVR Technologies Ltd. At that time, we began
developing specialized long-range wireless solutions for location and messaging
applications, using Frequency Hopping Spread Spectrum technology. Our legal and
commercial name is Nexus Telocation Systems Ltd, and through December 1997 we
operated under the name Nexus Telecommunication Systems, Ltd. We operate under
the Israel Companies Law  1999. Our shares are publicly traded on the
Over-The-Counter Bulletin Board under the symbol NXUS.  Our executive offices and research and
development main facilities are located in 1 Korazin Street, Givatayim, 53583,
Israel, telephone number 972-3-572-3111. The headquarters of our subsidiary,
Tracsat S.A., are located in Buenos Aires, Argentina. Our Web site is www.nexus.telocation.com.  Information on our web site is not
incorporated by reference in this annual report.

Recent Developments

Since
January 1, 2002, the following important events have occurred to us:

Sale of NexusData and the discontinuance of
our AMR operations

We
previously engaged in the Automated Meter Reading (AMR) industry through our
wholly-owned U.S. subsidiary, NexusData, Inc. In June 2001, NexusData entered
into a major contract with IMServ, a division of Invensys PLC, to deliver the
first full utility deployment of its AMR system to service the Atlanta Gas
Light Corporation. The minimum contract commitment for $50,000,000 was to have
serviced at least 1.3 million homes and businesses with daily automated gas
consumption reads; however, due to facts unknown to us, the entire project was
abandoned and caused severe financial damage to NexusData and to us.  This severe setback caused us to reach our decision
to discontinue our AMR operations and sell all of our holdings in NexusData to
Storm Consulting Inc. (Storm) for a variable consideration between zero and
$1 million, which will be paid if NexusData has four consecutive cash positive
quarters and net assets of at least $10 million. Pursuant to its purchase of
NexusData, Storm has assumed certain liabilities of NexusData and has
undertaken to invest the necessary resources to maintain NexusDatas core
technology and business relationships with existing and potential customers.

Sale of Ordinary Shares and Warrants to
DBSI and additional investors

In
March 2003, we entered into a share purchase agreement with DBSI Investments
Ltd. and additional investors. Pursuant to the share purchase agreement, DBSI
and the additional investors invested approximately $2.6 million in
consideration for our ordinary shares and warrants to purchase ordinary shares
at a purchase price of $0.044 per share. Each investor was issued a warrant to
purchase seven ordinary shares for every 10 shares purchased under the
agreement. Pursuant to this agreement, DBSI is entitled to designate four of
the seven members of our Board of Directors. Under the share purchase
agreement, the investors were granted certain demand and piggyback registration
rights. In addition, all preemptive rights granted to shareholders of Nexus
have also been terminated pursuant to the share purchase agreement and there
are no longer any preemptive rights in the Company.  In connection with the share purchase agreement, we reached an
agreement with the primary manufacturer of our end products, AMS Electronics
Ltd. (AMS). Pursuant to this agreement, AMS converted $723,000 of convertible
debentures issued to it, and we repaid AMS an amount of $300,000. DBSI
Investments Ltd. entered into a management agreement to render management
services to us in consideration for a management fee of $180,000. As part of
the share purchase agreement, we have also reached certain agreements with Bank
Hapoalim, regarding new terms for long term and short term loans, overdraft and
bank guarantees in favor of the company.

14

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Manufacturing Agreement with AMS
Electronics Ltd.

In
January 2002, we entered into a major manufacturing agreement with our
long-term partner, AMS Electronics Ltd. (AMS), for the manufacture of a
significant portion of our end units and those of NexusData, minimally valued
at $36 million.  Pursuant to the share
purchase agreement with DBSI Investments Ltd., a letter agreement was signed
between AMS and Nexus in March 2003 (the Letter Agreement). The Manufacturing
and Purchase Agreement was amended such that we were released from our
undertaking to issue purchase orders to AMS minimally valued at $36 million and
have committed to make purchases of our end units from AMS amounting to at least
$10 million over the course of a four-year period, provided that there is
actual demand for these products from our customers.  In addition, we will not be liable for any liabilities of
NexusData under the Manufacturing and Purchase Agreement and in no event shall
a claim be made by AMS against us relating to NexusDatas liabilities.  Pursuant to the amendment to the
Manufacturing and Purchase Agreement, AMS was granted exclusivity and/or rights
of first refusal in connection with its manufacture of our products.

In
January 2002, we concluded a share purchase agreement with AMS pursuant to
which AMS purchased 400,000 ordinary shares of the company for a purchase price
of $1,000,000. AMS was also granted a warrant to purchase an additional 165,000
ordinary shares in the company at $3.75 per share.  We also issued a convertible debenture to AMS for the value of
$1,000,000 to be paid to AMS by January 2005 or convertible into ordinary
shares of the company; in March 2003, AMS converted $723,000 of this debenture
into ordinary shares, and received an additional $300,000 in cash.

Cessation of Operations in Chile, Florida
and China

Since
the formation of our Chilean affiliate, Ubinet Telcom S.A. (Ubinet), in May
2000, Ubinet deployed our Nexusphere Network in Chile and received several
purchase orders totaling approximately $2.5 million. In October 2001, we
received a $2.5 million purchase order for the deployment of our Nexusphere LBS
infrastructure in Florida by Tri Angle LLC, a company mainly funded by Ubinets
shareholders. However, due to the cessation of all of the technology operations
in Chile of Ubinets major shareholders, Ubinet has been unable to continue
raising money for its technology operations. In the second quarter of 2002,
Ubinet submitted an application to a Chilean court for a preventive judicial
creditors agreement, primarily due to Ubinets limited business success.
During the first quarter of 2003, Ubinet sold its Nexus system to a third
party. Our operations in Miami, through our South Floridian operator, Tri Angel
LLC, were similarly affected due to its shareholders inability to meet their
financing obligations. Its operations were ceased in July 2002. In March 2002,
we received our first purchase order in a total amount of $1 million for the
deployment of our Nexusphere LBS infrastructure in the entire city of Beijing,
China; however, this project in China was eventually cancelled due to reasons
unknown to us.

B.          BUSINESS
OVERVIEW

Location Based Services

We
are engaged in the development, production and marketing of our Nexusphere
which can deploy an array of commercial wireless applications in the fields of
Location Based Services. We have recently decided to focus on specific
applications including stolen vehicles recovery (SVR) services utilizing our
AVL architecture and Remote Mobile end-unit devices (RMUs), remote monitoring
and control of commercial assets through our Industrial Monitoring and Control
(IMU) end-user devices. We believe that our Nexusphere technology will
generally provide a cost-effective alternative for security, safety, asset
location based management services offering increased operational reliability
and lower operational costs.

15

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The Nexusphere Network

Our
Nexusphere network specializes in developing spread spectrum technology (SPSP)
intended for wide area networks (WAN). Among the advantages of the Nexuspheres
utilization of the spread spectrum technology includes the following
distinctive features: resistance to interference, overcoming of fading caused
by multipath and highly sensitive receivers.

The
Nexusphere network was developed in order to fulfill a gap in demand for cost
effective, low payload data burst communication, incorporating location-based
services.

The
following are some of the available applications of the Nexusphere:

Stolen Vehicles Recovery (SVR) and
Additional Car Related Services:

The
Nexusphere system comprises unique features, which provide the following SVR
solutions:

| |  | Inclusion of communication
  & location.                                 
| | - | -------------------------------------------------------------------------
| |  | Concealed terminal.                                                      
| |  | Resistance to jamming.                                                   
| |  | Indoor positioning.                                                      
| |  | Low cost.                                                                
| |  | Integrated
  alarm system.                                               
| |  | Road-side assistance and
  workforce management.                         
| |  | Remote command.                                                          
| |  | Accuracy.                                                                
| |  | Back-Up Power Supply.                                                    
| |  | Time synchronization.                                                    
| |  | 24x7 redundant command and
  control center (CCC).                       
| |  | Roaming capability.                                                      
| |  | Remote display stations
  connected either directly or over the Internet.

Fleet Management & Telematics

Nexusphere
provides limited Fleet Management capabilities, which ensure that vehicles, and
their merchandise, arrive when and where they are expected. The transceiver can
connect to various sensors by RS-422 or RS-232 standards, or by discrete (on or
off) wirelines. The sensors monitor various vehicle operating systems, and the
transceiver will report the results to the fleet owners and managers.

Wireless Remote Monitoring & Control
Security and Industrial Applications

The
Nexusphere system offers a total remote monitoring and control solution.
Connecting the terminals to remote generators, fire systems and home alarm
systems provides a link to safety and security command & control centers
that is difficult to jam or interfere with. In practice, Nexus terminals
provide a full array of protection and security services for individual
persons, vehicles, homes, boats, industrial and personal assets.

Assets Surveillance & Protection (ASAP)

As
part of our Nexusphere System, we are currently in the development phases of
assessing industry needs and developing applications to provide solutions in
the field of Assets Surveillance & Protection (ASAP). ASAP is based on a
terminal, which is attached to the asset and a terrestrial communication &
location system.

16

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ASAP
systems are most commonly employed by transportation companies, insurance
companies, manufacturers and users of assets and crude materials. ASAP systems
can provide instant warning and location in the event of hazardous chemical
leakage or road accidents.

A
Nexus-led project with a consortium of eight European companies, consisting of
technology developers and transportation companies, was established in December
2001 to develop and test an ASAP solution. This solution is expected to be
demonstrated in the third quarter of 2003 and we hope that the demonstration
will support our activity to leverage the unique advances of our technologies over
other alternatives.  The consortium
members and the European Union, through its Information Society Technologies
committee, will co-sponsor the research and development. The European Union has
agreed to fund approximately 50% of the overall project cost for a period of 24
months. However, we cannot assure that the project will succeed or that we
will benefit from its outcome.

Nexusphere System Architecture

System Layout

The
architecture of our Nexusphere system allows easy integration with existing
infrastructures, low-cost expansion, development of multiple applications, and
access to the internet and public switched telephone network gateways, which
provides the following advantages:

| |  | high receiver sensitivity;                                           
| | - | ---------------------------------------------------------------------
| |  | longer transmission
  ranges;                                        
| |  | resistance to
  interference;                                        
| |  | high system reliability
  and flexible configuration; and            
| |  | cost-effectiveness in
  system design, implementation and operations.

Location Process

Accurate,
reliable data reception and location capability is the key to security related
wireless communications systems. Land-based AOA (Angle of Arrival) technologies
offer two-way messaging and positioning solutions that provide a high degree of
reliability, resistance to interference, and receiver sensitivity.

Sales and Marketing

We employ two types of marketing & sales methods:

| |  | Directly through our in
  house sales force and through our wholly owned subsidiaries. Our internal
  sale and marketing activities are primarily performed through our initiation
  of new business opportunities in new territories with local partners and our
  supporting of existing operations and customers with new applications and
  additional services offered by us and residing over the Nexusphere system;
  and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Regional agents
  responsible for promoting our technologies and introducing us to potential
  partners or existing wireless operators interested in offering location based
  services as stand-alone operations or by adding those services to their
  existing portfolio.                                                                                                                                                    

We
typically implement one of the two following sales agreements:

| |  | Direct sales of
  infrastructure, ongoing sales of end unit devices and ongoing support
  services; and
| | - | -------------------------------------------------------------------------------------------------------

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| |  | Joint ventures with local
  financial and operational partners. The sales agreements with the joint
  ventures are similar to our direct sales agreements.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------

Our
business partners in the territories (in both business models mentioned above)
are responsible for the commercialization of our services in their designated territories
and licensed coverage area. They control the sales and marketing of the end
user devices as well as services to the final customers according to their
business focus and business plans.

We
directly manage our marketing and sales activities in the key strategic
territories designated by the company. Currently, we focus our marketing and
sales activities in leading markets in Latin American countries.  We are currently concentrating our efforts
towards expanding our presence in South America. Since the termination of our
agreement with GWH in the first quarter of 2001, our strategic alliances are
managed directly with the assistance of local agents, as required.

Sales and Marketing of our Subsidiaries

Tracsat, S.A.

Tracsat
is our Argentinean subsidiary. We currently own 90.4% of Tracsats share
capital and 97.5% of its voting rights, while 2.5% of the voting rights are
held by its new local management. Tracsat is the Argentinean operator of our
AVL systems and products, focusing mainly on the SVR (Stolen Vehicle Recovery)
business line. In August 2001, we initiated the commercialization process of
Tracsat in grand Buenos Aires. Since our acquisition of Tracsat, the companys
management, its infrastructure and supporting services have changed.
Furthermore, end user devices installations have been performed through direct
sales and stolen vehicle recovery service agreements, primarily with local insurance companies. Tracsats
commercial operations are progressing to our satisfaction as its subscriber
base is steadily increasing while achieving satisfactory recovery rates.
However the company is facing difficulties in attracting new investment
partners, primarily due to the current economic and political conditions in
Argentina.

The
following is a breakdown of our sales by geographic region, including the
percentage of our total consolidated sales for each period:

|              |  | 2002         |       | 2001                    |  | 2000         | 
|------------- |  | ------------ | ----- | ----------------------- |  | ------------ | 
|              |  |              |       |                         |  |              | 
|              |  | In thousands |       | % of our 
  total sales |  | In thousands | 
|              |  |              |       |                         |  |              | 
|U.S.A         |  |              | 820   |                         |  | 12.9         | 
|              |  |              |       |                         |  |              | 
|South America |  |              | 3,833 |                         |  | 60.3         | 
|              |  |              |       |                         |  |              | 
|Israel        |  |              | 1,592 |                         |  | 25.0         | 
|              |  |              |       |                         |  |              | 
|Other         |  |              | 116   |                         |  | 1.8          | 
|              |  |              |       |                         |  |              | 
|              |  |              |       |                         |  |              | 
|Total         |  |              | 6,361 |                         |  | 100.0        | 
|              |  |              |       |                         |  |              | 

Government
Regulations

The
FCC first authorized the unlicensed use of spread spectrum devices in the 902
to 928 MHz band in 1985. As an incentive for the increased development of
spread spectrum technology, the FCC subsequently amended its rules to allow the
unlicensed use of higher power spread spectrum systems within the 902 to 928
MHz band than had originally been authorized for the ISM (industrial,
scientific and medical) band. While the FCC has in the past encouraged the
development of new spread spectrum devices for unlicensed services, there can
be no assurance that the FCC will not require licensing at some time in the
future for the ISM band.

18

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Most
Latin America countries have dedicated a part of their radio spectrums for the
ISM band for unlicensed services, however, the local operator is required
to obtain a specific license for its operations. Our local operators in
Venezuela and Argentina have been required to obtain domestic licenses for the
deployment of our Nexusphere systems in these countries. In Israel, the
Ministry of Communications has allocated the 960 to 968 MHz band for similar
applications.

The
FCCs technical requirements for unlicensed spread spectrum devices operating
in the 902 to 928 MHz band can be found in Part 15, Section 247 of the FCCs
rules. In general, these rules permit greater output power for spread spectrum
systems (up to 1 watt) than other unlicensed devices due to the lower
interference potential of spread spectrum systems. Although an FCC license for
the use of spread spectrum devices operating within the technical parameters
applicable to the 902 to 928 MHz band is not necessary, FCC authorization of
spread spectrum transmitting equipment is nonetheless required. We have
obtained such authorization for our RMU.

Nexusphere
technology involves joining FCC-licensed conventional paging service with an
FCC-authorized unlicensed service to provide a new service that replicates
FCC-licensed two-way messaging and/or automotive vehicle monitoring services.
The use of Nexusphere technology to provide these services may accordingly
attract the scrutiny of the FCC, particularly if the companies offering
services using Nexusphere technology make substantial inroads in the market and
competitors who have purchased (or will purchase) spectrum licenses in the FCC
auction seek relief from the FCC. While the FCC has the authority to amend its
rules and regulations in ways that could have a material adverse effect on our
ability to exploit Nexusphere technology, it is uncertain whether the FCC would
do so.

The
use of products incorporating our technology in the State of Israel requires a
license from the Israel Ministry of Communications. In May 1996, Eden was
granted an operational license to operate our wireless messaging system over 2
MHz in the 966 to 968MHz radio spectrum band. Since 1999, this license has been
renewed on a regular basis.

Governmental
regulations in certain other countries which are potential markets for
Nexusphere products and services will require the issuance of a license to use
a portion of the radio frequency spectrum and authorization for the use of
end-user units employing our technology.

Competition

Our
primary competitors in the market for automatic vehicle location systems are
OmniTracks, @Track, Onstar, Satellite Security (Global Guard), Trackvehicle and
others. These companies employ a combination of GPS (satellite-based location
technology) over cellular-like systems. The systems offered by these companies
use satellite-based technologies which usually require the use of tracking
receivers installed in vehicles that work in conjunction with map display and
fleet management software, position reporting formats, and other communications
hardware and components.

Several
companies, including Lo-Jack and Ituran, offer vehicle location systems
utilizing land-based radio networks, in limited areas, that resemble our
solutions. Some offer a similar solution to Nexus, and others, like Lo-Jack,
use VHF based messaging unit without a wide area network, which is sold to
customers and is connected via radio to local law enforcement communication
networks.

Other
competitors offer location based services which confirm with the 911 FCC ruling
such as True Position, Xypoint, CPS and SnapTrack. In the industrial monitoring
market, the main competitor is Motorola (MOSCAD systems).

Most
of our competitors have substantially greater capital resources and larger
research and development staffs, facilities, marketing and distribution
networks, name recognition and more extensive customer bases than we do. While
we plan to continue to improve our products and provide greater functionality
than our products currently provide, we cannot guarantee that we will
successfully differentiate our products from those of our competitors or that
the marketplace will consider our products superior to alternative products. In
addition, our competitors may develop products that render our products obsolete
or less competitive

19

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C.          ORGANIZATIONAL
STRUCTURE

The
legal and commercial name of our company is Nexus Telocation Systems Ltd. We
were incorporated under the laws of the State of Israel in 1991 under the name
Nexus Telecommunications Systems Ltd. In 1997 we changed our name to Nexus
Telocation Systems Ltd.

The
following is a list of our currently active subsidiaries and their countries of
incorporation:

|NAME OF SUBSIDIARY                          |  | JURISDICTION OF INCORPORATION
|------------------------------------------- |  | -----------------------------
|Euryte  B.V.                                |  | The  Netherlands             
|Tracsat S.A.                                |  | Argentina                    
|Nexus Telocation Systems North America, LLC |  | United States                

See
the Appendix to our consolidated financial statements included elsewhere in
this annual report for information regarding the ownership of our subsidiaries
as of December 31, 2002.

D.          PROPERTY,
PLANTS AND EQUIPMENT

Our
executive offices, research and development and laboratory facilities are
located in Givatayim, Israel (a suburb of Tel Aviv). We currently lease
approximately 12,260 square feet and our annual lease payments are
approximately $160,000. Tracsats offices and operations facility are located
in Buenos Aires. Tracsat currently leases 8,900 square feet with an annual lease
payment of $42,000.

See
Note 10 of our Consolidated Financial Statements for information on our liens,
pledge and guarantees.

ITEM
5.              OPERATING
AND FINANCIAL REVIEW AND PROSPECTS

A.          OPERATING
RESULTS

Critical Accounting Policies

In
response to the Securities Exchange Commissions Release No. 33-8040,
Cautionary Advice Regarding Disclosure About Critical Accounting Policies, we
identified the most critical accounting principles upon which our financial
statements are based. We determined the critical principles by considering
accounting policies that involve highly complex or subjective decisions or
assessments. We identified our most critical accounting policies to be those
related to revenue recognition and impairment of long-lived assets .
We have stated these accounting policies in Note 2 to
the consolidated financial statements, which are incorporated herein by
reference.

Selected Financial Data

The
following selected financial data has been derived from our audited
consolidated financial statements for the periods, which have been prepared in
accordance with Israeli GAAP. Pursuant to the sale of all our holdings in
NexusData, the assets, liabilities, operating results and cash flows attributed
to NexusData have been deemed to be discontinued operations (see Note s 18 and 1b to our
consolidated financial statements); accordingly, our comparative financial data
has been reclassified for all periods presented in this annual report. See Note
16 to our consolidated financial statements for a reconciliation of material
differences between Israeli GAAP and U.S. GAAP for the years presented. The
financial data set forth below should be read in conjunction with our
consolidated financial statements and the notes thereto and the other financial
information appearing elsewhere in this annual report.

20

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|                                                                  |  | 1998 |  | 1999    |   | 2000 |  | 2001 |        | 2002 | 
|----------------------------------------------------------------- |  | ---- |  | ------- | - | ---- |  | ---- | ------ | ---- | 
|                                                                  |  |      |  |         |   |      |  |      |        |      | 
|Statement of Income Data:                                         |  |      |  |         |   |      |  |      |        |      | 
|Revenues, sales                                                   |  |      |  | $8,598  |   |      |  |      | $3,810 |      | 
|Revenues, services                                                |  |      |  |        |   |      |  |      |       |      | 
|                                                                  |  |      |  |         |   |      |  |      |        |      | 
|Total Revenues                                                    |  |      |  | 85,98   |   |      |  |      | 3,810  |      | 
|                                                                  |  |      |  |         |   |      |  |      |        |      | 
|Cost of revenues, sales                                           |  |      |  | 6,863   |   |      |  |      | 5,325  |      | 
|Cost of revenues, services                                        |  |      |  |        |   |      |  |      |       |      | 
|                                                                  |  |      |  |         |   |      |  |      |        |      | 
|Total Cost of Revenues                                            |  |      |  | 6,863   |   |      |  |      | 5,325  |      | 
|Gross profit (loss)                                               |  |      |  | 1,735   |   |      |  |      | (1,515 | )    | 
|Research and development
  costs, net                             |  |      |  | 4,576   |   |      |  |      | 1,334  |      | 
|Selling, general and
  administrative 
  expenses                 |  |      |  | 5,652   |   |      |  |      | 4,984  |      | 
|Operating loss                                                    |  |      |  | (8,493  | ) |      |  |      | (7,833 | )    | 
|Financial expenses                                                |  |      |  | (22     | ) |      |  |      | (833   | )    | 
|Other income (expenses)                                           |  |      |  | (9      | ) |      |  |      | (337   | )    | 
|                                                                  |  |      |  |         |   |      |  |      |        |      | 
|                                                                  |  |      |  | (8,524  | ) |      |  |      | (9,003 | )    | 
|Minority
  interest in losses of a 
  subsidiary                  |  |      |  | 441     |   |      |  |      |       |      | 
|Loss from continuing operations                                   |  |      |  | (8,083  | ) |      |  |      | (9,003 | )    | 
|Net Loss for the year                                             |  |      |  | (10,334 | ) |      |  |      | (9,997 | )    | 
|Basic and diluted net loss per share from
continuing operations   |  |      |  | (2.01   | ) |      |  |      | (2.03  | )    | 
|Basic and diluted net loss
  per share                            |  |      |  | (2.58   | ) |      |  |      | (2.25  | )    | 
|Weighted average number of
  
  shares outstanding (in thousands) |  |      |  | 4,026   |   |      |  |      | 4,442  |      | 
|                                                                  |  |      |  |         |   |      |  |      |        |      | 
|Balance Sheet Data:                                               |  |      |  |         |   |      |  |      |        |      | 
|Total assets                                                      |  |      |  | 13,331  |   |      |  |      | 7,921  |      | 
|Net assets (liabilities) of continuing 
operations                |  |      |  | 2,030   |   |      |  |      | (4,131 | )    | 
|Working capital (deficit)                                         |  |      |  | (2,798  | ) |      |  |      | (2,578 | )    | 
|Convertible debentures                                            |  |      |  |        |   |      |  |      | 3,000  |      | 
|Shareholders equity
  (deficiency)                               |  |      |  | 2,457   |   |      |  |      | (3,991 | )    | 
|Share capital                                                     |  |      |  | 41      |   |      |  |      | 43     |      | 
|Additional paid-in capital                                        |  |      |  | 42,116  |   |      |  |      | 45,574 |      | 

Operating
Results

The
following table sets forth, for the periods indicated, the relationship (in
percentages) of items from our Statement of Operations Data to our total sales:

|                                                    |  | Year Ended December 31, |     
|--------------------------------------------------- |  | ----------------------- | ----
|                                                    |  |                         |     
|                                                    |  | 2002                    |     
|                                                    |  |                         |     
|Revenues                                            |  |                         | 100%
|Cost of Sales &
  Services                          |  |                         | 70  
|Gross profit                                        |  |                         | 30  
|Research and development
  expenses, 
    net       |  |                         | 22  
|Selling, general and
  administrative 
    expenses |  |                         | 53  
|Operating Income (loss)                             |  |                         | (45 

Twelve
Months Ended December 31, 2002 Compared with Twelve Months Ended December 31,
2001

Sales.Our sales are
derived primarily from the sale of our Nexusphere products and systems,
including base stations, end user units, technical support and services to the
systems and royalties calculated on the number of users connected to our
Nexusphere network as well as from the sale of our Stolen Vehicle Recovery
services in Argentina through Tracsat. A substantial portion of our sales each
year, and the majority of our yearly increases in sales, in terms of dollar
amounts as well as volume of sales, are generated by repeat orders from our
existing customer base. Our revenues consist of (i) new installations of our
systems, (ii) royalties from the use of our sold products and
(iii) consecutive sales of our end unit devices and supporting expansion
of our infrastructure products for existing
customers. Sales sharply decreased 51% (or $6.1 million (from $12.5 million in 2002 to $6.4 million in
2001. The major decrease in revenues resulted from the sharp decrease in end
unit sale volume to our customer in Venezuela, which was offset by the increase
in sales of our SVR services in Argentina.

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Cost of Revenues.Cost of revenues consists of (i) direct and
indirect materials, (ii) subcontracting works, (iii) direct labor, (iv)
depreciation and amortization and (v) other operating indirect costs. Our cost
of sales decreased to 70% from yearly sales in 2002 as compared to 82% in 2001.
This decrease was primarily the result of the Tracsats improved results in
2002.

Gross Profit.Gross profit decreased by $411,000 from a
gross profit of $2,296,000 in 2001 to a gross profit of $1,885,000 in 2002.

Research and Development Costs. Research and development costs consist
primarily of salaries and related costs of employees engaged in ongoing
research and development, costs of materials, subcontractors, depreciation and
other expenditures. Research and development expenses decreased by 17% to $1.4
million in 2002 from  $1.7 million in
2001.

Selling and Marketing Expenses. 
Selling expenses consist of costs relating to promotion, marketing,
labor costs, trade shows and exhibitions, sale commissions, sales support,
travel and travel-related expenses. During 2002, we decreased our selling and
marketing costs by 50%, from $2.2 million in 2001 to $1.1 million in 2002,
mainly due to decreased commission payments derived from decreased sales and
reduced labor costs.

General and Administrative Expenses.General and administrative expenses consist
of (i) labor costs for management and administration personnel; and
(ii) office maintenance and administrative costs, legal and accounting
expenses and provision for doubtful debts. General and administrative expenses
slightly increased from $2.232 million in 2001 to $2.284 million in 2002.

Operating (Loss).As a result of the foregoing, our operating
loss in 2002 decreased to $2,883,000 compared to an operating loss of
$3,815,000 in 2001, mainly due to the reduction of operating expenses offset by
the affect of decreased revenues.

Financial Income  (Expenses). Financial income (expenses) consists of
interest derived on short-term bank deposits, and expenses with respect to bank
charges and interest on a short term bank credit, interest on convertible
debentures and differences in the rate of exchange between the US dollar and
other currencies (mainly to the New Israel Shekel). In 2002, our net financial
expenses amounted to $266,000 compared to $209,000 in 2001.

Net Income (Loss).In 2002 we had a net loss of $7,589,000 as
compared to a net loss of $8,463,000 in 2001 and $20,508,000 in 2000. Out of
this total loss of $20.5 million, $13.0 million resulted from a one-time,
cash-less write-off. NexusDatas discontinued operations contributed to a loss
of $4 million in 2002 and $5.2 million in 2001.

Twelve Months Ended December 31, 2001 Compared with Twelve
Months Ended December 31, 2000

Sales.Sales sharply increased 107% (or $6.5 million (from $6.0 million in 2000 to $12.5 million in
2001. The major increase in revenues resulted from the increase in end unit
sale volume to our customers in South America and Israel.

Cost of Revenues.Our cost of sales increased to 82% from
yearly sales, in 2001, as compared to 75% in 2000. This increase was the result
of the incorporation of Tracsat S.A, while most of the sale increase was not
attributed to Tracsat.

Gross Profit.Gross profit increased by $759,000 from a gross
profit of $1,537,000 in 2000 to a gross profit of $2,296,000 in 2001.

Research and Development Costs. Research and development expenses increased
by 18% to $1,654,030 in 2001 from $1,397,000 in 2000.

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Selling and Marketing Expenses. 
During 2001, we increased our selling and marketing costs by 79%, from
$1,243,000 in 2000 to $2,225,000 in 2001, mainly due to increased commission
payments derived from the increased sales, additional labor costs and travel
expenses.

General and Administrative Expenses.General and administrative expenses slightly
decreased by 14% from $2,595,000 in 2000 to $2,232,000 in 2001, although there
was an increase in our doubtful debts.

Operating Income (Loss).As a result of the foregoing, our operating
loss in 2001 decreased to $3,815,000 compared to an operating loss of
$3,698,000 in 2000.

Financial Income  (Expenses). In 2001, our net financial expenses slightly
decreased to $209,000, compared to $221,000 in 2000.

Net Income (Loss).In 2001 we had a net loss of $8,463,000 as
compared to net loss of $20,508,000 in 2000. This relatively heavy loss in 2000
is primarily attributable to the one time, cash-less expense, deriving from the
write off of our investment in GWH, amounting to $13 million, which occurred in
2000. In addition, NexusDatas discontinued operations contributed to a net
loss of $5,204,000 in 2001 and $3,063,000 in 2000.

Impact of Inflation and Devaluation on Results of Operations,
Liabilities and Assets

For
many years prior to 1986, the Israeli economy was characterized by high rates
of inflation and devaluation of the Israeli currency against the U.S. dollar
and other currencies.  However, since
the institution by the Israeli government of an economic recovery program in
1985, inflation, while continuing, has been significantly reduced and the rate
of devaluation has been substantially diminished.

Since
the majority of our revenues are denominated and paid in U.S. dollars, we
believe that inflation and fluctuations in the U.S. dollar exchange rate have
no material effect on our revenue. Inflation and U.S. dollar exchange rate
fluctuations, however, have some effect on our expenses and, as a result, on
our net income. Salaries of our employees in Israel, are paid in Israeli shekels.
These salary payments constitute the main portion of the costs of our
operations in Israel. The dollar value of these salaries has decreased since
the end of 2001 as a result of the depreciation of the Israeli shekel against
the US dollar, which has not been offset by the rate of inflation in Israel.

The
exchange rate has fluctuated during the past six months from a high of NIS
4.929 to the dollar to a low of NIS 4.373 to the dollar.  The average high and low exchange rates
between the NIS and U.S. dollar during the six most recent months, as published
by the Bank of Israel, were as follows:

|MONTH         | HIGH               | LOW               
|------------- | ------------------ | ------------------
|              |                    |                   
|              | 1 U.S. dollar =    | 1 U.S. dollar =   
|December 2002 | NIS          4.791 | NIS          4.632
|January 2003  | 4.898              | 4.769             
|February 2003 | 4.929              | 4.81              
|March 2003    | 4.858              | 4.687             
|April 2003    | 4.671              | 4.521             
|May 2003      | 4.577              | 4.373             

The average exchange rate,
using the average of the exchange rates on the last day of each month during
the period, for each of the five most recent fiscal years, was as follows:

|Period                                | Exchange Rate
|------------------------------------- | -------------
|                                      |              
|                                      |              
|January 1, 1998  December
  31, 1998 | 3.810 NIS/$1 
|January 1, 1999  December
  31, 1999 | 4.1396 NIS/$1
|January 1, 2000  December
  31, 2000 | 4.0733 NIS/$1
|January 1, 2001  December
  31, 2001 | 4.213 NIS/$1 
|January 1, 2002  December
  31, 2002 | 4.7378 NIS/$1

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B.          LIQUIDITY
AND CAPITAL RESOURCES

At
December 31, 2002, we had a negative working capital of $1,454,000 and our
current ratio (current assets to current liabilities) was 0.69:1. Since our
inception, our operations have been funded through capital contributions, bank
loans, private and public placements, research and development grants from the
Chief Scientist, the BIRD Foundation, the European Community and cash flow from
operations. In April 2003, we closed an investment of $2.5 million in our share
capital with a group of investors led by DBSI in exchange for the issuance of
58,545,455 ordinary shares and warrants to purchase an additional 40,981,818,
constituting 74.6% of our share capital on a fully diluted basis, at the price
of US $0.044 per share. Pursuant to our agreement with DBSI, AMS converted
$723,000 of convertible debentures issued to it, and we repaid AMS an amount of
$300,000 (see Item 4, Recent Developments and Note 17 of our consolidated
financial statements for a description of our agreements with DBSI and AMS). As
of December 31, 2002, we had a credit facility for approximately $3.6 million
with Bank Hapoalim, B.M., which was overdrawn. In March 2003, we reached an
understanding with our bank according to which a short-term credit in the
amount of $3 million will be converted to a long-term loan for a period of five
years. The bank also agreed to increase our credit line by approximately
$500,000. This line of credit was made available against a floating lien on all
of our assets.

In
2002, net cash used in our continuing operating activities amounted to $747,000
as compared to net cash used in continuing operating activities of $2,721,000
in 2001. In 2002, net cash used in our continuing investing activities was
$1,308,000 as compared to $1,676,000 net cash used in our continuing investing
activities in 2001. In 2002, net cash provided by financing activities was
$2.487.000 as compared to $7,310,000 provided by continuing financing
activities in 2001. In 2002, net cash used in discontinued operations amounted
to $1,363,000 as compared to $2,440,000 in 2001.

Current
liabilities decreased from $8,783,000 in 2001 to $4,648,000 at December 31,
2002, mainly due to the refinancing of a short-term credit line of $3.0 million
into a long-term loan for a period of five years. Long-term liabilities
increased from $745,000 in December 31, 2001 to $4,865,000 in December 31,
2002.

We
anticipate that we will continue to incur significant operating expenses in
connection with the development and marketing of our systems and products, as
well as increased investments in the deployment of our existing and new
networks in different geographical regions around the world. We believe that
our current assets, together with anticipated cash generated from operations
and the bank credit lines, will be sufficient to allow us to continue our
operations as a going concern. However, we cannot assure you that we will be
able to generate sufficient revenues from the sale of our products or succeed
to obtain such additional sources of equity or debt financing. In raising
additional funds, we will depend on receiving financial support from our principal
shareholders or other external sources. We cannot assure you that they will
continue to provide us with funds when requested, and that such funds, if any,
will be sufficient to finance our additional cash requirements. Aside for the
aforementioned long-term $3 million bank loan and additional credit facility
from our bank of approximately $500,000, we have no firm commitments or
arrangements for additional financing, and there can be no assurance that any
such financing will be available on terms satisfactory to us, if at all. To the
extent that our capital requirements exceed cash provided from operations and
available financing (if any), we may, among other things, be required to reduce
significantly research & development, product commercialization, marketing
and/or other activities. Under certain circumstances, our inability to secure
additional financing could cause us to cease our operations. Our business has
also been harmed as a result of the current general duress and difficult
economic and political conditions in certain countries in which we operate,
particularly Venezuela, Argentina and Israel.

For
a discussion of certain commitments and contingent liabilities of ours, see
Note 10 to our financial statements included herein.

24

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C.          RESEARCH
AND DEVELOPMENT

We
invest a significant amount of our resources on our internal research and
development operations. We believe that continued and timely development of new
applications and products and enhancements to our existing systems and products
are necessary to compete effectively. We devote a significant portion of our
resources (i) to developing new applications and products to better compete in
a rapidly evolving market, (ii) sustaining and upgrading existing products by
improving serviceability and adding new capabilities and features, (iii) to
decreasing the cost of owning and operating such products, and (iv) to
maintaining close relationships with our customers to identify their product
needs.

Future
growth will depend upon our ability to enhance our existing products and to
introduce new products on a timely basis. Since we commenced operations we have
conducted extensive research and development activities and we continue to improve
our Nexusphere network. Our net expenditures for research and development
programs during the years ended December 31, 2002 and December 31, 2001,
totaled approximately $1,377,000, and 
$1,654,000, respectively. We expect that we will continue to commit
substantial resources to research and development in the future.  As of April 31, 2003, the Company employed
17 persons in research and development. Our gross research and development
expenses constituted approximately 29.8%and 13.9% of our sales, and our net
research and development expenses constituted approximately 21.6% and 13.3% of
such sales, in the respective years ended December 31, 2002 and 2001. For
additional information concerning commitments for research development
programs. (See Note 10 to our financial statements included elsewhere in this
annual report.)

The
Government of Israel encourages research and development projects oriented
towards products for export through the Office of the Chief Scientist of the
Ministry of Industry and Commerce of the State of Israel. Under the terms of
Israel Government participation, a royalty of 2% to 5% of the net sales of
products developed from a project funded by the Chief Scientist must be paid,
beginning with the commencement of sales of products developed with grant funds
and ending when 100% to 150% of the grant is repaid. The terms of the Israeli
government participation also require that the manufacture of products
developed with government grants be performed in Israel, unless a special
approval has been granted. Separate Israeli government consent is required to
transfer to third parties technologies developed through projects in which the
government participates. Such restrictions do not apply to exports from Israel
of products developed with such technologies. Royalty bearing grants received
from the State of Israel for research and development are offset against our
research and development costs.

We
also received funding for certain research and development expenses relating to
our joint venture with API from the Israel-United States Binational Industrial
Research and Development Foundation, or BIRD Foundation. Royalties from sales
to the BIRD Foundation amount to 150% of the grant received. As of December 31,
2002, our contingent obligation to the BIRD Foundation was $1,925,000.

In
addition, we are conducting three major research and development projects aimed
at enhancing our various systems. These projects involve an upgrade of the
database utilized by our Nexusphere system, development of a significantly
smaller remote mobile unit, which can be compatible with a GPS system for
anti-theft and fleet-management applications concurrently and development of an
enhanced base station receiver for the Nexusphere to further expand its
applications. We expect to continue to commit substantial resources to research
and development in the future.

There
can be no assurance that any of our developmental efforts will result in
commercially successful products, that such products will be released in a
timely manner or at all, or that we will be able to respond effectively to
technological changes or new product announcements by others.

25

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We
currently hold various United States patents relating to the use of Nexusphere
communications technology for various aspects of reverse paging and mobile
location. We have not invested the requisite payment to maintain our patents,
and we may lose our rights to this proprietary technology in the near
future.

The
pending patent applications filed by us involve complex legal and factual
questions, and the scope and breadth of claims to be allowed is uncertain.
Accordingly, there can be no assurance that patent applications filed by us
will afford protection against competitors with similar technology. In
addition, we cannot assure you that the patents issued to us will not be
infringed, designed around by others or invalidated. Some foreign countries
provide significantly less patent protection than the United States. Patent
applications in the United States are maintained in secrecy until patents
issue, and because publication of discoveries in the scientific or patent
literature tends to lag behind actual discoveries by several months, we cannot
be certain that we were the first creator of inventions covered by pending
patent applications or the first to file patent applications on such
inventions. There can also be no assurance that any application of our
technologies will not infringe patents or proprietary rights of others or that
licenses that might be required for our processes or products would be
available on reasonable terms. Furthermore, there can be no assurance that
challenges will not be instituted against the validity or enforceability of any
patent owned by us or, if instituted, that such challenges will not be
successful. The cost of litigation to uphold the validity and prevent
infringement of a patent can be substantial.

In
addition to potential patent protection, we rely on the laws of unfair
competition and trade secrets to protect our proprietary rights. We attempt to
protect our trade secrets and other proprietary information by non-disclosure
agreements with our employees, consultants, customers, strategic partners and
potential strategic partners. Although we intend to protect our rights
vigorously, there can be no assurance that secrecy obligations will be honored
or that others will not independently develop similar or superior technologies or
trade secrets. We believe that such measures
provide only limited protection of our proprietary information, and there is no
assurance that our proprietary technology will remain a secret or that others
will not develop similar technology and use this technology to compete with us.
Despite our efforts to protect our proprietary rights, unauthorized parties may
attempt to copy aspects of our products or to obtain and use information that
we regard as proprietary. To the extent that consultants, key employees
or other third parties, such as prospective joint venture partners or
subcontractors, apply technological information independently developed by them
or by others to our projects, disputes may arise as to the proprietary rights
to such information, which disputes may not be resolved in our favor.

Our
proprietary technology also includes software. Much of the software algorithms
are also included and claimed in the patent and issued patent applications for
Nexusphere communications technology. Although software protection is currently
available in the United States, there can be no assurance that the software
patents will continue to be the subject of patent protection in the United
States. Also, foreign patent protection for software is generally afforded
lesser protection than in the United States.

We
also protect our trademarks and service marks in the United States through
federal registration of key trademark names and reliance on common law
trademark protection for other trade names. One United States federal trademark
is registered, but there can be no assurance that this United States federal
trademark will not at some future date be opposed by other trademark holders.

D.          TREND
INFORMATION

The
following discussion should be read in conjunction with the selected financial
data included above and our consolidated financial statements and the related
notes thereto included in this annual report.

In
recent years, we have concentrated our operations on our location based
security services in the areas of Automotive Vehicle Location and on the Stolen
Vehicle Recovery markets, due to the decision of our management to focus on our more lucrative business opportunities, while sharply minimizing our research and development
and marketing efforts of our two-way paging systems due to overall market
trends , such as (a) the collapse of the paging industry as a whole where the income and number of
customers has dropped sharply; (b) the absence of advances in technology of two-way paging, as a
result of this technology being largely abandoned; and (c) the growth in competition from more
modern technologies such as short messaging service (SMS), which is both cheaper and more
convenient. 
                 We now operate predominantly in
Latin America and Israel. Our business in Venezuela is currently halted due to
severe economic conditions in that country, and our Argentinean subsidiary
Tracsat has been negatively affected by economic and political instability in
Argentina. We have now sold our share in NexusData, and we no longer operate in
the automatic meter reading systems industry.

26

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The
recent downturn in the world economy and in particular in the high technology
sector may affect our sales, results of operations and the market price of our
ordinary shares. The downturn may also affect these companies abilities to
raise additional financing. However, we are optimistic that our cost-effective
solutions shall perform favorably against services offered by our competitors.

E.          
OFF-BALANCE SHEET ARRANGEMENTS

The company
has no off balance arrangement as described in this section.

F.          
CONTRACTUAL OBLIGATIONS

# Contractual Obligations
December 31, 2002

|                                              |  | Total | Less
than 1
Year | 1-3 Years | 3-5 Years | More than
5 Years
|--------------------------------------------- |  | ----- | ---------------- | --------- | --------- | -----------------
|
|
|
|Short term debt and other current liabilities |  |       |                  | 1         |           |                  
|Long-term loan                                |  |       |                  | 2         |           |                  
|Accrued severance pay, net                    |  |       |                  | 3         |           |                  
|Convertible Debentures                        |  |       |                  | 4         |           |                  
|Operating lease obligations                   |  |       |                  | 5         |           |                  
|Purchase Obligations                          |  |       |                  |           |           |                  
|Royalties to BIRD                             |  |       |                  | 6         |           |                  
|Total contractual obligations                 |  |       |                  |           |           |                  

1 Short term debt and
other current liabilities include short term bank credit, trade accounts payable for
equipment and services that have already been supplied and other accrued expenses.

2 Long term loan includes
principal and interest payments in accordance with the terms of the agreement with Bank
Hapoalim signed in April 2003 (See Item 5- Liquidity and Capital Resources).

3 Accrued severance pay
maturity depends on the date our employees will actually cease being employed. The amount
is net of outstanding severance pay funds.

4 Convertible debentures
(repaid in March 2003. See Item 4  Recent Developments, and Note 17 to the Financial
Statements).

5 Operating lease
obligations include rental payments of offices, cars, and other premises and equipment.

6Royalties to BIRD include
the amount received by BIRD foundation which the company has undertaken to pay based on
sales of a specific product. The Company does not anticipate selling this product and
therefore, does not anticipate paying these contingent royalties (See Note 10 to the
Financial Statements).

ITEM
6.              DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES

A.          DIRECTORS
AND SENIOR MANAGEMENT

The
executive officers, directors and key employees of the Company are as follows:

|Name             |  | Age |  | Position with Company                                                                                                          
|---------------- |  | --- |  | -------------------------------------------------------------------------------------------------------------------------------
|                 |  |     |  |                                                                                                                                
|Yossi Ben Shalom |  | 47  |  | Chairman of Board of
  Directors                                                                                               
|Arik Avni        |  | 43  |  | President and CEO                                                                                                              
|Alicia Rotbard   |  | 57  |  | External Director                                                                                                              
|Ben Ami Gov      |  | 76  |  | External Director                                                                                                              
|Barak Dotan      |  | 35  |  | Director                                                                                                                       
|Ken Lalo         |  | 45  |  | Director                                                                                                                       
|Yoel Rosenthal   |  | 48  |  | Director                                                                                                                       
|Hanoch Yokev*    |  | 55  |  | Vice President, R&D
  and Chief Technology Officer                                                                             
|Ronen Stein      |  | 36  |  | Vice President and Chief
  Financial Officer                                                                                   
|Amir Haramaty*   |  | 41  |  | Vice President, Sales                                                                                                          
|Zvika Weber      |  | 42  |  | Vice President, Business
  Development                                                                                         
|                 |  |     |  | *The directors and
  officers with an asterisk across from their name own less than one per cent
  of our issued share capital.

Yossi  Ben Shalom was appointed as our new Chairman of the
Board of Directors in 2003. He had been Executive Vice President and Chief
Financial Officer of Koor Industries Ltd. (KOR) from 1998 through 2000. Before
that, Mr. Ben-Shalom served as Chief Financial Officer of Tadiran Ltd. Mr.
Ben-Shalom was an active director in numerous boards, such as at NICE Systems
(NICE), (computer telephony), Machteshim Agan (chemistry), and Investec Bank,
amongst others.  Mr. Ben-Shalom was an
active chairman in successful turnaround programs, such as Eurocar Israel, and
American Express Israel. He participated in the creation of TDA VC fund (a
joint venture between Tempelton and Tadiran). He was an active Chairman of
Scopus - a technology company with sales of over $30M. Yossi is a co-founder of
DBSI Investments Company.

Arik Avniwas appointed as our President and Chief
Executive Officer in 2003. He most recently served as President and Chief
Executive Officer of Rav Bariach Securities, and Executive Vice President and
Chief Financial Officer of the Rav Bariach Group, from 1999 to 2001. Prior to
that he served as Tadiran Telecommunication Chief Financial Officer from 1996
to 1999. He held diverse positions in Tadiran from 1983 to 1996. Mr. Avni holds
a B.A. in Economics and Statistics and an M.A. in Economics from Tel Aviv
University.

Hanoch Yokev, one of our founders, has served as our
Senior Vice President and Chief Technology Officer and as a director since our
inception in 1991. From 1979 to 1991, he worked with Elisra, a subsidiary of
Tadiran. At Elisra, he served as a System Engineer in connection with the development
of several electronic warfare systems. His last position at Elisra was Chief
Scientist. Mr. Yokev holds a Bachelor of Science degree in Physics from
Tel Aviv University.

Alicia Rotbardhas served as a director on our Board since
2002. In 1989 she founded DOORS Informations Systems, Inc. and served as its
CEO until 2002. From 1989 she served as President and CEO of Quality Computers
Ltd. From 1980 to 1985 she served as Deputy General Manager of the Tel-Aviv
Stock Exchange, managing its Computer Department and Operations. Ms. Rotbard
holds a B.Sc. in Mathematics and Physics from the Hebrew University, Jerusalem.

27

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Ben Ami Gov was
appointed as a director on the Board of Nexus in 2002. He also serves on the
Board of the Kanfei Zahav Fund, the National Kibbutz Fund and the Technions
Research and Development Organization. From 1990 to 1993 he served in the
Presidency of the Industrial Union. From 1990 to 1992 he served as a special
consultant to the Minister of Industry and Trade on the subject of the European
Common Market. From 1987 to 1988 he served as General Manager of the Ministry
of Communication and he also served on the Board of Directors of Bezeq at this
time.  Mr Gov. has served on various
boards of directors of publicly traded companies as well as industrial
companies. Mr Gov holds a B.Sc in Mechanical and Industrial Engineering from
the Technion in Haifa as well as an MBA degree.

Barak Dotanis a co-founder of DBSI Investments Ltd., a
private investment company that has made various investments in private and
public companies. Before establishing DBSI Investments, Mr. Dotan worked as
Product Manager for Jacada [Nasdaq--JCDA], formerly CST, a software company
that provides a complete software infrastructure to transform legacy systems into
e-business and wireless solutions, and thereafter managed private investments
in high-tech and other areas. Mr. Dotan graduated from the Hebrew University of
Jerusalem summa cum laude with a B.Sc. in Computer Science and Business
Management.

Ken Lalo was appointed a director on our Board in
2003. Mr. Lalo is the Executive Vice Chairman of Nipson SAS and Chairman of its
US, UK and German subsidiaries.  From
2001, he served as Vice President, Koonras Technologies Ltd., an investment
company controlled by Polar Investments Ltd. and also as a member of the Boards
of Directors of various affiliates of Koonras, including publicly traded and
private companies. From 1993 until 2001, he served as Vice President and
General Counsel, Clal Industries and Investments Ltd. and as a member of the
Boards of Directors of various affiliates of Clal, including publicly traded
and private companies. Mr Lalo holds an LL.B. from Tel-Aviv University, an
M.C.L (Master of Comparative Law) degree from Georgetown University and an M.B.A
from Northwestern University/Tel-Aviv University.

Yoel Rosenthalwas appointed a director on our Board in
2003. He is a veteran accountant with over 20 years of experience.  Prior to joining D.B.S.I. Mr. Rosenthal was
a founder and partner of a private accounting firm in Israel, Bruckner,
Rosenthal, Ingber, He also held the position of Loan Officer for multinational
corporations at the Bank of Montreal in the USA. Mr. Rosenthal received an MBA
with honors from the University of California at Los Angeles and a BA in
Economics and Accounting from Tel Aviv University.

Ronen Steinwas appointed our Chief Financial Officer in
2002. He joined Nexus in June 2001. 
From 1998 until 1991, Mr. Stein worked with Rada Electronic Industries.
He was appointed the Chief Financial Officer of Rada in 1999 and served as its
Chief Financial Officer until May 2002. Mr. Stein holds a B.Sc. in economics
and accounting and an M.B.A from Tel Aviv University.

Amir Haramaty was appointed our
Vice-President of Sales and Chief Operating Officer on July 1, 2000. Prior to
such appointment, Mr. Haramaty served as the Managing Director of Matrix
Development, Director of Marketing & Business Development at Rabintex
Industries, and was a senior project Manager at OAO Corp. Mr. Haramaty holds a
B.Sc. in Technology and Management from the University of Maryland.

Zvika Weber was appointed our Vice-President of Business
Development in April 2003. From February 1991 until April 2003, he served as
Logistics Business Director at Nexus. From 1996 to December 2001, Mr. Weber
served as Director of Product Management at Nice Systems Ltd. From 1980 to
1996, he served as a Major in the Israeli Air Force. Mr. Weber holds a
Practical Engineering degree and B.A. in History of the Middle East and Geography
from Bar Ilan University in Israel.

B.          COMPENSATION

The
aggregate direct remuneration paid to all persons as a group who served in the
capacity of director or executive officer during the year ended December 31,
2002, was approximately $584,000, which includes amounts set aside or accrued
to provide pension, retirement or similar benefits but does not include amounts
expended by us for automobiles made available to its officers, expenses
(including business travel, professional and business association dues and
expenses) reimbursed to officers and other fringe benefits commonly reimbursed
or paid by companies in Israel.

28

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C.          BOARD
PRACTICES

Our
Articles of Association provide for a Board of Directors of not less than two
nor more than eight members. Pursuant to the DBSI investment, our board will
consist of seven directors, four of which will be appointed by DBSI. Each
director is elected to serve until the next annual general meeting of
shareholders and until his successor has been elected. Between our annual
meetings, the Board of Directors may appoint or dismiss directors by a majority
vote of the Directors, provided that the maximum number of directors shall not
exceed eight and shall be no less than two, unless determined otherwise by our
shareholders by an ordinary resolution. Officers serve at the discretion of the
Board of Directors.

Pursuant
to Israeli law we are required to appoint two outside directors. These
directors must be residents of Israel and unaffiliated with Nexus and our
principals. Any committee of the Board of Directors that is authorized to
exercise any function of the board must include at least one outside director.

Outside
directors are to be elected by a majority vote at a shareholders meeting,
provided that such majority includes at least one-third of the shares held by
non-controlling shareholders voted at the meeting, or the total number of
shares held by non-controlling shareholders voted against the election of the
director does not exceed one percent of the aggregate voting rights in the
company.

The
initial term of an outside director is three years and may be extended for  one additional term of three years. Outside
directors may be removed only by the same percentage of shareholders as is
required for their election, or by a court, and then only if the outside
directors cease to meet the statutory qualifications for their appointment or
if they violate their duty of loyalty to the company.

An
outside director is entitled to compensation as provided in regulations adopted
under the new Companies Law and is otherwise prohibited from receiving any
other compensation, directly or indirectly, in connection with service provided
as an outside director.

The
Companies Law requires public companies to appoint an audit committee. The
responsibilities of the audit committee include identifying irregularities in
the management of the companys business and approving related party
transactions as required by law. An audit committee must consist of at least
three directors, including the outside directors of the company. The chairman
of the board of directors, any director employed by or otherwise providing
services to the company, and a controlling shareholder or any relative of a
controlling shareholder, may not be a member of the audit committee.

Under
the Companies Law, the board of directors must appoint an internal auditor,
recommended by the audit committee. The role of the internal auditor is to
examine, among other matters, whether the companys actions comply with the law
and orderly business procedure. Under the new Companies Law, the internal
auditor may be an employee of the company but not an office holder (as defined
below), or an affiliate, or a relative of an office holder or affiliate, and he
may not be the companys independent accountant or its representative.

Ms.
Alicia Rotbard and Mr. Ben Ami Gov currently serve as our outside directors.

An
outside director is entitled to compensation as provided in regulations adopted
under the new Companies Law and is otherwise prohibited from receiving any
other compensation, directly or indirectly, in connection with service provided
as an outside director.

29

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D.          EMPLOYEES

The
following table sets forth the number of our employees (excluding NexusData
employees; see Note 18 to our consolidated financial statements) at the end of
each of the last three years:

|                         |  |  | Israel |  |  | U.S.A. |  |  | Other |  |  | Total | 
|------------------------ |  |  | ------ |  |  | ------ |  |  | ----- |  |  | ----- | 
|                         |  |  |        |  |  |        |  |  |       |  |  |       | 
|Sales and Marketing      |  |  | 2      |  |  | 1      |  |  | 2     |  |  | 5     | 
|Administration           |  |  | 7      |  |  | 0      |  |  | 3     |  |  | 10    | 
|Research and Development |  |  | 17     |  |  | 0      |  |  | 0     |  |  | 17    | 
|Other                    |  |  | 12     |  |  | 0      |  |  | 10    |  |  | 22    | 
|Total                    |  |  | 38     |  |  | 1      |  |  | 15    |  |  | 54    | 
|                         |  |  |        |  |  |        |  |  |       |  |  |       | 
|                         |  |  | Israel |  |  | U.S.A. |  |  | Other |  |  | Total | 
|                         |  |  |        |  |  |        |  |  |       |  |  |       | 
|Sales and Marketing      |  |  | 3      |  |  | 1      |  |  | 3     |  |  | 7     | 
|Administration           |  |  | 14     |  |  | 0      |  |  | 3     |  |  | 17    | 
|Research and Development |  |  | 22     |  |  | 0      |  |  | 0     |  |  | 22    | 
|Other                    |  |  | 16     |  |  | 0      |  |  | 9     |  |  | 25    | 
|Total                    |  |  | 55     |  |  | 1      |  |  | 15    |  |  | 71    | 
|                         |  |  |        |  |  |        |  |  |       |  |  |       | 
|                         |  |  | Israel |  |  | U.S.A. |  |  | Other |  |  | Total | 
|                         |  |  |        |  |  |        |  |  |       |  |  |       | 
|Sales and Marketing      |  |  | 4      |  |  | 1      |  |  | 1     |  |  | 6     | 
|Administration           |  |  | 13     |  |  | 0      |  |  | 0     |  |  | 13    | 
|Research and Development |  |  | 18     |  |  | 0      |  |  | 0     |  |  | 18    | 
|Other                    |  |  | 12     |  |  | 0      |  |  | 0     |  |  | 12    | 
|Total                    |  |  | 47     |  |  | 1      |  |  | 1     |  |  | 49    | 

We
have entered into employment contracts with substantially all of our employees,
all of which include non-competition, nondisclosure and confidentiality
provisions relating to our proprietary information. Under those contracts, employee
salaries are fixed in dollars. We believe that our relations with our employees
are satisfactory. We are not party to any collective bargaining agreements.
However, certain provisions of the collective bargaining agreements between the
Histadrut (General Federation of Labor in Israel) and the Coordination Bureau
of Economic Organizations (including the Industrialists Association) are
applicable to our employees by order of the Israeli Ministry of Labor. These
provisions concern principally the length of the workday, minimum daily wages
for professional workers, insurance for work-related accidents, procedures for
dismissing employees, determination of severance pay, and other conditions of
employment. We generally provide our employees with benefits and working
conditions beyond the required minimums.

Israeli
law generally requires severance upon the retirement or death of an employee or
termination of employment without due cause. We currently fund our ongoing severance
obligations by contributing funds on behalf of our senior employees to a fund
known as the Managers Insurance. This fund provides a combination of savings
plan, life insurance and severance pay benefits to the employee, giving the
employee a lump sum of payment upon retirement and securing the severance pay,
if legally entitled, upon termination of employment. We decide whether each
employee is entitled to participate in the plan, and each employee who agrees
to participate contributes an amount equal to 5% of his or her salary and the
employer contributes between 13.3% and 15.8% of the employees salary. In
addition, Israeli employees and employers are required to pay predetermined
sums to the National Insurance Institute, an agency, which is similar to the
United States Social Security Administration. Since January 1, 1995, such
amounts also include payments for national health insurance. The payments to
the National Insurance Institute are approximately 14.5% of wages up to a
specified amount, of which the employee contributes approximately 66% and the
employer contributes approximately 34%.

30

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E.          SHARE
OWNERSHIP

Most
of our employees own Ordinary Shares and/or options to purchase Ordinary Shares
of Nexus. None of the named employees owns shares and/or options amounting to
1% or more of the outstanding Ordinary Shares.

For
information concerning option grants to our directors and officers, see as
incorporated by reference in this Item 6 above and Item 7: Major Shareholders
and Related Party Transactions below.

Employee Share Option Plans

For information concerning our employee share option
plans, see as
incorporated by reference, Note 11 of our
consolidated financial statements.

ITEM
7.              MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.          MAJOR
SHAREHOLDERS

The
following table and notes thereto set forth certain information as of May 31,
2003 concerning the beneficial ownership (as defined in Rule 13d  3 under the
Securities Exchange Act of 1934) of ordinary shares by (i) each person or
entity who, to the best of our knowledge, beneficially owned more than 5% of
our outstanding ordinary shares and (ii) all current directors, the nominees
and executive officers as a group. The voting rights of our major shareholders
do not differ from the voting rights of holders of all of our ordinary shares.

|                          |  |  | Number of Shares Owned (1) |  |  | Percent of Shares |  
|------------------------- |  |  | -------------------------- |  |  | ----------------- | -
|Name of Beneficial Owner  |  |  |                            |  |  |                   |  
|DBSI Investment
  Ltd.(2) |  |  | 77,762,923(3)              |  |  | 58.7              | %
|AMS Electronics
  Ltd.    |  |  | 17,000,500                 |  |  | 12.9              | %

|(1) | The number of ordinary
  shares issued and outstanding on May 31, 2003 was 131,628,287 ordinary shares
  deemed beneficially owned by virtue of the right of any person or group to
  acquire such ordinary shares within 60 days. 
  The aggregate amount of these shares are treated as outstanding only
  for the purposes of determining the percent owned by such person or group. To
  our knowledge, the persons and entities named in the table have sole voting
  and dispositive power with respect to all shares shown as beneficially owned
  by them, except as described below.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(2) | Pursuant to a proxy
  instrument granted to DBSI
  Investment Ltd. by AMS Electronics Ltd. with respect to all of the voting
  power in the Company held by AMS, DBSI is said to have actual voting power of
  71.6%.                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(3) | Represents
  45,454,545 ordinary shares currently owned a warrant to purchase 31,818,182
  ordinary shares pursuant to the DBSI investment of March 2003, and 490,196
  shares from a previous round of investment.                                                                                                                                                                                                                                                                                                                                                                          

B.          RELATED
PARTY TRANSACTIONS

Sale of NexusData

In
February 2003 we completed the sale of all of our holdings in NexusData to
Storm International, which subsequently assigned all of its rights and
obligations to Nexus LLC. Mr. Yaron Sheinman, the former Chairman of our Board
of Directors, is one of the members of Nexus LLC,  and took part in the sale transaction. This transaction was
ratified by our audit committee, Board of Directors and shareholders in
accordance with the laws of the State of Israel.

31

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Agreements with AMS.

Pursuant
to the DBSI investment agreement, we reached an agreement with our main
manufacturer, AMS Electronics Ltd., such that AMS converted $723,162 (a sum
including interest accrued thereon), out of a convertible debenture purchased
by us at a price equal to the price paid in the DBSI investment round of
financing, namely $0.044, into 16,435,500 ordinary shares. 600,000 of these
shares were held in trust and have been released to AMS. We agreed to register
for trade 400,000 of the shares issued to AMS in connection with the
convertible debenture. We also agreed to return to AMS $300,000 out of the
convertible debenture that was purchased by AMS following the closing of the
DBSI investment financing round.

In
January 2002, we entered into a major manufacturing agreement with AMS, for the
manufacture of a significant portion of our end units and those of NexusData,
minimally valued at $36 million.  This
agreement was amended such that we were released from our undertaking to issue
purchase orders to AMS minimally valued at $36 million and have committed to
make purchases of our end units from AMS amounting to at least $10 million over
the course of a four-year period, provided that there is actual demand for
these products from our customers.  In
addition, we will not be liable for any liabilities of NexusData under this
agreement and in no event shall a claim be made by AMS against us relating to
NexusDatas liabilities.  AMS was also
granted exclusivity and/or right of first refusal rights in connection with its
manufacture of our products.

Management Agreement
with DBSI Investments Ltd.

Pursuant
to the share purchase agreement with DBSI Investments Ltd., DBSI provides us
with management services in consideration for a management fee of $180,000 to
be paid in quarterly installments of $45,000.

Employment
Agreement with our Chief Executive Officer

In
June 2003, our Audit Committee and Board of Directors approved an agreement
with Mr. Arik Avni to serve as our chief executive officer. Pursuant to the
agreement, Mr. Avni will receive an annual
gross salary of NIS 300,000 and will also be eligible to receive an annual
bonus equivalent to 8% of our annual earnings before income tax. In addition to
the customary benefits in Israel, Mr. Avni will also be granted options
to purchase 6,850,000 of our ordinary shares at an exercise price of $0.044 per
share. These options can be exercised in five tranches: 50% of such options may
be exercised following eighteen months of employment and the remaining 50% of
such options may be exercised in four equal amounts for each quarter
thereafter.

C.          INTERESTS
OF EXPERTS AND COUNSEL

Not applicable

ITEM
8.              FINANCIAL
INFORMATION

A.          CONSOLIDATED
STATEMENTS AND OTHER FINANCIAL INFORMATION

The
Financial Statements required by this item are found at the end of this annual
report, beginning on page F-1.

Legal Proceedings

There
are no material legal proceedings against us. The aggregate potential exposure
to all legal claims against us represents less than US $100,000.

B.          SIGNIFICANT
CHANGES

For
a description of significant events, which took place since the year ending
December 31, 2002, see as incorporated by reference in Item 4-Information on
the Company-Recent Developments above.

32

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ITEM 9.              THE
OFFER AND LISTING

A.          OFFER
AND LISTING DETAILS

Markets and Share Price History

Between
June 1994 and April 1997, and commencing again on October 31, 1997 until August
2002, our Ordinary Shares were quoted on Nasdaq under the symbol NXUS. Between
April 17, 1997, and October 30, 1997, and commencing again as of August 2002
the OTC Bulletin Board reported trading in the Ordinary Shares under the symbol
NXUS. The table below sets forth the high and low bid prices of our Ordinary
Shares, as reported by Nasdaq or the OTC Bulletin Board during the indicated
periods.

|Period              |  |  | High  |  |  | Low  | 
|------------------- |  |  | ----- |  |  | ---- | 
|                    |  |  |       |  |  |      | 
|May 2003            |  |  | $0.28 |  |  | 0.16 | 
|April 2003          |  |  | 0.27  |  |  | 0.13 | 
|March 2003          |  |  | 0.24  |  |  | 0.06 | 
|February 2003       |  |  | 0.10  |  |  | 0.06 | 
|January 2003        |  |  | 0.11  |  |  | 0.06 | 
|Fourth Quarter 2002 |  |  | 0.35  |  |  | 0.16 | 
|Third Quarter 2002  |  |  | 1.30  |  |  | 0.10 | 
|Second Quarter 2002 |  |  | 1.57  |  |  | 0.90 | 
|First Quarter 2002  |  |  | 2.49  |  |  | 1.38 | 
|Fourth Quarter 2001 |  |  | 2.77  |  |  | 1.38 | 
|Third Quarter 2001  |  |  | 4.18  |  |  | 1.25 | 
|Second Quarter 2001 |  |  | 2.30  |  |  | 0.53 | 
|First Quarter 2001  |  |  | 1.12  |  |  | 0.50 | 
|2000                |  |  | 13.44 |  |  | 0.50 | 
|1999                |  |  | 4.44  |  |  | 1.62 | 
|1998                |  |  | 7.16  |  |  | 2.62 | 

As
of June 17, 2003, there were 100 record holders of Ordinary Shares, including
48 record holders in the United States (who held 12,144,178 of our outstanding
Ordinary Shares).

B.          PLAN
OF DISTRIBUTION

Not applicable

C.          MARKETS

Our
shares are listed for trade on the Over-The-Counter Bulletin Board under the symbol
NXUS.

D.          SELLING
SHAREHOLDERS

Not applicable

E.          DILUTION

Not applicable

F.          EXPENSES
OF THE ISSUE

Not applicable

33

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ITEM 10.ADDITIONAL
INFORMATION

A.          SHARE
CAPITAL

Not applicable

B.          MEMORANDUM
AND ARTICLES OF ASSOCIATION

Our
registration number at the Israeli registrar of companies is 52-004147-6.

Articles of Association; Israel Companies Law

Articles of Association

In
February 2000, the Companys Ordinance (New Version)-1983 was replaced by the
Companies Law. Since our Articles were approved before the enactment of the
Companies Law, they are not always consistent with the provisions of the new
law. In all instances in which the Companies Law changes or amends provisions
in the Companies Ordinance, and as such, our Articles are not consistent with
the Companies Law, the provisions of the Companies Law shall apply unless
specifically stated otherwise in the Companies Law. Similarly, in all places
that our Articles refer to a Section of the Companies Ordinance that has been
replaced by the Companies Law, the Articles shall be understood to be referring
to the relevant Section of the Companies Law.

The
objective of our company as stated in our Articles and in our Memorandum of
Association is to engage in any lawful activity.

We
have currently outstanding only one class of securities. Pursuant to a
one-for-three reverse stock split of our ordinary shares, effective as of April
2001, each three shares of our old Ordinary Shares with a par value of NIS 0.01
each were converted into one Ordinary Share with a par value of NIS 0.03 per
share. Accordingly, all shares and per share data in this annual report have
been retroactively adjusted to reflect the reverse stock split. No preferred
shares are currently authorized.

Holders
of Ordinary Shares have one vote per share, and are entitled to participate
equally in the payment of dividends and share distributions and, in the event
of our liquidation, in the distribution of assets after satisfaction of
liabilities to creditors. Our Articles may be amended by a resolution carried
at a General Meeting by 75% of those who voted is required. The shareholders
rights may not be modified in any other way unless otherwise expressly provided
in the terms of issuance of the shares.

Our
Articles require that we hold our annual general meeting of shareholders each
year no later than 15 months from the last annual meeting, at a time and place
determined by the board of directors, upon at least 21 days prior notice to our
shareholders. No business may be commenced until a quorum of two or more
shareholders holding at least one-third of the voting rights are present in
person or by proxy. Shareholders may vote in person or by proxy, and will be
required to prove title to their shares as required by the Israeli Companies
Law (the Companies Law) pursuant to procedures established by the board of
directors. Resolutions regarding the following matters must be passed at a
general meeting of shareholders:

| |  | amendments to our Articles
  (other than modifications of shareholders rights as mentioned above);                                                                                                                                                                          
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | appointment or termination
  of our auditors;                                                                                                                                                                                                                               
| |  | appointment and dismissal
  of directors;                                                                                                                                                                                                                                   
| |  | approval of acts and
  transactions requiring general meeting approval under the Israeli Companies
  Law;                                                                                                                                                                   
| |  | increase or reduction of
  our authorized share capital [or the rights of shareholders or a class of
  shareholders]- Sections 286 and 287 of the Israeli Companies Law                                                                                                     
| |  | any merger as provided in
  section 320 of the Israeli Companies Law; and                                                                                                                                                                                                   
| |  | the exercise of the board
  of directors powers by a general meeting, if the board of directors is
  unable to exercise its powers and the exercise of any of its powers is vital
  for our proper management, as provided in section 52(a) of the Israeli
  Companies Law.

34

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A
special meeting of our shareholders shall be convened by the board, at the
request of any two directors or one quarter of the officiating directors, or by
request of one or more shareholders holding at least 5% of our issued share
capital and 1% of the voting rights, or by request of one or more shareholders
holding at least 5% of the voting rights. Shareholders requesting a special
meeting must submit their proposed resolution with their request. Within 21
days of receipt of the request, the board must convene a special meeting and
send out notices setting forth the date, time and place of the meeting. Such
notice must be given at least 21 days, but not more than 35 days, prior to the
special meeting.

The Israeli Companies Law

The
Israeli Companies Law codifies the fiduciary duties that office holders,
including directors and executive officers, owe to a company. An office holder,
is defined in the Israeli Companies Law, as a (i) director, (ii) general
manager, (iii) chief business manager, (iv) deputy general manager, (v) vice
general manager, (vi) another manager directly subordinate to the managing
director or (vii) any other person assuming the responsibilities of any of the
forgoing positions without regard to such persons title.

The
Israeli Companies Law requires that an office holder of a company promptly
disclose any personal interest that he or she may have and all related material
information known to him or her, in connection with any existing or proposed
transaction by the company. In addition, if the transaction is an extraordinary
transaction, as defined under Israeli law, the office holder must also disclose
any personal interest held by the office holders spouse, siblings, parents,
grandparents, descendants, spouses descendants and the spouses of any of the foregoing,
or by any corporation in which the office holder is a 5% or greater
shareholder, holder of 5% or more of the voting power, director or general
manager or in which he or she has the right to appoint at least one director or
the general manager. An extraordinary transaction is defined as a transaction
not in the ordinary course of business, not on market terms, or that is likely
to have a material impact on the companys profitability, assets or
liabilities.

In
the case of a transaction that is not an extraordinary transaction, after the
office holder complies with the above disclosure requirement, only board
approval is required unless the Articles of Association of the company provide
otherwise. The transaction must not be adverse to the companys interest. If
the transaction is an extraordinary transaction, then, in addition to any
approval required by the Articles of Association, it must also be approved by
the audit committee and by the board of directors, and, under specified circumstances,
by a meeting of the shareholders.

Agreements
regarding directors terms of employment require the approval of the board of
directors and the audit committee. In all matters in which a director has a
personal interest, including matters of his/her terms of employment, he/she
shall not be permitted to vote on the matter or be present in the meeting in
which the matter is considered. However, should a majority of the audit
committee or of the board of directors have a personal interest in the matter,
then:

(a)          all
of the directors are permitted to vote on the matter and attend the meeting in
which the matter is considered; and(b)          the
matter requires approval of the shareholders at a general meeting.

According
to the Israeli Companies Law, the disclosure requirements discussed above also
apply to a controlling shareholder of a public company. In general, extraordinary
transactions with a controlling shareholder or in which a controlling
shareholder has a personal interest, and agreements relating to employment and
compensation terms of a controlling shareholder require the approval of the
audit committee, the board of directors and the shareholders of the company.
The term controlling shareholder is defined as a shareholder who has the
ability to direct the activities of a company, other than if this power derives
solely from the shareholders position on the board of directors or any other
position with the company. The definition also includes shareholders that hold
25% or more of the voting rights if no other shareholder owns more than 50% of
the voting rights in the company.

35

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The
shareholder approval must either include at least one-third of the shares held
by disinterested shareholders who are present in person or by proxy at the
meeting, or, alternatively, the total shareholdings of the disinterested
shareholders who vote against the transaction must not represent more than one
percent of the voting rights in the company.

In
addition, a private placement of securities that will increase the relative
holdings of a shareholder that holds five percent or more of the companys
outstanding share capital, assuming the exercise of all of the securities
convertible into shares held by that person, or that will cause any person to
become, as a result of the issuance, a holder of more than five percent of the
companys outstanding share capital, requires approval by the board of
directors and the shareholders of the company. The regulations to the Israeli
Companies Law provide certain exceptions. Any placement of securities that does
not fit the above description may be issued at the discretion of the Board of
Directors.

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

| |  | any
  amendment to the Articles of Association;                               
| | - | ------------------------------------------------------------------------------
| |  | an
  increase of the companys authorized share capital;                      
| |  | a
  merger; or                                                                
| |  | approval
  of interested party transactions that require shareholder approval.

In
addition, any controlling shareholder, any shareholder who knows that it
possesses power to determine the outcome of a shareholder vote and any
shareholder who has the power to appoint or prevent the appointment office
holder in the company is under a duty to act with fairness towards the company.
The Israeli Companies Law does not describe the substance of this duty. The
Israeli Companies Law requires that specified types of transactions, actions
and arrangements be approved as provided for in a companys articles of
association and in some circumstances by the audit committee, by the board of
directors and by the shareholders. The vote required by the audit committee and
the board of directors for approval of these matters, in each case, is a
majority of the disinterested directors participating in a duly convened
meeting.

Mr.
Ben Ami Gov and Ms Alicia Rotbard currently serve on our Board of Directors as
External Directors. Ms. Alicia Rotbard, Mr. Ben Ami Gov and Ms. Ruth Gantz
currently serve on our Audit Committee.

C.          MATERIAL
CONTRACTS

For
a summary of our material contracts, see Item 4Information on the
CompanyRecent Developments.

D.          EXCHANGE
CONTROLS

Under
current Israeli regulations, any dividends or other distributions paid in
respect of our ordinary shares purchased by nonresidents of Israel with certain
non-Israeli currencies (including dollars) and any amounts payable upon the
dissolution, liquidation or winding up of our affairs, as well as the proceeds
of any sale in Israel of our securities to an Israeli resident, will be freely
repatriable in such non-Israeli currencies at the rate of exchange prevailing
at the time of conversion pursuant to the general permit issued under the
Israeli Currency Law, 1978, provided that Israeli income tax has been paid on
(or withheld from) such payments. 
Because exchange rates between the NIS and the U.S. dollar fluctuate
continuously, U.S. shareholders will be subject to any such currency
fluctuation during the period from when such dividend is declared through the
date payment is made in U.S. dollars.
Investments outside Israel by the Company no longer require specific approval
from the Controller of Foreign Currency at the Bank of Israel.

36

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E.
TAXATION AND GOVERNMENT PROGRAMS

The
following is a summary of some of the current tax law applicable to companies
in Israel, with special reference to its effect on us and our subsidiaries. The
following also contains a discussion of specified Israeli tax consequences to
our shareholders and government programs from which we, and some of our
subsidiaries benefit. To the extent that the discussion is based on tax
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 authorities in question.

The
discussion is not intended, and should not be construed, as legal or
professional tax advice and is not exhaustive of all possible tax considerations.

General Corporate Tax Structure

Israeli
companies are generally subject to company tax at the rate of 36% of taxable
income. However, the effective tax rate payable by a company that derives income
from an Approved Enterprise (as further discussed below) may be considerably
less. Under the Income Tax Law (Adjustment for Inflation) 1985, income for tax
purposes is measured in terms of earnings in NIS adjusted for the increase in
the Israeli CPI.

Law for the Encouragement of Capital Investments, 1959

Certain
of our operations have been granted Approved Enterprise status under the Law
for the Encouragement of Capital Investments, 1959, as amended (referred to as the
Investment Law).

The
Investment Law provides that a capital investment in eligible facilities may,
upon application to the Investment Center of the Ministry of Industry and Trade
of the State of Israel (referred to as the Investment Center), be designated as
an Approved Enterprise. Each certificate of approval for an Approved Enterprise
relates to a specific investment program delineated both by its financial
scope, including its capital sources, and by its physical characteristics,
e.g., the equipment to be purchased and utilized pursuant to the program. The
tax benefits derived from any such certificate of approval relate only to
taxable income attributable to the specific Approved Enterprise.

Taxable
income of a company derived from an Approved Enterprise is subject to company
tax at the rate of up to 25% (rather than 36% as stated above) for a period of
time termed the benefit period. The benefit period is a period of seven years
commencing with the year in which the Approved Enterprise first generated
taxable income. The benefit may be shorter as it is limited to 12 years from
the commencement of production or 14 years from the date of approval, whichever
is earlier. Under certain circumstances (as further detailed below), the
benefits period may extend to a maximum of ten years from the commencement of
the benefit period. Notwithstanding the foregoing, taxable income, of a company
located in certain geographic locations, derived from an Approved Enterprise
approved after January 1, 1997, is tax exempt for the first two years of the Benefit
Period and is taxed at a rate of 25% for the remainder of the Benefit Period. A
company that operates under more than one approval or that has capital
investments that are only partly approved (such a company being designated as a
Mixed Enterprise), its effective Company Tax rate is the result of a weighted
combination of the various applicable rates.

A
company that qualifies as a Foreign Investors Company is entitled to further
reductions in the tax rate normally applicable to Approved Enterprises. Such
benefits will be granted only to enterprises, which sought approval no later
than December 31, 2002. Subject to certain conditions, a Foreign
Investors Company is a company which has more than 25% of its combined
shareholders investment in share capital (in terms of rights to profits,
voting and the appointment of directors) and in long term shareholders loans
made by persons who are not residents of Israel. The percentage owned by
nonresidents of Israel for any tax year will be determined by the lowest
percentage of any of the above rights held by nonresidents during that year.
Such a company will pay company tax at reduced rates for an extended ten-year
(rather than the otherwise applicable seven-year) period and is exempt from any
other tax on the income from its Approved Enterprise:

37

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For
a company with foreign investment of:

|Company Tax Rate                |  |  | Tax
  Rate |  
|------------------------------- |  |  | ---------- | -
|Over
  25% but less than 49%    |  |  | 25         | %
|49%
  or more but less than 74% |  |  | 20         | %
|74%
  or more but less than 90% |  |  | 15         | %
|90%
  of more                   |  |  | 10         | %

In
addition, a company owning an Approved Enterprise may elect to forego certain
Government grants extended to Approved Enterprises in return for an
alternative package of tax benefits (the Alternative Package). Under the
Alternative Package, a companys undistributed income derived from an Approved
Enterprise will be exempt from Company Tax for a period of between two and ten
years, depending in part on the geographic location of the Approved Enterprise
within Israel, and such company will be eligible for the tax benefits under the
Investment Law for the remainder of the Benefits Period.

A
company that has elected the Alternative Package and that subsequently pays a
dividend out of income derived from the Approved Enterprise(s) during the tax
exemption period will be subject to deferred company tax in respect of the
amount distributed (including the companys tax thereon) at the rate which
would have been applicable had such company not elected the Alternative
Package. This rate is generally 10% to 25%, depending on the extent to which
non-Israeli shareholders hold such companys shares.

The
dividend recipient is taxed at the reduced rate applicable to dividends from
Approved Enterprises (generally, 15% as compared to 25%), if the dividend is
distributed during the tax benefit period or within 12 years after this period.
However, the limitation does not apply if the company qualifies as a foreign
investors company. This tax must be withheld by such company at source,
regardless of whether the dividend is converted into foreign currency.

Subject
to certain provisions concerning income subject to mixed enterprises, all
dividends are considered to be attributable to the entire enterprise and the
effective tax rate on the dividend is the result of a weighted combination of
the various applicable tax rates. However, such company is not obliged to
distribute exempt retained profits under the Alternative Package, and such company
may generally decide from which years profits to declare dividends.

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 investment program. We have not utilized this benefit.

Each
application to the Investment Center is reviewed separately, and a decision as
to whether or not to approve such application is based, among other things, on
the then prevailing criteria set forth in the Investment Law, on the specific
objectives of the applicant company set forth in such application and on
certain financial criteria of the applicant company. Accordingly, there can be
no assurance that any such application will be approved. In addition, the
benefits available to an Approved Enterprise are conditional upon the
fulfillment of certain conditions stipulated in the Investment Law and its
regulations and the criteria set forth in the certificate of approval, as
described above. In the event that these conditions are violated, in whole or
in part, a company with an Approved Enterprise would be required to refund the
amount of tax benefits, with the addition of the Israeli CPI linkage
differences and interest

In
January 2003, we received a letter from the Israel Investment Center asserting
that we did not fully implement our approved investment program and as such,
all of the benefits we received under this approved investment program may be
cancelled. Since we have operated at a loss since our inception, we have not
been able to take advantage of the tax exemptions as an Approved Enterprise and
therefore the cancellation of our approved investment program may only have an
impact on our future operations.

38

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Tax Benefits and Grants for Research and Development

Israeli
tax law allows, under certain conditions, a tax deduction in the year incurred
for expenditures (including 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, expenditures made out of proceeds made
available to us through government grants are not deductible according to
Israeli law.

Law for the Encouragement of Industry (Taxes), 1969

The
following preferred corporate tax benefits, among others, are available to
Industrial Corporations, which may be applicable to us:

(a)          Amortization
of purchases of know-how and patents over eight years for tax purposes.
               (b)          Amortization
of expenses incurred in connection with certain public security issuances over
a three-year period.
               (c)          Tax
exemption for shareholders who held shares before a public offering on capital gains
derived from the sale (as defined by law) of securities, if realized after more
than five years from the public issuance of additional securities of the
Company.  (As of November 1994, this
exemption was repealed, however, it applies to our shareholders pursuant to a
grand-fathering clause.) This exemption applies only to gains that accrued
before January 1, 2003.
               (d)          Accelerated
depreciation rates on equipment and buildings.

Israeli Capital Gains Tax

Until
the end of the year 2002, capital gains from the sale of our securities were
generally exempt from Israeli Capital Gains Tax.  This exemption did not apply to a shareholder whose taxable
income is determined pursuant to the Israeli Income Tax Law (Inflationary
Adjustments), 1985, or to a person whose gains from selling or otherwise
disposing of our securities are deemed to be business income.

As
a result of the recent tax reform legislation in Israel, gains from the sale of
our ordinary shares derived from January 1, 2003 and on will in general be
liable to capital gains tax of up to 15%. 
This will be the case so long as our securities remain listed for
trading on NASDAQ or are traded on the Tel Aviv Stock Exchange or on a
designated foreign stock market. 
However, according to the tax reform legislation, non-residents of
Israel will be exempt from any capital gains tax from the sale of our
securities so long as the gains are not derived through a permanent
establishment that the non-resident maintains in Israel, and so long as our
securities remain listed for trading as described above.  These provisions dealing with capital gains
are not applicable to a person whose gains from selling or otherwise disposing
of our securities are deemed to be business income or whose taxable income is
determined pursuant to the Israeli Income Tax Law (Inflation Adjustments),
1985; the latter law would not normally be applicable to non-resident
shareholders who have no business activity in Israel.

In
any event, under the US-Israel Tax Treaty, a US treaty resident may only be
liable to Israeli capital gains tax on the sale of our ordinary shares (subject
to the provisions of Israeli domestic law as described above) if that US treaty
resident holds 10% or more of the voting power in our company.

Israeli Tax on Dividend Income

Israeli
tax at a rate of 25% is generally withheld at source from dividends paid to
Israeli individuals and non-residents; in general, no withholding tax is
imposed on dividends paid to Israeli companies (subject to the provision of the
Israeli Income Tax Ordinance).  The
applicable rate for dividends paid out of the profits of an Approved Enterprise
is 15%.  These rates are subject to the
provisions of any applicable tax treaty.

39

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Under
the US-Israel Tax Treaty, Israeli withholding tax on dividends paid to a US
treaty resident may not in general exceed 25%, or 15% in the case of dividends
paid out of the profits of an Approved Enterprise.  Where the recipient is a US corporation owning 10% or more of the
voting stock of the paying corporation and the dividend is not paid from the
profits of an Approved Enterprise, the Israeli tax withheld may not exceed
12.5% subject to certain conditions.

F.          DIVIDENDS
AND PAYING AGENTS

Not Applicable

G.          STATEMENT
BY EXPERTS

Not Applicable

H.          DOCUMENTS
ON DISPLAY

We
are required to file reports and other information with the securities and
exchange commission under the Securities Exchange Act of 1934 and the
regulations thereunder applicable to foreign private issuers. Reports and other
information filed by us with the securities and exchange commission may be
inspected and copied at the securities and exchange commissions public
reference facilities described below. As a foreign private issuer we are not
required to file periodic information as frequently or as promptly as United
States companies.Therefore, we publicly announce our year-end results promptly
and file information with the securities and exchange commission under the
cover of Form 6-K as required. As a foreign private issuer, we are also exempt
from the rules under the Exchange Act prescribing the furnishing and content of
proxy statements and our officers, directors and principal shareholders are
exempt from the reporting and other provisions in Section 16 of the Exchange
Act.

You
may review a copy of our filings with the SEC, including any exhibits and schedules,
at the SECs public reference facilities in Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
SEC located at the Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. 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 prescribed rates. You may call
the SEC at 1-800-SEC-0330 for further information on the public reference
rooms.  In addition, such information
concerning our company can be inspected and copied at the offices of the
National Association of Securities Dealers, Inc., 9513 Key West Avenue,
Rockville, Maryland 20850 and at the offices of the Israel Securities Authority
at 22 Kanfei Nesharim St., Jerusalem, Israel. 
As a foreign private issuer, all documents which were filed after
November 4, 2002 on the SECs EDGAR system will be available for retrieval on
the SECs website at www.sec.gov. You may read and copy any reports, statements
or other information that we file with the SEC at the SEC facilities listed
above. These SEC filings are also available to the public from commercial
document retrieval services.  We also generally make available on our own
web site (www.nexus.telocation.com) all our quarterly and year-end financial
statements as well as other information.

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 the registration statement, the contract or document is deemed to modify the
description contained in this annual report. We urge you to review the exhibits
themselves for a complete description of the contract or document.

I.          SUBSIDIARY
INFORMATION

Not Applicable

40

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ITEM 11.QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
                              RISK

Interest Rate Risks

Our
exposure to market rate risk for changes in interest rates relates primarily to
funds borrowed by us from banks and convertible debentures. We have not used
interest derivative financial instruments. As of December 31, 2002, we had
financial assets totaling approximately $214,000 and total funds borrowed of
$4,848,000 including a convertible debenture. The net decrease in our earnings
for the next year resulting from an increase of 10% in variable interest rates
will be approximately $20,000, holding other variables constant.

Currency Exchange Rate Risks

Our
operating and pricing strategies take into account changes in exchange rates
over time. However, there can be no assurance that future fluctuations in the
value of foreign currencies will not have an adverse material effect on our
business, operating results or financial condition. From the beginning of 2001,
we have used financial instruments to hedge the following foreign currency
exposure risks. From the beginning of 2001 until the end of 2002, we have been
using financial instruments, from time to time, to hedge foreign currency
exposure risks.

Our
revenues generated by Tracsat are mostly denominated in Argentine pesos and are
therefore exposed to exchange rate differences between the Argentine peso and
the United States dollar. Assuming an adverse foreign exchange rate
fluctuation, we would experience a reduction in U.S dollar revenues.

Expenses in New Israel Shekels

The
cost of our Israel operations, as expressed in U.S. dollars, is influenced by
the extent to which any increase in the rate of inflation in Israel is not
offset (or is offset on a lagging basis) by a devaluation of the NIS in
relation to the U.S. dollar. The inflation rate in Israel was 6.5%, 1.4% and
0.0% in 2002, 2001 and 2000, respectively. At the same time, the devaluation of
the NIS against the U.S. dollar was 7.3%, 9.3% and -2.7% in 2002, 2001 and
2000, respectively.Assuming a
difference of 10% between the devaluation of the US Dollar against the NIS, and
the inflation, we would experience an increase of approximately $278,000 in our
expenses due to that effect. For further discussion with respect to the
devaluation of the NIS, see the discussion under the caption Impact of
Inflation and Devaluation on Results of Operations, Liabilities, and Assets in
Item 5.

ITEM 12.DESCRIPTIONS
OF SECURITIES OTHER THAN EQUITY SECURITIES

Not Applicable.

PART II

ITEM 13.DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

ITEM 14.MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY
                              HOLDERS
AND USE OF PROCEEDS

Not applicable.

41

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ITEM
15.             CONTROLS
AND PROCEDURES

An
evaluation was performed under the supervision and with the participation of
our management, including our chief executive officer and chief financial
officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of
1934, as amended). Based on that evaluation, which was completed within 90 days
of the filing date of this annual 20-F, our chief executive officers and chief
financial officer, concluded that our disclosure controls and procedures were
effective though we are constantly engaged in the process of improving these
controls and procedures. There have been no significant changes in our
disclosure controls or in other factors that could significantly affect
disclosure controls subsequent to the date of the evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

ITEM
16.             [RESERVED]

PART III

ITEM 17.FINANCIAL
STATEMENTS

Not Applicable.

ITEM 18.FINANCIAL
STATEMENTS

The
Financial Statements required by this item are found at the end of this Annual
Report, beginning on page F-1.

ITEM 19.EXHIBITS

1.1          Memorandum
of Association filed by us as Exhibit 3.1 to the our Registration Statement on
Form F-1, registration number 33-76576, and incorporated herein by reference.

1.2          Articles
of Association filed by us as Exhibit 3.2 to our Registration Statement on Form
F-1, registration number 33-76576, and incorporated herein by reference.

3.1          Shareholders
Agreement among various shareholders and us dated as of January 10, 2000 filed
by us as Exhibit 10.6 to our Registration Statement on Form F-3, registration
number 333-11562, and incorporated herein by reference.

3.2          Securities
Purchase Agreement among various purchasers and us, dated January 10, 2000
filed by us as Exhibit 10.1 to our Registration Statement on Form F-3,
registration number 333-11562, and incorporated herein by reference.

3.3          Global
Wireless Holdings, Inc. Shares of Series B Convertible Preferred Stock
Subscription Agreement filed by us as Exhibit 10.2 to our Registration
Statement on Form F-3, registration number 333-11562, and incorporated herein
by reference.

3.4          Aptel
Ltd. Share Purchase Agreement dated January 10, 2000 filed by us as Exhibit
10.7 to our Registration Statement on Form F-3, registration number 333-11562,
and incorporated herein by reference.

3.5          Asset
Acquisition Agreement, dated as of March 9, 2001, by and between Global
Wireless Holdings, L.P. and us filed by us as Exhibit 4.4 to our Annual Report
on Form 20-F for the year ended December 31, 2000, and incorporated herein by
reference.

3.6          Share
Purchase Agreement, dated as of April 18, 2001, among various purchasers and us
filed by us as Exhibit 4.5 to our Annual Report on Form 20-F for the year ended
December 31, 2000, and incorporated herein by reference.

42

---

---

3.7          Share
Purchase Agreement, dated as of June 16, 2001, among DBSI Investments Ltd.
and us filed by us as Exhibit 4.6 to our Annual Report on Form 20-F for the
year ended December 31, 2000, and incorporated herein by reference.

3.8          Share
Purchase Agreement, dated January 15, 2002, between A.M.S. Electronics Ltd. and us filed by us as Exhibit 3.8 to our
Annual Report on Form 20-F for the year ended December 31, 2001, and
incorporated herein by reference.

3.9          Manufacturing
and Purchase Agreement, dated as of January 15, 2002, by and among AMS
Electronics Ltd., Nexus Data Inc., Nexus Data (1993) Ltd and us.

3.10        Offer
to Acquire Agreement, dated as of December 24, 2002 between Storm International
and us.

3.11        Amendment
to Manufacturing and Purchase Agreement, dated March 12, 2003, by and among AMS
Electronics Ltd and us.

3.12        Share
Purchase Agreement, dated as of March 13, 2003 by and among DBSI and other
Investors and us.

8.1          A
list of our subsidiaries is found in the Appendix to our consolidated financial
statements and incorporated herein by reference.

10.1        Consent
of Kost, Forer & Gabbay, Certified Public Accountants (Israel).

12.1        Certification by Chief Executive Officer pursuant
to section 906 of the Sarbanes-Oxley Act of 2002.

12.2        Certification
by Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of
2002.

43

---

---

SIGNATURE

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, in the City of Tel Aviv,
State of Israel, on the 24th day of June, 2003.

NEXUS TELOCATION SYSTEMS LIMITED

| | By: | /s/ Yossi
  Ben Shalom                                 
| | --- | -------------------------------------------------------
| |     |                                                        
| |     | Yossi Ben
  Shalom
  Chairman of the Board of Directors

44

---

---

CERTIFICATIONS

I,
Arik Avni, certify that:

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

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

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

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

| | a)  designed such
  disclosure controls and procedures to ensure that material information
  relating to the registrant, including its consolidated subsidiaries, is made
  known to us by others within those entities, particularly during the period
  in which this annual report is being prepared;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                         
| | b)  evaluated the
  effectiveness of the registrants disclosure controls and procedures as of a
  date within 90 days prior to the filing date of this annual report (the
  Evaluation Date); and                                                                                                    
| |                                                                                                                                                                                                                                                                                                         
| | c)  presented in
  this annual report our conclusions about the effectiveness of the disclosure
  controls and procedures based on our evaluation as of the Evaluation Date;                                                                                                                            

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

| | a)  all
  significant deficiencies in the design or operation of internal controls
  which could adversely affect the registrants ability to record, process,
  summarize and report financial data and have identified for the registrants
  auditors any material weaknesses in internal controls; and
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                           
| | b)  any fraud,
  whether or not material, that involves management or other employees who have
  a significant role in the registrants internal controls; and                                                                                                                                            

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

_________________,
2003

| | /S/    ARIK AVNI                    | 
| | ----------------------------------- | 
| |                                     | 
| | Arik Avni
  Chief Executive Officer | 

45

---

---

CERTIFICATIONS

I,
Ronen Stein, certify that:

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

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

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

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

| | a)  designed such
  disclosure controls and procedures to ensure that material information
  relating to the registrant, including its consolidated subsidiaries, is made
  known to us by others within those entities, particularly during the period
  in which this annual report is being prepared;
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                         
| | b)  evaluated the
  effectiveness of the registrants disclosure controls and procedures as of a
  date within 90 days prior to the filing date of this annual report (the
  Evaluation Date); and                                                                                                    
| |                                                                                                                                                                                                                                                                                                         
| | c)  presented in
  this annual report our conclusions about the effectiveness of the disclosure
  controls and procedures based on our evaluation as of the Evaluation Date;                                                                                                                            

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

| | a)  all
  significant deficiencies in the design or operation of internal controls
  which could adversely affect the registrants ability to record, process,
  summarize and report financial data and have identified for the registrants
  auditors any material weaknesses in internal controls; and
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                           
| | b)  any fraud,
  whether or not material, that involves management or other employees who have
  a significant role in the registrants internal controls; and                                                                                                                                            

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

_________________,
2003

| | /S/    RONEN STEIN                    | 
| | ------------------------------------- | 
| |                                       | 
| | Ronen Stein
  Chief Financial Officer | 

46

---

---



NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES



CONSOLIDATED FINANCIAL STATEMENTS



AS OF DECEMBER 31, 2002



IN U.S. DOLLARS





INDEX



|                                                    | Page        
|--------------------------------------------------- | ------------
|Report of Independent Auditors                      | 2           
|                                                    |             
|Consolidated Balance Sheets                         | 3 -
      4 
|                                                    |             
|Consolidated Statements of Operations               | 5           
|                                                    |             
|Statements of Changes in Shareholders' Deficiency   | 6           
|                                                    |             
|Consolidated Statements of Cash Flows               | 7 -
      8 
|                                                    |             
|Notes
      to Consolidated Financial Statements    | 9 -
      33
|                                                    |             
|Appendix
      to Consolidated Financial Statements | 34          

---

---

---







|             |   |                                                                      |   |                                                              
|------------ | - | -------------------------------------------------------------------- | - | -------------------------------------------------------------
|ERNST &YOUNG | n | Kost
      Forer & Gabbay3 Aminadav St.
      Tel-Aviv 67067, Israel | n | Phone:
        972-3-6232525
        Fax:       972-3-5622555







REPORT
  OF INDEPENDENT AUDITORS



To the Shareholders of



NEXUS TELOCATION SYSTEMS LTD.



We have audited the accompanying consolidated balance sheets of Nexus Telocation Systems Ltd. (the
Company) and its subsidiaries as of December 31, 2002 and 2001 and the related consolidated
statements of operations, changes in shareholders deficiency and cash flows for each of the
three years in the period ended December 31, 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 and in Israel, including
those prescribed by the Israeli Auditors Regulations (Auditors Mode of Performance), 1973.
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, 2002 and 2001 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 Israel, which differ in certain respects from those followed in
the United States (see Note 16).



|                     |                                        | 
|-------------------- | -------------------------------------- | 
|Tel-Aviv, Israel     | KOST FORER & GABBAY                    | 
|April 30,
      2003 | A
      Member of Ernst & Young Global | 

|                                                                           
|---------------------------------------------------------------------------
|-
      2 -                                                                
|                                                                           
|                                                                           
|                                                                           
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**               
|                                                                           
|CONSOLIDATED
        BALANCE SHEETS
      U.S.
        dollars in thousands



|                                                                | December
      31,
|--------------------------------------------------------------- | ------------------
|
|ASSETS                                                          |                   
|                                                                |                   
|CURRENT ASSETS:                                                 |                   
|Cash
      and cash equivalents                                 |                   
|Short-term
      bank deposits                                  |                   
|Trade
      receivables (net of allowance for doubtful accounts |                   
|of
      $ 860 and $ 846 at December 31,                        |                   
|2002
      and 2001, respectively)                              |                   
|Other
      accounts receivable and prepaid expenses (Note 3)   |                   
|Inventories                                                     |                   
|                                                                |                   
|Total
      current assets                                      |                   
|                                                                |                   
|LONG-TERM
      INVESTMENTS:                                    |                   
|Severance
      pay fund                                        |                   
|Investment
      in investees (Note 4)                          |                   
|                                                                |                   
|                                                                |                   
|                                                                |                   
|PROPERTY
      AND EQUIPMENT, NET (Note 5)                      |                   
|                                                                |                   
|INTANGIBLE
      ASSETS, NET (Note 6)                           |                   
|                                                                |                   
|ASSETS ATTRIBUTED
      TO DISCONTINUED OPERATIONS (Note 18)    |                   
|                                                                |                   
|Total
      assets                                              |                   
|                                                                |                   

|                                                                                           
|-------------------------------------------------------------------------------------------
|*)                                                                                         
|                                                                                           
|The accompanying
      notes are an integral part of the consolidated financial statements.

|                                                                                               
|-----------------------------------------------------------------------------------------------
|-
      3 -                                                                                    
|                                                                                               
|                                                                                               
|                                                                                               
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                   
|                                                                                               
|CONSOLIDATED
        BALANCE SHEETS
      U.S.
        dollars in thousands (except share data)



|                                                           | December
      31, | 
|---------------------------------------------------------- | ------------------ | 
|
|LIABILITIES
      AND SHAREHOLDERS' DEFICIENCY             |                    | 
|                                                           |                    | 
|CURRENT LIABILITIES:                                       |                    | 
|Short-term
      bank credit (Note 7)                      |                    | 
|Trade
      payables                                       |                    | 
|Other
      accounts payable and accrued expenses (Note 8) |                    | 
|                                                           |                    | 
|Total
      current liabilities                            |                    | 
|                                                           |                    | 
|LONG-TERM
      LIABILITIES:                               |                    | 
|Long-term
      loan (Note 1f)                             |                    | 
|Accrued
      severance pay                                |                    | 
|Convertible
      debentures (Note 9)                      |                    | 
|                                                           |                    | 
|                                                           |                    | 
|                                                           |                    | 
|LIABILITIES
      ATTRIBUTED TO DISCONTINUED OPERATIONS    |                    | 
|(Note
      18)                                            |                    | 
|                                                           |                    | 
|SHAREHOLDERS'
      DEFICIENCY (Note 11):                  |                    | 
|Share
      capital -                                      |                    | 
|Ordinary
      shares of NIS 0.03 par value:               |                    | 
|Authorized
      - 16,376,381 shares at December           |                    | 
|31,
      2002 and 2001; Issued and outstanding            |                    | 
|-11,289,932
      and 10,889,932 shares as of December     |                    | 
|31,
      2002 and 2001, respectively                      |                    | 
|Additional
      paid-in capital                           |                    | 
|Cumulative
      foreign currency translation adjustments  |                    | 
|Accumulated
      deficit                                  |                    | 
|                                                           |                    | 
|Total
      shareholders' deficiency                       |                    | 
|                                                           |                    | 
|                                                           |                    | 
|                                                           |                    | 



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

|                                                                                                                       
|-----------------------------------------------------------------------------------------------------------------------
|-
      4 -                                                                                                            
|                                                                                                                       
|                                                                                                                       
|                                                                                                                       
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                                           
|                                                                                                                       
|CONSOLIDATED
        STATEMENTS OF OPERATIONS
      U.S.
        dollars in thousands (except share and per share data)



|                                                                   | Year
      ended December 31, | 
|------------------------------------------------------------------ | ----------------------------- | 
|
|Revenues:                                                          |                               | 
|Sales                                                              |                               | 
|Services                                                           |                               | 
|                                                                   |                               | 
|Total revenues
      (Note 14b)                                    |                               | 
|                                                                   |                               | 
|Cost of revenues:                                                  |                               | 
|Sales                                                              |                               | 
|Services                                                           |                               | 
|                                                                   |                               | 
|Total cost
      of revenues (Note 15a)                            |                               | 
|                                                                   |                               | 
|Gross profit                                                       |                               | 
|                                                                   |                               | 
|Operating
      expenses:                                          |                               | 
|Research
      and development, net                                |                               | 
|Sales
      and marketing (Note 15b)                               |                               | 
|General
      and administrative (Note 15c)                        |                               | 
|                                                                   |                               | 
|Total
      operating expenses                                     |                               | 
|                                                                   |                               | 
|Operating
      loss                                               |                               | 
|Financial
      expenses, net (Note 15d)                           |                               | 
|Other income
      (expenses) (Note 15e)                           |                               | 
|                                                                   |                               | 
|                                                                   |                               | 
|Minority
      interest in losses of a subsidiary                  |                               | 
|                                                                   |                               | 
|Loss from
      continuing activities                              |                               | 
|Loss from
      discontinued operations, net (Note 18)             |                               | 
|                                                                   |                               | 
|Net loss
      for the year                                        |                               | 
|                                                                   |                               | 
|Basic and
      diluted loss per share from continuing             |                               | 
|operations
      (in U.S. $)                                       |                               | 
|Basic and
      diluted loss per share from discontinued           |                               | 
|operations
      (in U.S. $)                                       |                               | 
|                                                                   |                               | 
|Total basic
      and diluted loss per share (in U.S. $)           |                               | 
|                                                                   |                               | 
|Weighted
      average number of shares outstanding (in thousands) |                               | 
|                                                                   |                               | 



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

|                                                                                                 
|-------------------------------------------------------------------------------------------------
|-
      5 -                                                                                      
|                                                                                                 
|                                                                                                 
|                                                                                                 
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                     
|                                                                                                 
|STATEMENTS
        OF CHANGES IN SHAREHOLDERS DEFICIENCY
      U.S.
        dollars in thousands



|                                               | Share
      capital |    | Additional
      paid-in
      capital |   | Deferred
      stock
      compensation |  | Cumulative
      foreign
      currency
      translation
      adjustment |     | Accumulated
      deficit |   | Total
      shareholders
      deficiency |  
|---------------------------------------------- | ------------------- | -- | -------------------------------------- | - | --------------------------------------- |  | -------------------------------------------------------------------------- | --- | ------------------------- | - | ------------------------------------------ | -
|Balance as
      of January 1, 2000            | $                   | 43 |                                        | $ | 45,574                                  |  | $                                                                          | (19 | )                         | $ | -                                          |  
|                                               |                     |    |                                        |   |                                         |  |                                                                            |     |                           |   |                                            |  
|Issuance
      of shares, net                  |                     | 21 |                                        |   | 20,868                                  |  |                                                                            | -   |                           |   | -                                          |  
|Exercise
      of warrants                     |                     | 1  |                                        |   | 2,058                                   |  |                                                                            | -   |                           |   | -                                          |  
|Amortization
      of deferred stock          
|compensation                                   |                     | -  |                                        |   | -                                       |  |                                                                            | 19  |                           |   | -                                          |  
|Conversion
      of convertible debentures     |                     | 1  |                                        |   | 499                                     |  |                                                                            | -   |                           |   | -                                          |  
|Issuance
      of warrants                     |                     | -  |                                        |   | 125                                     |  |                                                                            | -   |                           |   | -                                          |  
|Exercise
      of options                      |                     | 1  |                                        |   | 460                                     |  |                                                                            | -   |                           |   | -                                          |  
|Net loss                                       |                     | -  |                                        |   | -                                       |  |                                                                            | -   |                           |   | -                                          |  
|                                               |                     |    |                                        |   |                                         |  |                                                                            |     |                           |   |                                            |  
|Balance as
      of December 31, 2000          |                     | 67 |                                        |   | 69,584                                  |  |                                                                            | -   |                           |   | -                                          |  
|                                               |                     |    |                                        |   |                                         |  |                                                                            |     |                           |   |                                            |  
|Issuance
      of shares, net                  |                     | 13 |                                        |   | 3,962                                   |  |                                                                            | -   |                           |   | -                                          |  
|Issuance
      of shares in respect of        
|acquisition
      of subsidiary                |                     | 3  |                                        |   | 364                                     |  |                                                                            | -   |                           |   | -                                          |  
|Conversion
      of convertible debentures     |                     | 8  |                                        |   | 2,492                                   |  |                                                                            | -   |                           |   | -                                          |  
|Foreign currency
      translation adjustments |                     | -  |                                        |   | -                                       |  |                                                                            | -   |                           |   | (1,572                                     | )
|Net loss                                       |                     | -  |                                        |   | -                                       |  |                                                                            | -   |                           |   | -                                          |  
|                                               |                     |    |                                        |   |                                         |  |                                                                            |     |                           |   |                                            |  
|Balance as
      of December 31, 2001          |                     | 91 |                                        |   | 76,402                                  |  |                                                                            | -   |                           |   | (1,572                                     | )
|                                               |                     |    |                                        |   |                                         |  |                                                                            |     |                           |   |                                            |  
|Issuance
      of shares, net                  |                     | 3  |                                        |   | 971                                     |  |                                                                            | -   |                           |   | -                                          |  
|Foreign currency
      translation adjustments |                     | -  |                                        |   | -                                       |  |                                                                            | -   |                           |   | (327                                       | )
|Net loss                                       |                     | -  |                                        |   | -                                       |  |                                                                            | -   |                           |   | -                                          |  
|                                               |                     |    |                                        |   |                                         |  |                                                                            |     |                           |   |                                            |  
|Balance as
      of December 31, 2002          | $                   | 94 |                                        | $ | 77,373                                  |  | $                                                                          | -   |                           | $ | (1,899                                     | )
|                                               |                     |    |                                        |   |                                         |  |                                                                            |     |                           |   |                                            |  



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



|                                                                                         
|-----------------------------------------------------------------------------------------
|-
      6 -                                                                              
|                                                                                         
|                                                                                         
|                                                                                         
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                             
|                                                                                         
|**CONSOLIDATED**
        STATEMENTS OF CASH FLOWS
      U.S.
        dollars in thousands



|                                                                             | Year
      ended December 31, | 
|---------------------------------------------------------------------------- | ----------------------------- | 
|                                                                             |                               | 
|Cash flows
      from operating activities:                                  |                               | 
|Loss
      for the year                                                      |                               | 
|Adjustments
      to reconcile net loss to net cash used in operating        |                               | 
|activities:                                                                  |                               | 
|Loss
      from discontinued operations                                      |                               | 
|Depreciation
      and amortization                                          |                               | 
|Interest
      on convertible debentures                                     |                               | 
|Accrued
      severance pay, net                                             |                               | 
|Minority
      interest in losses of subsidiary                              |                               | 
|Impairment
      of investments                                              |                               | 
|Impairment
      of inventories                                              |                               | 
|Gain
      on sale of property and equipment                                 |                               | 
|Decrease
      (increase) in trade receivables                               |                               | 
|Decrease
      in other accounts receivable and prepaid expenses             |                               | 
|Decrease
      (increase) in inventories                                     |                               | 
|Increase
      (decrease) in trade payables                                  |                               | 
|Increase
      (decrease) in other accounts payable and accrued expenses     |                               | 
|Increase
      (decrease) in customer advances                               |                               | 
|                                                                             |                               | 
|Net cash
      used in continuing operations activities                      |                               | 
|                                                                             |                               | 
|Net cash
      used in discontinued operations activities                    |                               | 
|                                                                             |                               | 
|Net cash
      used in operating activities                                  |                               | 
|                                                                             |                               | 
|Cash flows
      from investing activities:                                  |                               | 
|Purchase
      of property and equipment                                     |                               | 
|Investment
      in short-term bank deposits                                 |                               | 
|Investment
      in other assets                                             |                               | 
|Proceeds
      from sale of property and equipment                           |                               | 
|Investment
      in investees                                                |                               | 
|Acquisition
      of subsidiary consolidated for the first time, net of cash |                               | 
|acquired
      (a)                                                           |                               | 
|                                                                             |                               | 
|Net cash
      used in continuing investing activities                       |                               | 
|                                                                             |                               | 
|Net cash
      provided by (used in) discontinued operations activities      |                               | 
|                                                                             |                               | 
|Net cash
      used in investing activities                                  |                               | 
|                                                                             |                               | 



*) Reclassified.



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

|                                                                                         
|-----------------------------------------------------------------------------------------
|-
      7 -                                                                              
|                                                                                         
|                                                                                         
|                                                                                         
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                             
|                                                                                         
|**CONSOLIDATED**
        STATEMENTS OF CASH FLOWS
      U.S.
        dollars in thousands



|                                                                                    | Year
      ended December 31, | 
|----------------------------------------------------------------------------------- | ----------------------------- | 
|                                                                                    |                               | 
|Cash
      flows from financing activities                                          |                               | 
|Proceeds
      from issuance of convertible debentures                              |                               | 
|Proceeds
      from issuance of shares, net                                         |                               | 
|Proceeds
      from exercise of warrants and options                                |                               | 
|Short-term
      bank credit, net                                                   |                               | 
|                                                                                    |                               | 
|Net
      cash provided by continuing financing operations activities               |                               | 
|                                                                                    |                               | 
|Net
      cash provided by discontinued financing operations activities             |                               | 
|                                                                                    |                               | 
|Net
      cash provided by financing activities                                     |                               | 
|                                                                                    |                               | 
|Effect
      of exchange on cash and cash equivalents                               |                               | 
|                                                                                    |                               | 
|Increase
      (decrease) in cash and cash equivalents                              |                               | 
|Change
      in cash classified as assets attributed to discontinued                |                               | 
|operations                                                                          |                               | 
|Cash
      and cash equivalents at the beginning of the year                        |                               | 
|                                                                                    |                               | 
|Cash
      and cash equivalents at the end of the year                              |                               | 
|                                                                                    |                               | 
|(a)
      Acquisition of Tracsat S.A                                                |                               | 
|Fair
      value of assets acquired and liabilities assumed at date of acquisition: |                               | 
|Accounts
      receivable                                                           |                               | 
|Inventory                                                                           |                               | 
|Property
      and equipment                                                        |                               | 
|Issuance
      of shares                                                            |                               | 
|Other
      accounts payable                                                        |                               | 
|Trade
      payables                                                                |                               | 
|Minority
      interest                                                             |                               | 
|                                                                                    |                               | 
|                                                                                    |                               | 
|                                                                                    |                               | 
|Supplementary
      disclosure of cash flow activities                              |                               | 
|Non-cash
      information:                                                         |                               | 
|Conversion
      of convertible debentures                                          |                               | 
|                                                                                    |                               | 
|Conversion
      of trade receivables into long-term loan to investee               |                               | 
|                                                                                    |                               | 



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

|           
|-----------
|-
      8 -
|           
|           
|           

|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                        
|----------------------------------------------------------------------------------------------------
|                                                                                                    
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
        **U.S. dollars
        in thousands**



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





|-
      9 -                                                                                                    
|---------------------------------------------------------------------------------------------------------------
|                                                                                                               
|                                                                                                               
|                                                                                                               
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                                   
|                                                                                                               
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
        ****
      **U.S.
        dollars in thousands**



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



|-
      10 -                                                                              
|------------------------------------------------------------------------------------------
|                                                                                          
|                                                                                          
|                                                                                          
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                              
|                                                                                          
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars in thousands**
|                                                                                          

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



|-
      11 -                                                                                      
|--------------------------------------------------------------------------------------------------
|                                                                                                  
|                                                                                                  
|                                                                                                  
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                      
|                                                                                                  
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S.
        dollars in thousands**



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



| |                                           |  | **%**                            | 
| | ----------------------------------------- |  | -------------------------------- | 
| |                                           |  |                                  | 
| | Computers
      and development equipment |  | 10
      - 33 (mainly 20)        | 
| |                                          
| | Office
      furniture and equipment      |  | 6 -
      15                     | 
| |                                          
| | Motor
      vehicles                      |  | 15                               | 
| |                                          
| |                                          
| |                                          
| |                                           |  |                                  | 
| | Network
      installation                |  | 20                               | 
| |                                          
| | Installed
      products                  |  | 33                               | 
| |                                          
| | Leasehold
      improvements              |  | Over
      the term of the lease | 
| |                                          



| |    | The Group
      periodically assesses the recoverability of the carrying amount of property
      and equipment, and provides for any possible impairment loss, based upon
      the difference between the carrying amount and fair value of such assets,
      in accordance with SFAS No. 144, Accounting for the Impairment or
      Disposals of Long-Lived Assets As of December 31, 2002, no impairment
      losses have been identified.                                                                                                                                          
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | i. | Other assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Patents are stated at
      amortized cost. Amortization is calculated using the straight-line method
      over the estimated useful lives of the assets, which is 8 years.                                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The Company regularly
      performs reviews to determine whether the carrying value of the patents
      is impaired. The reviews take into consideration facts or circumstances,
      either internal or external, which indicate that the carrying value of the
      patents cannot be recovered. No impairment losses have been identified as
      of December 31, 2002.                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | j. | Provision for warranty:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | The Company generally
      grants 1 year warranty for its products. The Company estimates  the
      costs that may be incurred under its basic limited warranty and records
      a liability in the amount of such costs at the time product revenue is recognized.
      Factors that affect the Companys warranty liability include the number
      of installed units, historical and anticipated rates of warranty claims,
      and cost per claim. The Company periodically assesses the adequacy of its
      recorded warranty liabilities and adjusts the amounts as necessary.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    | Changes in the Companys
      product liability during the period are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



| | Balance
      beginning of the year                       | $ | 200 | 
| | --------------------------------------------------------- | - | --- | 
| |                                                          
| |                                                          
| | Estimated
      cost of Warranties Issued during the year |   | 113 | 
| |                                                          



|                                                                                                    
|----------------------------------------------------------------------------------------------------
|-
      12 -                                                                                        
|                                                                                                    
|                                                                                                    
|                                                                                                    
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                        
|                                                                                                    
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
        **U.S. dollars
        in thousands**



| | Settlements
      made during the year         |   | (54  | ) | 
| | ---------------------------------------------- | - | ---- | - | 
| |                                                |  
| | Expiration
      of warranties during the year |   | (146 | ) | 
| |                                                |   |      |  
| |                                                |  
| | Balance,
      end of year                     | $ | 113  |   | 
| |                                                |   |      |  
| |                                                |  

|-
        13 -                                                                                      
|----------------------------------------------------------------------------------------------------
|                                                                                                    
|                                                                                                    
|                                                                                                    
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                        
|                                                                                                    
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
        **U.S. dollars
        in thousands**
|                                                                                                    

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



| |  | The Company
      generates revenues primarily from the sale of products and systems, including
      base stations and end user units and from the sale of Stolen Vehicle Recovery
      services. To a lesser extent revenues are also derived from technical support
      services and from royalties.                           
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                      
| |  | Revenues from products
      and systems sales are recognized in accordance with Staff Accounting Bulletin
      No. 101 Revenue Recognition in Financial Statements, (SAB
      No. 101), upon delivery when persuasive evidence of an agreement exists,
      the fee is fixed and determinable and collectibility is probable.
| |  |                                                                                                                                                                                                                                                                                                                                      
| |  | Certain agreements include
      a contractual obligation for installation. Such installation is not essential
      to the functionality of the system. However, when installation is required
      by the customer, the entire revenues are deferred until installation is
      performed.                                       
| |  |                                                                                                                                                                                                                                                                                                                                      
| |  | Revenues from Stolen
      Vehicle Recovery services are recognized upon success, when the related
      stolen vehicle is recovered, and such recovery is approved by the customer
      or ratably over the term of the agreement.                                                                                                 
| |  |                                                                                                                                                                                                                                                                                                                                      
| |  | The Company is entitled
      to royalties from revenue sharing upon the sublicensing of the Companys
      products to end-users. Royalties out of revenue sharing arrangements are
      recognized when such royalties are reported to the Company.                                                                              
| |  |                                                                                                                                                                                                                                                                                                                                      
| |  | Revenues generated from
      technical support services are recognized when such services are rendered.                                                                                                                                                                                                                             
| |  |                                                                                                                                                                                                                                                                                                                                      
| |  | The Company follows
      the directions of Statement of Financial Accounting Standard No. 48 Revenue
      Recognition when Right of Return Exists (SFAS No. 48).
      Based on the Companys experience, no provision was recorded.                                                                                           
| |  |                                                                                                                                                                                                                                                                                                                                      
| |  | Deferred revenues include
      amounts received from customers for which revenues have not been recognized.                                                                                                                                                                                                                         

| |    |                                                                                                                                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | l. | Research and development
      costs:                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                            
| |    | Research and development
      costs, net of grants received, are charged to expenses as incurred.                                                                                                                                         
| |    |                                                                                                                                                                                                                                            
| | m. | Grants:                                                                                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                            
| |    | Grants from the European
      community are recognized at the time in which the Company is entitled to
      such grants, on the basis of the related costs incurred, and included as
      a deduction of research and development costs.
| |    |                                                                                                                                                                                                                                            
| | n. | Advertising expenses:                                                                                                                                                                                                                      

|-
      14 -                                                                                        
|----------------------------------------------------------------------------------------------------
|                                                                                                    
|                                                                                                    
|                                                                                                    
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                        
|                                                                                                    
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
        **U.S. dollars
        in thousands**



| |    | Advertising
      expenses are charged to the statement of operations as incurred. Advertising
      expenses for the years ended December 31, 2002, 2001 and 2000 were $ 16,
      $ 16 and $ 14, respectively.                                                                                                       
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                        
| | o. | Deferred income taxes:                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                        
| |    | Deferred income taxes
      are computed in respect of temporary differences between the amounts included
      in these financial statements, and those to be considered for tax purposes.                                                                                                                            
| |    |                                                                                                                                                                                                                                                                                                                        
| |    | Deferred tax balances
      are computed at the tax rate that will be in effect when those taxes are
      released to the statement of operations.                                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                                                                        
| |    | Taxes that would apply
      in the event of the realization of investments in subsidiaries have not
      been taken into account in computing the deferred taxes, as it is the Companys
      intention to hold these investments.                                                                                  
| |    |                                                                                                                                                                                                                                                                                                                        
| |    | Due to the Groups
      history of losses, management currently believes that it is more likely
      than not that the deferred tax regarding loss carryforward and other temporary
      differences will not be realized in the foreseeable future, therefore, the
      Company provided full valuation allowance.



|-
      15 -                                                                                        
|----------------------------------------------------------------------------------------------------
|                                                                                                    
|                                                                                                    
|                                                                                                    
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                        
|                                                                                                    
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
        **U.S. dollars
        in thousands**



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

|-
      16 -                                                                                        
|----------------------------------------------------------------------------------------------------
|                                                                                                    
|                                                                                                    
|                                                                                                    
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                        
|                                                                                                    
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
        **U.S. dollars
        in thousands**



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



|-
      17 -                                                                                        
|----------------------------------------------------------------------------------------------------
|                                                                                                    
|                                                                                                    
|                                                                                                    
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                        
|                                                                                                    
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
        **U.S. dollars
        in thousands**



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



|-
      18 -
|------------
|            
|            



|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                            
|----------------------------------------------------------------------------------------
|                                                                                        
|**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS** **U.S. dollars in
      thousands**

|                                                                           |   
|-------------------------------------------------------------------------- | --
|**NOTE
      2:-****SIGNIFICANT
      ACCOUNTING POLICIES (Cont.)**       
|                                                                           |   
|                                                                           |   
|                                                                           |   
|                                                                           |   
|                                                                           |   
|                                                                           | w.
|                                                                           |   
|                                                                           |   
|                                                                           |   
|**NOTE
      3:-****OTHER
      ACCOUNTS RECEIVABLE AND PREPAID EXPENSES**
|                                                                           |   

| |                                      | December
      31, |         
| | ------------------------------------ | ------------------ | --------
| |                                      |                    |         
| |                                      |                    | **2002**
| |                                      |                    |         
| | Government
      authorities         | $                  | 278     
| | Employees                            |                    | 26      
| | Grants
      from European Community |                    | 229     
| | Prepaid
      expenses               |                    | 72      
| | Advance
      payment to suppliers   |                    | 45      
| | Others                               |                    | 11      
| |                                      |                    |         
| |                                      | $                  | 661     
| |                                      |                    |         

|                                                                                        
|----------------------------------------------------------------------------------------
|-
      19 -                                                                            
|                                                                                        
|                                                                                        
|                                                                                        
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                            
|                                                                                        
|**NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS** **U.S.
      dollars in thousands**

|                                                    |  | 
|--------------------------------------------------- |  | 
|**NOTE
      4:-****INVESTMENT
      IN INVESTEES**
|                                                    |  | 

| | December
      31,  | 
| | ------------------- | 
|
|
| |                     | 
| | Eden
      (a)      | 
| | MAGA
      (b)      | 
| | Tri-Angle
      (b) | 
| |                     | 
| |                     | 
| |                     | 



| | (a) | The Company
      holds approximately 14% of Eden Telecom Ltd.s share capital and of
      the voting rights.   
| | --- | -----------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                  
| |     | Eden provide
      stolen vehicles recovery and location services based on Nexus Network System
      Technology.



| | December
      31,        | 
| | ------------------------- | 
|
|
| |                           | 
| | Cost
      of shares      | 
| | Long-term
      loans (1) | 
| | Capital
      note (2)    | 
| |                           | 
| |                           | 
| |                           | 

| | (1) | A balance of $ 79 bears
      interest at Prime minus 0.3%. The maturity date has not yet been determined.                                       
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                  
| | (2) | On December 31, 2002,
      a loan of $ 530 was converted into a capital note, which bears no interest
      and has no linkage to the US dollar.



| | (b) | As for impairments
      of investments, see Note 15e.
| | --- | ------------------------------------------------------



|-
      20 -                                                                      
|----------------------------------------------------------------------------------
|                                                                                  
|                                                                                  
|                                                                                  
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                      
|                                                                                  
|**NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS** **U.S. dollars in thousands**

|                                                   |  | 
|-------------------------------------------------- |  | 
|**NOTE
      5:-****PROPERTY
      AND EQUIPMENT**



|                                                   | December
      31,                                                                                                                     | 
|-------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | 
|
|
|                                                   |                                                                                                                                        | 
|                                                   | Cost:                                                                                                                                  | 
|                                                   | Installed
      products                                                                                                               | 
|                                                   | Computers
      and development equipment                                                                                              | 
|                                                   | Office
      furniture and equipment                                                                                                   | 
|                                                   | Motor
      vehicles                                                                                                                   | 
|                                                   | Leasehold
      improvements                                                                                                           | 
|                                                   | Network
      installation                                                                                                             | 
|                                                   |                                                                                                                                        | 
|                                                   |                                                                                                                                        | 
|                                                   |                                                                                                                                        | 
|                                                   | Accumulated
      depreciation:                                                                                                        | 
|                                                   | Installed
      products                                                                                                               | 
|                                                   | Computers
      and development equipment                                                                                              | 
|                                                   | Office
      furniture and equipment                                                                                                   | 
|                                                   | Motor
      vehicles                                                                                                                   | 
|                                                   | Leasehold
      improvements                                                                                                           | 
|                                                   | Network
      installation                                                                                                             | 
|                                                   |                                                                                                                                        | 
|                                                   |                                                                                                                                        | 
|                                                   |                                                                                                                                        | 
|                                                   | Depreciated
      cost                                                                                                                 | 
|                                                   |                                                                                                                                        | 
|                                                   |                                                                                                                                        | 
|                                                   | Depreciation
        expenses for the years ended December 31, 2002, 2001 and 2000 were $ 770,
        $ 480, and $ 191, respectively.
|                                                   | As for charges,
      see Note 10.                                                                                                    
|                                                   |                                                                                                                                       
|**NOTE
      6:-****INTANGIBLE
      ASSETS, NET**



| | December
      31,                                                                                                              | 
| | ------------------------------------------------------------------------------------------------------------------------------- | 
|
|
| |                                                                                                                                 | 
| | Patents:                                                                                                                        | 
| | Original
      amounts                                                                                                          | 
| | Accumulated
      amortization                                                                                                  | 
| |                                                                                                                                 | 
| | Amortized
      cost                                                                                                            | 
| |                                                                                                                                 | 
| |                                                                                                                                 | 
| | Amortization
      expenses for the years ended December 31, 2002, 2001 and 2000 were $ 76,
      $ 66, and $ 64, respectively.



|-
      21 -                                                                      
|----------------------------------------------------------------------------------
|                                                                                  
|                                                                                  
|                                                                                  
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                      
|                                                                                  
|**NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS** **U.S. dollars in thousands**



|**NOTE
      7:-****SHORT-TERM
      BANK CREDIT**
|--------------------------------------------------
|                                                  
|                                                  



| | December
      31,                                | 
| | ------------------------------------------------- | 
|
|
| |                                                   | 
| | Revolving
      line of credit in Dollar - (b.1.) | 
| | Revolving
      line of credit in NIS - (b.2.)    | 
| | On call
      loans - NIS                         | 
| |                                                   | 
| |                                                   | 
| |                                                   | 



|                                                                        | b. | 1.                                                                                | The balance
      bears interest at an annual rate of Libor plus 1.5%-2.5%.
|----------------------------------------------------------------------- | -- | --------------------------------------------------------------------------------- | ---------------------------------------------------------------------------
|                                                                        |    | 2.                                                                                | The balance
      bears interest at an annual rate of Prime plus 3%-6.5%.  
|                                                                        |    |                                                                                   | (The prime
      rate as of December 31, 2002 is 10.6%).                   
|                                                                        |    |                                                                                   |                                                                            
|                                                                        | c. | As
      of December 31, 2002, the Company has no unutilized credit line balance.
|                                                                        |    |                                                                                  
|**NOTE
      8:-****OTHER
      ACCOUNTS PAYABLE AND ACCRUED EXPENSES**



| | December
      31,                   |  
| | ------------------------------------ | -
|
|
| |                                      |  
| | Employees
      and payroll accruals | $
| | Provision
      for warranty         |  
| | Accrued
      expenses               |  
| | Customer
      advances              |  
| | Deferred
      revenues              |  
| | Others                               |  
| |                                      |  
| |                                      | $
| |                                      |  



|**NOTE
      9:-****CONVERTIBLE
      DEBENTURES**
|--------------------------------------------------
|                                                  
|                                                  

|                                                                                  
|----------------------------------------------------------------------------------
|-
      22 -                                                                      
|                                                                                  
|                                                                                  
|                                                                                  
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                      
|                                                                                  
|**NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS** **U.S. dollars in thousands**



|**NOTE
      10:-****COMMITMENTS
      AND CONTINGENT LIABILITIES**
|-------------------------------------------------------------------
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   
|                                                                   



| | Year
      ended
      December 31, | 
| | ----------------------------------- | 
| |                                     | 
| | 2003                                | 
| | 2004                                | 
| | 2005                                | 
| | 2006                                | 
| | 2007
      and thereafter           | 
| |                                     | 
| |                                     | 
| |                                     | 



| | Rent expenses for the
      years ended December 31, 2002, 2001 and 2000 were $ 524 $ 132
      and $ 256, respectively.
| | ------------------------------------------------------------------------------------------------------------------------



|-
      23 -                                                                                                        
|--------------------------------------------------------------------------------------------------------------------
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                                        
|                                                                                                                    
|**NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS** **U.S. dollars in thousands (except share and per share data)**



|**NOTE
      10:-****COMMITMENTS
      AND CONTINGENT LIABILITIES (Cont.)**
|---------------------------------------------------------------------------
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|**NOTE
      11:-****SHAREHOLDERS
      DEFICIENCY**                      
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           



|-
      24 -                                                                                                        
|--------------------------------------------------------------------------------------------------------------------
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                                        
|                                                                                                                    
|**NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS** **U.S. dollars in thousands (except share and per share data)**



|**NOTE
      11:-****SHAREHOLDERS
      DEFICIENCY (Cont.)**
|-------------------------------------------------------------
|                                                             
|                                                             
|                                                             
|                                                             
|                                                             
|                                                             



| |                                                                                                                                                          | 2002      |   | 2001 |      | 2000 |        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | - | ---- | ---- | ---- | -------
|
|
| |                                                                                                                                                          |           |   |      |      |      |        
| | Options
      outstanding at the beginning                                                                                                               |           |   |      |      |      |        
| | of
      the year                                                                                                                                        | 984,364   |   | $    | 6.5  |      | 511,496
| | Granted                                                                                                                                                  | 286,500   |   | $    | 1.46 |      | 505,333
| | Exercised                                                                                                                                                | -         |   | $    | -    |      | -      
| | Forfeited                                                                                                                                                | (67,133   | ) | $    | 5.02 |      | (32,465
| |                                                                                                                                                          |           |   |      |      |      |        
| | Outstanding
      at the end of the year                                                                                                                 | 1,203,731 |   | $    | 5.32 |      | 984,364
| |                                                                                                                                                          |           |   |      |      |      |        
| | Options
      exercisable at the end of                                                                                                                 
| | the
      year                                                                                                                                           | 660,025   |   | $    | 7.92 |      | 448,475
| |                                                                                                                                                          |           |   |      |      |      |        
| | Weighted
      average fair value on the                                                                                                                
| | date
      of grant                                                                                                                                      |           |   | $    | 1.02 |      |        
| |                                                                                                                                                          |           |   |      |      |      |        
| |                                                                                                                                                          |           |   |      |      |      |        
| | The following
      table summarizes information relating to stock options outstanding as of
      December 31, 2002, according to exercise price range:



| |             | Options
      outstanding |  | Options
      exercisable | 
| | ----------- | ------------------------- |  | ------------------------- | 
|
|
|
|
| |             |                           |  |                           | 
| | $ 0.03-2.55 |                           |  | 757,339                   | 
| | $ 7.5-9.00  |                           |  | 298,667                   | 
| | $ 13.5-16.5 |                           |  | 147,725                   | 
| |             |                           |  |                           | 
| |             |                           |  | 1,203,731                 | 
| |             |                           |  |                           | 



|-
      25 -                                                                                                        
|--------------------------------------------------------------------------------------------------------------------
|                                                                                                                    
|                                                                                                                    
|                                                                                                                    
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                                        
|                                                                                                                    
|**NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS** **U.S. dollars in thousands (except share and per share data)**



|**NOTE 11:-**   
      **SHAREHOLDERS
      DEFICIENCY (Cont.)**
|-----------------------------------------------------------------



| | Exercise
      price exceeds market price         |   | Exercise
      price equal to market price | 
| | ------------------------------------------------- | - | ------------------------------------------ | 
|
|
| |                                                   |   |                                            | 
| | Weighted
      average exercise prices            | $ | -                                          | 
| |                                                   |   |                                            | 
| | Weighted-average
      fair value   on grant date | $ | -                                          | 
| |                                                   |   |                                            | 



| | 3. | Pro forma disclosures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Pro-forma
      information regarding net loss and net loss per share is required by SFAS
      No. 123, and has been determined as if the Company had accounted for its
      employee stock options under the fair value method of that Statement.                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | The fair
      value of the options granted was estimated at the date of grant, using the
      Black-Scholes option-pricing model, with the following weighted average
      assumptions used for grants in 2002, 2001 and 2000: a dividend yield of
      0% for all periods; expected volatility of 141% in 2002, 141% in 2001 and
      133% in 2000; risk-free interest rates of 1.5% in 2002, 2% in 2001 and 5%
      in 2000; and expected life of two and a half years for all periods.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | No options
      to employees were issued at less than fair market value.                                                                                                                                                                                                                                                                                                                                                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    | Pro forma
      information under SFAS 123:                                                                                                                                                                                                                                                                                                                                                                                                                                                    



| | Year
      ended December 31,                        | 
| | ---------------------------------------------------- | 
|
|
| |                                                      | 
| | Net loss
      as reported                           | 
| |                                                      | 
| | Pro-forma
      net loss                             | 
| |                                                      | 
| | Pro-forma
      basic and diluted net loss per share | 
| |                                                      | 



| | 4. | (a) | The following
      table summarizes information relating to warrants issued to investors outstanding
      as of December 31, 2002:
| | -- | --- | ------------------------------------------------------------------------------------------------------------------------------------



| | Number  |  | Year of issuance |  | Expiration date |  | Exercise
      price |     
| | ------- |  | ---------------- |  | --------------- |  | -------------------- | ----
| |         |  |                  |  |                 |  |                      |     
| | 165,000 |  | 2002             |  | 2004            |  | $                    | 3.75



| |    | b.                                                                                                                                                                        | During 2000, 178,330
      warrants were exercised into Ordinary shares at $ 11.75 per share.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                          
| | 5. | Dividends:                                                                                                                                                               
| |    |                                                                                                                                                                          
| |    | Any dividend
      distributed by the Company will be declared in NIS and paid in U.S. dollars
      on the basis of the exchange rate prevailing at the date of payment.

|                                                                                  
|----------------------------------------------------------------------------------
|-
      26 -                                                                      
|                                                                                  
|                                                                                  
|                                                                                  
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                      
|                                                                                  
|**NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS** **U.S. dollars in thousands**

|**NOTE
      12:-****INCOME
      TAXES**
|-----------------------------------------
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         
|                                         

|                                                                                  
|----------------------------------------------------------------------------------
|-
      27 -                                                                      
|                                                                                  
|                                                                                  
|                                                                                  
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                      
|                                                                                  
|**NOTES TO CONSOLIDATED
      FINANCIAL STATEMENTS** **U.S. dollars in thousands**



|**NOTE
      12:-****INCOME
      TAXES (Cont.)**
|-------------------------------------------------
|                                                 
|                                                 
|                                                 
|                                                 



| | December
      31,                                          |  
| | ----------------------------------------------------------- | -
|
| | Temporary
      differences regarding benefits to employees | $
| | Carryforward
      tax losses                               |  
| | Impairment
      of an investment                           |  
| | Other
      temporary differences, net                      |  
| |                                                             |  
| | Net deferred
      tax assets before valuation allowance    |  
| | Valuation
      allowance (*)                               |  
| |                                                             |  
| | Net deferred
      tax assets                               | $
| |                                                             |  



| |    | (*)                                                                                                                                                                           | The Company
      and its subsidiaries have provided valuation allowances in respect of deferred
      tax assets resulting from tax loss carryforwards and other temporary differences,
      since the Company and its subsidiaries have a history of losses, it is more
      likely than not that the deferred taxes regarding the losses carryforwards
      and other temporary differences will not be realized in the foreseeable
      future.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                              
| | e. | Carryforward
      tax losses and deductions:                                                                                                                                
| |    |                                                                                                                                                                              
| |    | Carryforward
      tax losses of the Company totaled approximately $ 31,000 as of December
      31, 2002. The carryforward tax losses have no expiration date.              
| |    |                                                                                                                                                                              
| |    | Carryforward
      tax losses of the Argentinean subsidiary are approximately $ 3,000 as of
      December 31, 2002. Most of the carryforward tax losses will expire in 2007.
| |    |                                                                                                                                                                              
| | f. | Final tax
      assessments:                                                                                                                                                 
| |    |                                                                                                                                                                              
| |    | The Company
      has not received final tax assessments since 1997. Its subsidiaries have
      not received any final tax assessments since their incorporation.           
| |    |                                                                                                                                                                              

|**NOTE
      13:-     BALANCES AND TRANSACTIONS WITH RELATED PARTIES**
|----------------------------------------------------------------------
|                                                                      
|                                                                      



| |                                             | December
      31, |   
| | ------------------------------------------- | ------------------ | --
|
| | Long-term
      loans to Eden (see Note 4a) | $                  | 79
| |                                             |                    |   

|                                                                                          
|------------------------------------------------------------------------------------------
|-28-                                                                                      
|                                                                                          
|                                                                                          
|                                                                                          
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                              
|                                                                                          
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars in thousands**

|                                                                                   
|-----------------------------------------------------------------------------------
|**NOTE
      13:-    BALANCES AND TRANSACTIONS WITH RELATED PARTIES
      (Cont.)**
|                                                                                   
|                                                                                   

| | Year ended
      December 31,                        | 
| | ---------------------------------------------------- | 
|
| | Management
      fees to B.V.R. Technologies Ltd.    | 
| | Interest
      on loans and debentures paid to B.V.R | 
| | Technologies
      Ltd.                              | 

|                                                                        |    |                                                                                                                
|----------------------------------------------------------------------- | -- | ---------------------------------------------------------------------------------------------------------------
|**NOTE
      14:-SEGMENTS,
      CUSTOMERS AND GEOGRAPHIC INFORMATION**
|                                                                        |    |                                                                                                                
|                                                                        | a. | General:                                                                                                       
|                                                                        |    |                                                                                                                
|                                                                        |    | The Company
      operates in one segment, Location Based Service (LBS).                                       
|                                                                        |    |                                                                                                                
|                                                                        |    | The Company
      adopted FAS 131, Disclosures About Segments of an Enterprise and Related
      Information.
|                                                                        |    |                                                                                                                
|                                                                        | b. | Summary information
      about geographical areas:                                                            

| | Year
      ended December 31, |                    
| | ----------------------------- | -------------------
|
| | 1.                            | Revenues (*):      
| |                               | South
      America
| |                               | Israel             
| |                               | USA                
| |                               | Other              
| |                               |                    
| |                               |                    
| |                               |                    

| |  |  |                                                                                                 
| |  |  | ------------------------------------------------------------------------------------------------
| |  |  | (*)Revenues
      are attributed to geographic areas based on the location of the end-customers.
| |  |  |                                                                                                 

| | Year
      ended December 31, |                                                                  
| | ----------------------------- | -----------------------------------------------------------------
|
| | 2.                            | Long-lived assets:                                               
| |                               | Israel                                                           
| |                               | Argentina                                                        
| |                               |                                                                  
| |                               |                                                                  
| |                               |                                                                  
| | 3.                            | Revenues classified
      by major customer:                     
| |                               | Percentage
      of sales to customers exceeding 10% of revenues:

| | % |                 
| | - | ----------------
| |   | Customer
      A
| |   | Customer
      B
| |   | Customer
      C
| |   | Customer
      D
| |   | Customer
      E
| |   |                 
| |   |                 
| |   |                 

|                                                                                          
|------------------------------------------------------------------------------------------
|-29-                                                                                      
|                                                                                          
|                                                                                          
|                                                                                          
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                              
|                                                                                          
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars in thousands**
|                                                                                          
|**NOTE
      15:-SELECTED
      STATEMENTS OF OPERATIONS DATA**                           
|                                                                                          

| | Year
      ended December 31, |                                            
| | ----------------------------- | -------------------------------------------
|
| | a.                            | Cost of revenues:                          
| |                               |                                            
| |                               | Salaries,
      wages and employee benefits
| |                               | Subcontractors
      and consulting        
| |                               | Raw materials
      and components         
| |                               | Inventory
      write-offs                 
| |                               | Depreciation                               
| |                               | Others                                     
| |                               |                                            
| |                               |                                            
| |                               |                                            

| | b. | Sales
      and marketing:                  |  |  |   |       |  |   |           |  |   |               | 
| | -- | ------------------------------------------- |  |  | - | ----- |  | - | --------- |  | - | ------------- | 
| |    |                                             |  |  |   |       |  |   |           |  |   |               | 
| |    | Salaries,
      wages and employee benefits |  |  | $ | 647   |  | $ | (* 1,042  |  | $ | 367           | 
| |    | Marketing
      expenses and commissions    |  |  |   | 316   |  |   | (*    987 |  |   | (* 805        | 
| |    | Others                                      |  |  |   | 144   |  |   | (*    196 |  |   | (*  
      71 | 
| |    |                                             |  |  |   |      
| |    |                                             |  |  | $ | 1,107 |  | $ | 2,225     |  | $ | 1,243         | 
| |    |                                             |  |  |   |      
| | c. | General
      and administrative            |  |  |   |       |  |   |           |  |   |              
| |    |                                             |  |  |   |       |  |   |           |  |   |              

| |    | Salaries,
      wages and employee benefits |  |  | $ | 587   |  | $ | (* 700 |  | $ | 1,046  | 
| | -- | ------------------------------------------- |  |  | - | ----- |  | - | ------ |  | - | ------ | 
| |    | Rental
      and office expenses            |  |  |   | 174   |  |   | (* 179 |  |   | (* 474 | 
| |    | Professional
      fees                     |  |  |   | 465   |  |   | (* 433 |  |   | (* 463 | 
| |    | Allowance
      for doubtful accounts       |  |  |   | 539   |  |   | (* 411 |  |   | -      | 
| |    | Others                                      |  |  |   | 519   |  |   | (* 509 |  |   | (* 612 | 
| |    |                                             |  |  |   |      
| |    |                                             |  |  | $ | 2,284 |  | $ | 2,232  |  | $ | 2,595  | 
| |    |                                             |  |  |   |      
| | d. | Financial
      income (expenses), net:     |  |  |   |       |  |   |        |  |   |        | 

| |    |                                                     
| | -- | ----------------------------------------------------
| |    | Income:                                             
| |    | Short-term
      bank deposits                      
| |    |                                                     
| |    | Expenses:                                           
| |    | Bank
      charges and interest on short-term credit
| |    | Translation
      adjustments                       
| |    | Interest
      on convertible debentures            
| |    |                                                     
| |    |                                                     
| |    |                                                     
| |    |                                                     
| |    |                                                     
| | e. | Other
      income (expenses):                      

| |                                                      |  |  |   |      |   |   |           |   |   |         |  
| | ---------------------------------------------------- |  |  | - | ---- | - | - | --------- | - | - | ------- | -
| | Impairment
      of investments (1) (2) (3)          |  |  | $ | (680 | ) | $ | (*   (695 | ) | $ | (13,000 | )
| | Gain
      in respect to waiver of customer advances |  |  |   | 300  |   |   | (* 1 ,086 |   |   | -       |  
| | Capital
      gain (loss)                            |  |  |   | -    |   |   | 6         |   |   | (5      | )
| | Other                                                |  |  |   | (60  | ) |   | 177       |   |   | (521    | )
| |                                                      |  |  |   |      |  
| |                                                      |  |  | $ | (440 | ) | $ | 574       |   | $ | (13,526 | )
| |                                                      |  |  |   |      |  

|                                                                                          
|------------------------------------------------------------------------------------------
|-30-                                                                                      
|                                                                                          
|                                                                                          
|                                                                                          
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                              
|                                                                                          
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars in thousands**

| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The
      impairment of investments included in the Companys consolidated results
      of operations for the year ended December 31, 2002 is in respect of the
      investments in MAGA communication limited (MAGA) and in Tri
      Angle LLC. (Tri Angle). The Companys investment in MAGA  was
      an investment in an option to acquire 5% of MAGAs outstanding ordinary
      shares. During 2002, the Companys management determined, in light
      of MAGAs financial position, not to exercise its option. As per the
      second impaired investment, Tri Angle LLC., had  ceased its operations
      during 2002. Accordingly, the Companys management determined that
      these fact patterns indicated that the carrying amounts of these two investments
      would not be recoverable, and impaired the entire amount of the investment
      in MAGA of $500 and the entire amount of the investment in Tri Angle LLC
      of $180.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (2) | The impairment of investment
      included in the Companys consolidated results of operations for the
      year ended December 31, 2001 is in respect of the investment in Ubinet Telecom
      S.A. (Ubinet). During 2001, the shareholders of Ubinet ceased
      their obligation to support the operations of this company and have filed
      a request for the liquidation of Ubinets assets. Accordingly, the
      Companys management determined that this fact pattern indicated that
      the carrying amount of the investment  would not be recoverable,
      and impaired the entire amount of the investment in Ubinet of $695.                                                                                                                                                                                                                                                                                                                
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | (3) | The impairment of investment
      included in the Companys consolidated results of operations for the
      year ended December 31, 2000 is in respect of the investment in Global Wireless
      Holding Inc. (GWH). During 2000, the Company impaired its investment
      in GWH as a result of the global decrease in the industry and of similar
      technology companies, as well as the financial position of GWH at that time,
      which indicated that the carrying amount of the investment  would
      not be recoverable in its entirety. Accordingly, the company impaired the
      investment in GWH in the amount of $13,000.                                                                                                                                                                                                                                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

| | ***)** | **Reclassified.**
| | ------ | -----------------

|                                                                                                              
|--------------------------------------------------------------------------------------------------------------
|-31-                                                                                                          
|                                                                                                              
|                                                                                                              
|                                                                                                              
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                                  
|                                                                                                              
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars in thousands (except share data)**

|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**NOTE
      16:-****EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP ON THE 
                              CONSOLIDATED
      FINANCIAL STATEMENTS**
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 | The consolidated
      financial statements of the Company conform with generally accepted accounting
      principles in Israel (Israeli GAAP), which differ in certain
      respects from those followed in the United States (U.S. GAAP),
      as described below:
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 | a.                                                                                                                                                                                                                                                                         
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 | b.                                                                                                                                                                                                                                                                         
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            
|                                                                                                                                                                 |                                                                                                                                                                                                                                                                            

|                                                                                          
|------------------------------------------------------------------------------------------
|-32-                                                                                      
|                                                                                          
|                                                                                          
|                                                                                          
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                              
|                                                                                          
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars in thousands**

|                                                                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**NOTE
      16:-****EFFECT OF MATERIAL DIFFERENCES BETWEEN ISRAEL AND U.S. GAAP ON THE 
                              CONSOLIDATED
      FINANCIAL STATEMENTS (Cont.)**
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        
|                                                                                                                                                                        

| | e. | Discontinued
      operations:                                                                                                                                                                                                                                                                                                                    
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                   
| |    | Under Israeli GAAP,
      operations are discontinued at the earlier of the transaction agreement
      date or the date at which a formal approval of the plan to discontinue the
      operation was granted.                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                   
| |    | Under U.S. GAAP, the
      result of a component on an entity to be disposed of by sale should be classified
      as discontinued whenever it meets the held for sale criteria
      in accordance with Statement of Financial Accounting Standard No. 144 Accounting
      for Impairment or Disposal of Long-Lived Assets (SFAS No. 144).
| |    |                                                                                                                                                                                                                                                                                                                                                   
| |    | There is no material
      effect of the differences between Israeli and US GAAP.                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                   

| | f. | Impact of
      recently issued accounting standard:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    | In April 2002, the FASB
      issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and
      64, Amendment of FASB Statement No. 13, and Technical Corrections,
      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.
      SFAS No. 145 amends SFAS No. 13, Accounting for Leases, to

|                                                                                          
|------------------------------------------------------------------------------------------
|-33-                                                                                      
|                                                                                          
|                                                                                          
|                                                                                          
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                              
|                                                                                          
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars in thousands**

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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-leaseback 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 that the adoption of SFAS No.145 will have a
      material impact on its results of operations or financial position.

|                                                                                          
|------------------------------------------------------------------------------------------
|-34-                                                                                      
|                                                                                          
|                                                                                          
|                                                                                          
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                              
|                                                                                          
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars in thousands**

|**NOTE
      16:-      EFFECT OF MATERIAL DIFFERENCES BETWEEN
      ISRAEL AND U.S. GAAP ON THE CONSOLIDATED FINANCIAL STATEMENTS (Cont.)**
|-------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                           
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      35 -                                                                                                                
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|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                                                
|                                                                                                                            
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S. dollars in thousands (except share and per share data)**
|                                                                                                                            

|NOTE
      17:-SUBSEQUENT
      EVENTS
|--------------------------------------
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      
|                                      

| | 1. | Convertible
      debenture - AMS converted $ 723 of the convertible debenture issued to it
      on January 15, 2002 (including interest accrued thereon) at a conversion
      price of 4.4 cent per share into 16,435,500 Ordinary shares and executed
      a proxy in favor of DBSI. The  balance in the amount of $ 300 was repaid.
      (See Note 1f)                                                                                                                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. | Manufacturing agreement
      - the Manufacturing and Purchase agreement signed between the Company and
      AMS in January 2002 was amended, such that the Companys commitment
      to purchase products from AMS in the amount of $ 36,000 for a period of
      36 months is no longer valid. The Company has committed to purchase from
      AMS end units in the amount of at least $10,000 over the course of four
      years period, provided that there is actual demand for those products.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|                                                     | d. | In 2003,
      Tracsat issued to two employees 280 shares and the Company is committed
      to issue 560 additional shares of Tracsat, which will reduce its holding
      in Tracsat from 92.5% to 86.45%.
|---------------------------------------------------- | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                     |    |                                                                                                                                                                                                             
|**NOTE
      18:-****DISCONTINUED
      OPERATIONS**
|                                                     |    |                                                                                                                                                                                                             

| | a. | On December
      24, 2002, the Company and third party investor signed an offer to acquire
      Nexus Data Inc. (ND), pursuant to which the Company sold all of its holdings
      in ND to the investor (see Note 1a).                                                                                                     
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                               
| |    | In view of the above,
      the assets, liabilities, operating results and cash flows attributed to
      ND were presented in the Companys balance sheets, statements of operations
      and cash flows as discontinued operations, accordingly, the comparative
      figures were reclassified for all periods presented.
| |    |                                                                                                                                                                                                                                                                                                                               

|-
      36 -                                                                                      
|--------------------------------------------------------------------------------------------------
|                                                                                                  
|                                                                                                  
|                                                                                                  
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**                                      
|                                                                                                  
|**NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
      **U.S.
        dollars in thousands**

NOTE
  18:-      DISCONTINUED OPERATIONS (Cont.)

| |  | The following
      is a breakdown of assets and liabilities attributed to discontinued operations
      as of December 31, 2002 and 2001:
| |  | ------------------------------------------------------------------------------------------------------------------------------------------

| |                                                          |  |  | **December 31,** |       
| | -------------------------------------------------------- |  |  | ---------------- | ------
| |                                                          |  |  | **2002**         |       
| | Assets
      attributed to discontinued operations:      |  |  |                  |       
| |                                                          |  |  |                  |       
| | Cash
      and cash equivalents                          |  |  | $                | -     
| | Short-term
      deposit                                 |  |  |                  | 21    
| | Trade
      receivables                                  |  |  |                  | 27    
| | Other
      accounts receivable                          |  |  |                  | 99    
| | Inventory                                                |  |  |                  | 1,579 
| | Severance
      pay fund                                 |  |  |                  | 105   
| | Property
      and equipment, net                        |  |  |                  | 797   
| | Other
      assets, net                                  |  |  |                  | 14    
| |                                                          |  |  |                 
| |                                                          |  |  | $                | 2,642 
| |                                                          |  |  |                 
| | Liabilities
      attributed to discontinued operations: |  | 
| |                                                          |  |  |                  |       
| | Short-term
      loans and bank credit, net              |  |  | $                | 4,192 
| | Trade
      payables                                     |  |  |                  | 2,034 
| | Other
      accounts payable                             |  |  |                  | 959   
| | Long-term
      loan                                     |  |  |                  | 449   
| | Accrued
      severance pay                              |  |  |                  | 157   
| | Receipts
      on account of options                     |  |  |                  | 3,375 
| |                                                          |  |  |                 
| |                                                          |  |  | $                | 11,166
| |                                                          |  |  |                 

| | b. | The following
      are the results of discontinued operations for the years ended December
      31, 2002, 2001 and 2000:
| | -- | --------------------------------------------------------------------------------------------------------------------------

| |                                        |  |      |   |        |  
| | -------------------------------------- |  | ---- | - | ------ | -
| | Year ended December 31,                | 
| | 2002                                   |  | 2001 |   | 2000   |  
| | Revenues                               |  |      | $ | 680    |  
| | Cost
      of revenues                 |  |      |   | 1,552  |  
| |                                        |  |      |   |        |  
| | Gross
      loss                       |  |      |   | 872    |  
| |                                        |  |      |   |        |  
| | Operating
      expenses:              |  |     
| | Research
      and development, net    |  |      |   | 1,202  |  
| | Sales
      and marketing              |  |      |   | 631    |  
| | General
      and administrative       |  |      |   | 1,151  |  
| |                                        |  |      |   |        |  
| |                                        |  |      |   | 2,984  |  
| |                                        |  |      |   |        |  
| | Operating
      loss                   |  |      |   | (3,856 | )
| | Financial
      income (expenses), net |  |      |   | (144   | )
| | Other
      expenses                   |  |      |   | -      |  
| |                                        |  |      |   |        |  
| | Net loss                               |  |      | $ | (4,000 | )
| |                                        |  |      |   |        |  

|-
      37 -                                                
|------------------------------------------------------------
|                                                            
|                                                            
|                                                            
|**NEXUS
      TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES**
|                                                            
|**APPENDIX
        TO CONSOLIDATED FINANCIAL STATEMENTS**   

| |                                                                              |  | 
| | ---------------------------------------------------------------------------- |  | 
| |                                                                              |  | 
| |                                                                              |  | 
| | Subsidiaries:                                                                |  | 
| | Tracsat
      S.A                                                            |  | 
| | Nexus
      Telocation Systems North America, LLC                            |  | 
| | NexusData
      Inc. (1)                                                     |  | 
| | NexusData
      (1993) Ltd. (held by Nexus Data Inc.) (1)                    |  | 
| | Aptel
      Communication Services (1996) Ltd. (held by Nexus Data Ltd.) (1) |  | 
| | Nexus
      Telocation Systems Singapore Ltd. (Inactive)                     |  | 
| | Nexus
      1994 Ltd. (inactive)                                             |  | 
| | Nexus
      Telecommunications Chile Limitada (inactive)                     |  | 
| |                                                                              |  | 
| | (1)  
      See Note 1b.                                                     |  | 

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