20-F

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 20-F

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. 

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

Israel
(Jurisdiction of incorporation or organization)

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

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

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

Ordinary Shares, NIS 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

               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:           Yes  þ     No  o

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

           Item 17  o     Item 18  þ

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

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	5
		B.	CAPITALIZATION AND INDEBTEDNESS	5
		C.	REASONS FOR THE OFFER AND USE OF PROCEEDS	5
		D.	RISK FACTORS	5
	ITEM 4.	INFORMATION ON THE COMPANY		14
		A.	HISTORY AND DEVELOPMENT OF THE COMPANY	14
		B.	BUSINESS OVERVIEW	15
		C.	ORGANIZATIONAL STRUCTURE	20
		D.	PROPERTY, PLANTS AND EQUIPMENT	20
	ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		20
		A.	OPERATING RESULTS	20
		B.	LIQUIDITY AND CAPITAL RESOURCES	24
		C.	RESEARCH AND DEVELOPMENT	25
		D.	TREND INFORMATION	26
	ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		27
		A.	DIRECTORS AND SENIOR MANAGEMENT	27
		B.	COMPENSATION	28
		C.	BOARD PRACTICES	29
		D.	EMPLOYEES	29
		E.	SHARE OWNERSHIP	31
	ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		31
		A.	MAJOR SHAREHOLDERS	31
		B.	RELATED PARTY TRANSACTIONS	31
		C.	INTERESTS OF EXPERTS AND COUNSEL	32
	ITEM 8.	FINANCIAL INFORMATION		32
		A.	CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION	32
		B.	SIGNIFICANT CHANGES	32
	ITEM 9.	THE OFFER AND LISTING		32
		A.	OFFER AND LISTING DETAILS	33
		B.	PLAN OF DISTRIBUTION	33

3

		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

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

               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 subsidiary, 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

• 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

               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, 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

• 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, 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

               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

               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

               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

               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

               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.

14

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

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

               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

17

• 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 lease 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		% of our total sales		In thousands		% of our total sales
U.S.A		820		12.9		-		-		-		-
South America		3,833		60.3		9,914		79.4		3,713		61.5
Israel		1,592		25.0		2,259		18.1		2,293		38.0
Other		116		1.8		310		2.5		29		0.5
Total		6,361		100.0		12,483		100.0		6,035		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

               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

               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, impairment of long-lived assets and restructuring expenses. 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 18 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

	1998			1999			2000			2001			2002
Statement of Income Data:
Revenues, sales		$8,598			$3,810			$6,035			$12,375			$5,196
Revenues, services		—			—			—			108			1,165
Total Revenues		85,98			3,810			6,035			12,483			6,361
Cost of revenues, sales		6,863			5,325			4,498			9,355			3,528
Cost of revenues, services		—			—			—			1,002			948
Total Cost of Revenues		6,863			5,325			4,498			10,357			4,476
Gross profit (loss)		1,735			(1,515	)		1,369			2,296			1,885
Research and development costs, net		4,576			1,334			1,397			1,654			1,377
Selling, general and administrative expenses		5,652			4,984			3,838			4,457			3,391
Operating loss		(8,493	)		(7,833	)		(3,698	)		(3,815	)		(2,883	)
Financial expenses (income)		(22	)		(833	)		(221	)		(209	)		(266	)
Other income (expenses)		(9	)		(337	)		(13,526	)		(574	)		(440	)
		(8,524	)		(9,003	)		(17,445	)		(3,450	)		(3,589	)
Minority interest in losses of a subsidiary		441			—			—			191			—
Net Loss for the year		(10,334	)		(9,997	)		(20,508	)		(8,463	)		(7,589	)
Basic and diluted net loss per share		(2.58	)		(2.25	)		$(2.78	)		$(0.83	)		$(0.67	)
Weighted average number of shares outstanding (in thousands)		4,026			4,442			7,369			10,162			11,289
Balance Sheet Data:
Total assets		13,331			7,921			13,944			13,488			10,098
Working capital (deficit)		(2,798	)		(2,578	)		537			(1,888	)		(1,454	)
Convertible debentures		—			3,000			2,500			—			1,020
Shareholders’ equity (deficiency)		2,457			(3,991	)		(446	)		(3,639	)		(10,581	)

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			2001			2000
Revenues		100%			100%			100%
Cost of Sales & Services		70			82			75
Gross profit		30			18			25
Research and development expenses,   net		22			13			23
Selling, general and administrative   expenses		53			36			64
Operating Income (loss)		(45	)		(31	)		(61	)

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) license fees or royalties from the use of our sold products and (iii) consecutive sales of our end unit devices, supporting expansion, enhancements and upgrades 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.

21

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.

22

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

23

               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

               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

               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, while sharply minimizing our research and development and marketing efforts of our two-way paging systems due to overall market trends.  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

               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.

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 Avni was 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 Rotbard has 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

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 Dotan is 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 Rosenthal was 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 Stein was 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

               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

               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

               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 13 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

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

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

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

               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

               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

               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

               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

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

               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

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

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 24^th 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

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

• Kost Forer & Gabbay
3 Aminadav St.
Tel-Aviv 67067, Israel • 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
April 30, 2003 KOST FORER & GABBAY
A Member of Ernst & Young Global

- 2 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

U.S. dollars in thousands

		December 31,
		2002		2001
	ASSETS
CURRENT ASSETS:
	Cash and cash equivalents	$	71	$	1,002
	Short-term bank deposits		64		75
	Trade receivables (net of allowance for doubtful accounts of $ 860 and
	$ 846 at December 31, 2002 and 2001, respectively)		1,134		3,191
	Other accounts receivable and prepaid expenses (Note 3)		661		1,123
	Inventories		1,264		(*  1,504
Total current assets			3,194		6,895
LONG-TERM INVESTMENTS:
	Severance pay fund		510		429
	Investment in investees (Note 4)		2,007		2,763
			2,517		3,192
PROPERTY AND EQUIPMENT, NET (Note 5)			1,535		(*  1,403
INTANGIBLE ASSETS, NET (Note 6)			210		286
ASSETS ATTRIBUTED TO DISCONTINUED OPERATIONS (Note 18)			2,642		1,712
Total assets		$	10,098	$	13,488

*)Reclassified.

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,
			2002			2001
	LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
CURRENT LIABILITIES:
	Short-term bank credit (Note 7)		$	848		$	3,335
	Trade payables			1,913			2,759
	Other accounts payable and accrued expenses (Note 8)			1,887			2,689
Total current liabilities				4,648			8,783
LONG-TERM LIABILITIES:
	Long-term loan			3,000			-
	Accrued severance pay			845			745
	Convertible debentures (Note 9)			1,020			-
				4,865			745
LIABILITIES ATTRIBUTED TO DISCONTINUED OPERATIONS
(Note 18)				11,166			7,599
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		94			91
	Additional paid-in capital			77,373			76,402
	Cumulative foreign currency translation adjustments			(1,899	)		(1,572	)
	Accumulated deficit			(86,149	)		(78,560	)
Total shareholders’ deficiency				(10,581	)		(3,639	)
			$	10,098		$	13,488

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,
		2002			2001			2000
Revenues:
	Sales	$	5,196		$	12,375		$	6,035
	Services		1,165			108			-
Total revenues (Note 14b)			6,361			12,483			6,035
Cost of revenues:
	Sales		3,528			9,355			4,498
	Services		948			832			-
Total cost of revenues (Note 15a)			4,476			10,187			4,498
Gross profit			1,885			2,296			1,537
Operating expenses:
	Research and development, net		1,377			1,654			1,397
	Sales and marketing (Note 15b)		1,107			2,225			1,243
	General and administrative (Note 15c)		2,284			2,232			2,595
Total operating expenses			4,768			6,111			5,235
Operating loss			(2,883	)		(3,815	)		(3,698	)
Financial expenses, net (Note 15d)			(266	)		(209	)		(221	)
Other income (expenses) (Note 15e)			(440	)		574			(13,526	)
			(3,589	)		(3,450	)		(17,445	)
Minority interest in losses of a subsidiary			-			191			-
Loss from continuing activities			(3,589	)		(3,259	)		(17,445	)
Loss from discontinued operations, net (Note 18)			(4,000	)		(5,204	)		(3,063	)
Net loss for the year		$	(7,589	)	$	(8,463	)	$	(20,508	)
Basic and diluted loss per share from continuing operations (in U.S. $)		$	0.32		$	0.32		$	2.37
Basic and diluted loss per share from discontinued operations (in U.S. $)			0.35			0.51			0.41
Total basic and diluted loss per share (in U.S. $)		$	0.67		$	0.83		$	2.78
Weighted average number of shares outstanding (in thousands)			11,289			10,162			7,369

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	)	$	-		$	(49,589	)	$	(3,991	)
Issuance of shares, net		21		20,868		-			-			-			20,889
Exercise of warrants		1		2,058		-			-			-			2,059
Amortization of deferred stock compensation		-		-		19			-			-			19
Conversion of convertible debentures		1		499		-			-			-			500
Issuance of warrants		-		125		-			-			-			125
Exercise of options		1		460		-			-			-			461
Net loss		-		-		-			-			(20,508	)		(20,508	)
Balance as of December 31, 2000		67		69,584		-			-			(70,097	)		(446	)
Issuance of shares, net		13		3,962		-			-			-			3,975
Issuance of shares in respect of
acquisition of subsidiary		3		364		-			-			-			367
Conversion of convertible debentures		8		2,492		-			-			-			2,500
Foreign currency translation adjustments		-		-		-			(1,572	)		-			(1,572	)
Net loss		-		-		-			-			(8,463	)		(8,463	)
Balance as of December 31, 2001		91		76,402		-			(1,572	)		(78,560	)		(3,639	)
Issuance of shares, net		3		971		-			-			-			974
Foreign currency translation adjustments		-		-		-			(327	)		-			(327	)
Net loss		-		-		-			-			(7,589	)		(7,589	)
Balance as of December 31, 2002	$	94	$	77,373	$	-		$	(1,899	)	$	(86,149	)	$	(10,581	)

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,
			2002			2001			2000
Cash flows from operating activities:
	Loss for the year		$	(7,589	)	$	(8,463	)	$	(20,508	)
	Adjustments to reconcile net loss to net cash used in
		operating activities:
		Loss from discontinued operations		4,000			5,204			3,063
		Depreciation and amortization		846			546			422
		Interest on convertible debentures		20			-			-
		Accrued severance pay, net		19			50			17
		Minority interest in losses of subsidiary		-			(191	)		-
		Impairment of investments		680			2,695			13,000
		Impairment of inventories		324			13			86
		Gain on sale of property and equipment		-			(6	)		-
		Decrease (increase) in trade receivables		2,039			(990	)		(2,242	)
		Decrease in other accounts receivable and prepaid expenses		232			39			2
		Decrease (increase) in inventories		(167	)		(*   451			38
		Increase (decrease) in trade payables		(584	)		1,037			585
		Increase (decrease) in other accounts payable and accrued expenses		(56	)		(1,409	)		1,223
		Increase (decrease) in customer advances		(701	)		(1,507	)		1,507
Net cash used in continuing operations activities				(937	)		(2,531	)		(2,807	)
Net cash used in discontinued operations activities				(3,899	)		(3,826	)		(2,637	)
Net cash used in operating activities				(4,836	)		(6,357	)		(5,444	)
Cash flows from investing activities:
	Purchase of property and equipment			(1,175	)		(*   (691	)		(274	)
	Investment in short-term bank deposits			(22	)		(75	)		-
	Investment in other assets			-			(5	)		(51	)
	Proceeds from sale of property and equipment			3			130			13
	Investment in investees			76			(574	)		(15,803	)
	Acquisition of subsidiary consolidated for the first time, net of cash acquired (a)			-			(651	)		-
Net cash used in continuing investing activities				(1,118	)		(1,866	)		(16,115	)
Net cash provided by (used in) discontinued operations
activities				27			(746	)		(485	)
Net cash used in investing activities				(1,091	)		(2,612	)		(16,600	)

*) 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,
		2002			2001			2000
Cash flows from financing activities
	Proceeds from issuance of convertible debentures		1,000			-
	Proceeds from issuance of shares, net		974			3,975			20,889
	Proceeds from exercise of warrants and options		-			-			2,645
	Short-term bank credit, net		513			3,335			(3,751	)
Net cash provided by continuing financing operations activities			2,487			7,310			19,783
Net cash provided by discontinued financing operations activities			2,509			2,132			3,297
Net cash provided by financing activities			4,996			9,442			23,080
Effect of exchange on cash and cash equivalents			-			(1,060	)		-
Increase (decrease) in cash and cash equivalents			(931	)		(587	)		1,036
Change in cash classified as assets attributed to discontinued operations			-			881			(854	)
Cash and cash equivalents at the beginning of the year			1,002			708			526
Cash and cash equivalents at the end of the year		$	71		$	1,002		$	708
(a) Acquisition of Tracsat S.A.
Fair value of assets acquired and liabilities assumed at date of acquisition:
	Accounts receivable	$	-		$	(800	)	$	-
	Inventory		-			(60	)		-
	Property and equipment		-			(1,188	)		-
	Issuance of shares		-			367			-
	Other accounts payable		-			518			-
	Trade payables		-			286			-
	Minority interest		-			226			-
		$	-		$	(651	)	$	-
Supplementary disclosure of cash flow activities
Non-cash information:
Conversion of convertible debentures		$	-		$	2,500		$	500
Conversion of trade receivables into long-term loan to investee		$	-		$	350		$	1,145

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
	a.	Nexus Telocation Systems Ltd. (“the Company”) was incorporated in Israel and commenced its operations in July 1991. The Company is engaged in the development, production and marketing of low energy and cost effective wireless communications and location based information systems through the application of digital spread spectrum technologies. The Company shares are traded on the OTC Bulletin Board.
	b.	The Company has decided to discontinue its AMR (Automatic Meter Reading) operations carried out by Nexus Data Inc. a wholly-owned subsidiary of the Company. On December 24, 2002, the Company and third party Investor signed an Offer agreement to Acquire Nexus Data Inc (ND). According to the agreement, the Investor will acquire 100% of the outstanding share capital of ND for the consideration of US$1 and Nexus will waive 100% of ND debt to it and ND will commit to pay Nexus a total amount of 1 million after ND would have had four consecutive quarters of positive cash flows and net assets of at least $10 million. The agreement was subject to the Investor reaching certain agreements. These agreements were achieved during the first quarter of 2003 and the closing was carried out in February 2003.
		Due to the fact that ND’s operations are no longer part of the Company’s operation, ND’s operations are disclosed as discontinued operations (see Note 18).
	c.	During 2001, the Company purchased 92.5% of Tracsat S.A. (Tracsat) share capital. Tracsat is an operator of the Company’s systems and products providing stolen vehicle recovery services, in Buenos Aires, Argentina.
	d.	Three customers accounted for 80% of the group’s revenue for the year ended December 31, 2002, three customers accounted for 96% of the group’s revenue for the year ended December 31, 2001 and four customers accounted for 99% of the group’s revenue for the year ended December 31, 2000 (see Note 14b(3)).
	e.	Definitions:
		Related parties	-	as defined in Statement No. 29 of the Institute of Certified Public Accountants in Israel (“the Israeli Institute”).
		Subsidiary	-	a company controlled or owned to the extent of more than 50% by the Company.
		Investee	-	a company that is presented under the cost method.
		The Group	-	the Company and its subsidiaries.

- 9 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 1:-	GENERAL (Cont.)
	f.	As of December 31, 2002, the Company has a shareholders’ deficiency in the amount of $ 10,581, and working capital deficiency in the amount of $ 1,454.
		In March 2003, the Company reached an understanding with its bank according to which a short-term credit in the amount of $ 3,000 will be converted to a long-term loan for a period of five years. The loan principal will be paid starting from two years after the date of this agreement. The bank also agreed to increase the Company’s credit line, in the amount of approximately $ 500. In April 2003, the Company raised $ 2,576 as proceeds from the issuance of shares (see Note 17).
		Company’s management is in the opinion that these arrangements will allow the company to continue its operations as a going concern.
NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES
	The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Israel which differ in certain respects from those followed in the United States (see Note 16).
	a.	Use of estimates:
		The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
	b.	Financial statements in U.S. dollars:
		The majority of the Company’s revenues is generated in U.S. dollars (“dollar”). In addition, a substantial portion of the Company and its subsidiaries costs is incurred in dollars. The Company’s management believes that the dollar is the primary currency of the economic environment in which the Company and its subsidiaries operate. Thus, the functional and reporting currency of the Company and its subsidiaries is the dollar.
		Accordingly, monetary accounts maintained in currencies other than the dollar are remeasured into dollars in accordance with Statement of financial Accounting Standard No. 52 “Foreign Currency Translation” (“SFAS No. 52”). All transaction gains and losses of the remeasured monetary balance sheet items are reflected in the statement of operations as financial income or expense, as appropriate.

- 10 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
		Until March 31, 2002, the currency of the primary economic environment of the Company’s subsidiary was Argentinean Peso. Due to the change in the economic facts and circumstances of the subsidiary’s operations there was a change in the currency of the primary economic environment from the Argentinean Peso to U.S. dollars.
	c.	Principles of consolidation:
		The consolidated financial statements include the accounts of the Company and its subsidiaries (a list of Group companies is presented in an appendix to the financial statements). Intercompany transactions and balances had been eliminated upon consolidation.
	d.	Cash equivalents:
		The Group considers all highly liquid investments originally purchased with maturities of three months or less to be cash equivalents.
	e.	Short-term bank deposits:
		Bank deposits with maturities of more than three months but less than one year are included in short-term deposits, including accrued interest. Such deposits are presented at their cost, including the related accrued interest.
	f.	Inventories:
		Inventories are stated at the lower of cost or market value. Cost is determined using the “first-in, first-out” method for all types of inventories. Inventories include raw materials and components for manufacturing systems.
		Inventory write-offs are provided to cover risks arising from slow-moving items or technological obsolescence. Inventory write-offs for the years ended December 31, 2002, 2001 and 2000 were in the amount of $ 324, $ 13 and $ 86, respectively.
	g.	Investment in investees:
		Investment in companies in which the Company does not have significant influence over their operating and financial policies is presented using the cost method of accounting.
		The Company periodically assesses the recoverability of the carrying amount of investment in investees and provides for any possible impairment loss based upon the difference between the carrying amount and fair value of such investments. During the years 2002, 2001 and 2000, an impairment of $ 680, $ 2,695 and $ 13,000, respectively was recorded.

- 11 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	h.	Property and equipment:
		Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, at the following annual rates:

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

	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 provides warranties for no additional cost on the systems it sells of approximately one year. The provision is computed on the basis of specific management evaluation, based on the Company’s past experience.

- 12 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	k.	Revenue recognition:
		Revenues from sales of products are recognized when persuasive evidence of an agreement exists, delivery has occurred, the fee is fixed or determinable and collectibility is probable. The Company follows SFAS 48 “Revenue Recognition, when right of return Exits”. Accordingly, based on the Company’s management experience, no provision was recorded for the years ended December 31, 2002, 2001 and 2000.
		Deferred revenue includes amounts received from customers for which revenue has 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:
		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.

- 13 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	p.	Basic and diluted net loss per share:
		Net loss per share is computed in accordance with Statement 55 of the Institute of Certified Public Accountants in Israel, based on the weighted average number of Ordinary shares and share equivalents outstanding during each period.
		The dilutive effect of options and convertible debentures is included in the computation of basic net earnings per share only if their being exercised is considered to be probable, based on the ordinary relationship between the market price of the shares issuable upon the exercise of the options, warrants and other convertible debentures, and the discounted present value of the future proceeds derived from the exercise of such options, warrants and convertible debentures. The effect of options and convertible debentures is anti-dilutive and therefore excluded from the calculation of diluted net loss per share.
	q.	Accounting for stock-based compensation:
		The Company has elected to follow Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”) and Interpretation No. 44 “Accounting for Certain Transactions Involving Stock Compensation” (“FIN 44”) in accounting for its employee stock option plans. Under APB 25, when the exercise price of the Company’s stock options is less than the market price of the underlying shares on the date of grant, compensation expense is recognized. The pro forma disclosures required by SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”), are provided in Note 11.
	r.	Concentrations of credit risk:
		Financial instruments that potentially subject the Company and its subsidiaries to concentrations of credit risk consist mainly of cash and cash equivalents, short-term bank deposits and trade receivables.
		Cash and cash equivalents and short-term bank deposits are deposited in U.S. dollars with major banks in Israel and the U.S. Such deposits in the U.S. may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company’s investments are financially sound and, accordingly, minimal credit risk exists with respect to these investments. Trade receivables include amounts billed to clients located mainly in Israel and South America. Long-term loan to investee has no terms of repayment. Management periodically evaluates the collectibility of these trade receivables and loans to investee to reflect the amounts estimated to be uncollectible. The allowance is determined in respect of specific debts whose collection, according to management opinion, is doubtful. As of major costumers, see note 14b(3).
		The Company has no off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.

- 14 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	s.	Severance pay:
		The Company’s liability for severance pay is calculated pursuant to Israeli severance pay law based on the most recent salary of the employees multiplied by the number of years of employment as of balance sheet date. The liability is presented on the undiscounted basis. Employees are entitled to one month’s salary for each year of  employment, or a portion thereof. The Company’s liability is fully provided by monthly deposits with insurance policies and by an accrual. The value of these policies is recorded as an asset in the Company’s balance sheet.
		The deposited funds include profits accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israeli severance pay law or labor agreements.
		Severance pay expenses for the years ended December 31, 2002, 2001 and 2000 were $ 166, $ 181 and $ 145, respectively.
	t.	Fair value of financial instruments:
		The following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments:
		The carrying amounts of cash and cash equivalents, short-term bank deposits, short-term bank credit, trade receivables, other accounts receivable, trade payables, other accounts payable, and convertible debentures approximate their fair value due to their short-term maturity.
		The carrying amounts of the Group’s borrowing under its short-term bank credit, convertible debentures and the Company’s loans to investees were estimated using discounted cash flow analyses, based on the Group’s incremental borrowing rates for similar types of borrowing arrangements.
	u.	Convertible debentures:
		Convertible debentures are included on the basis of the likelihood of conversion as determined in Opinion No. 53 of the Institute of Certified Public Accountants in Israel. In the event that their conversion is not anticipated, they are included as liabilities according to their liability value, if their conversion is anticipated, they are included between the liabilities and shareholders’ equity according to either their liability or capital value, whichever is higher.
		As of December 31, 2002, the convertible debentures are presented as long-term liabilities.

- 15 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
	v.	Implementation of new accounting standards and their impact on the financial statements:
		During October 2001, the Israel Accounting Standards Board published Accounting Standard No. 12 with respect to the discontinuation of the adjustment of financial statements, and Accounting Standard No. 13 with respect to the effect of the changes in the exchange rates for foreign currencies. In August 2002, Accounting Standard No. 14 was published with respect to fiscal reporting for interim periods.
		Accounting Standard No. 13 prescribes principles with regard to the matter of the changes in the exchange rates of foreign currencies. This Standard replaces clarification No. 8 and clarification No. 9 to Opinion No. 36 of the Institute of Certified Public Accountants in Israel, which are void with the discontinuation of the adjustment of the financial statements. The Standard deals with the translation of transactions in foreign currency, and with the translation of the financial statements of outside activities for the purpose of combining them with the financial statements of the reporting company. The translation principles of Standard No. 13 will apply to financial statements for periods commencing subsequent to December 31, 2002.
		In accordance with the provisions of Accounting Standard No. 13, it is possible to continue adjusting the financial statements pursuant to the changes in the foreign currency exchange rates in accordance with section 29(a) to Opinion No. 36 of the Institute of Certified Public Accountants in Israel up until the date on which the Accounting Standards Board will publish a new Standard regarding this issue. This Standard requires disclosure with respect to the reasons for presenting the financial statements in foreign currency. In addition, this Standard requires disclosure with respect to any change whatsoever in the reporting currency.
		On December 31, 2002, the Israel Accounting Standards Board decided to defer the implementation of Standard No. 13, in the context of Accounting Standard No.17, to January 1, 2004.
		The objective of Accounting Standard No. 14, which deals with fiscal reporting for interim periods, is to determine the minimum content for financial reporting for interim periods, as well as to determine the recognition and measurement principles in financial statements for interim periods. This Accounting Standard, which is based on International Accounting Standard No. 34, “Financial Reporting for Interim Periods”, and Opinion No. 60 that deals with the amendment of Opinion No. 43 with respect to the cancellation of the obligation to include information regarding nominal data in financial statements for interim periods. This Standard will apply in respect to financial statements for periods beginning on or after January 1, 2003.
		Management does not anticipate that the adoption of the new Standards, as discussed above, will have a significant effect on its results of operations, financial position and cash flows.

- 16 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 2:-	SIGNIFICANT ACCOUNTING POLICIES (Cont.)
		During December 2002, the Israel Accounting Standards Board published Accounting Standard No. 15, which deals with the decline in the value of assets, is based on International Accounting Standard No. 36, and prescribes the accounting treatment in the case of a decline/elimination of the decline, in the value of a company’s assets, including investments in affiliates that are not subsidiaries, goodwill arising from the acquisition of subsidiaries and fair value adjustments. This Standard will apply with respect to financial statements for periods commencing on or after January 1, 2003. The Council of the Israel Accounting Standards Board deferred the coming into force of Accounting Standard No. 15 until March 3, 2003.
		The Company is in a process of valuating the implications of this standard.
	w.	Reclassification:
		Certain amounts from prior years have been reclassified to conform to the current years presentation.
NOTE 3:-	OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

	December 31,
	2002		2001
Government authorities	$	278	$	613
Employees		26		35
Grants from European Community		229		-
Prepaid expenses		72		56
Advance payment to suppliers		45		327
Others		11		92
	$	661	$	1,123

- 17 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 4:- INVESTMENT IN INVESTEES

	December 31,
	2002		2001
Eden (a)	$	2,007	$	2,083
MAGA (b)		-		500
Tri-Angle (b)		-		180
	$	2,007	$	2,763

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

	December 31,
	2002		2001
Cost of shares	$	1,398	$	1,398
Long-term loans (1)		79		685
Capital note (2)		530		-
	$	2,007	$	2,083

	(1)	A balance of $ 79 bears interest of 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.
(b)	During 2002, the Company wrote-off its investment in MAGA and in Tri-Angle.

- 18 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 5:- PROPERTY AND EQUIPMENT

	December 31,
	2002		2001
Cost:
Installed products	$	1,252	$	190
Computers and development equipment		2,068		2,220
Office furniture and equipment		292		300
Motor vehicles		22		25
Leasehold improvements		414		426
Network installation		270		342
		4,318		3,503
Accumulated depreciation:
Installed products		196		-
Computers and development equipment		1,842		1,572
Office furniture and equipment		179		155
Motor vehicles		18		17
Leasehold improvements		354		297
Network installation		194		59
		2,783		2,100
Depreciated cost	$	1,535	$	1,403

	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,
	2002		2001
Patents:
Original amounts	$	639	$	639
Accumulated amortization		429		353
Amortized cost	$	210	$	286
Amortization expenses for the years ended December 31, 2002, 2001 and 2000 were $ 76, $ 66, and $ 64, respectively.

- 19 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 7:-	SHORT-TERM BANK CREDIT
	a.	Classified by currency, linkage terms and interest rates as follows:

	December 31,
	2002		2001
Revolving line of credit in Dollar - (b.1.)	$	525	$	1,337
Revolving line of credit in NIS - (b.2.)		323		144
On call loans - NIS		-		1,854
	$	848	$	3,335

	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,
	2002		2001
Employees and payroll accruals	$	866	$	458
Provision for warranty		113		200
Accrued expenses		579		653
Customer advances		224		925
Deferred revenues		100		372
Others		5		81
	$	1,887	$	2,689

NOTE 9:-	CONVERTIBLE DEBENTURES
	At the beginning of 2002, the Company issued a convertible debenture to AMS Electronics Ltd. (“AMS”) in the amount of $ 1,000 for a period of three years, bearing annual interest of LIBOR, which will be paid on the maturity date. The debenture may be converted into Ordinary shares of the Company at a conversion rate of $ 3.5 per share, subject to adjustment. See also Note 17 - subsequent events.

- 20 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 10:-	COMMITMENTS AND CONTINGENT LIABILITIES
	a.	As collateral for its liabilities, the Company has placed floating charges on all of its assets, including the intellectual property and property and equipment in favor of short-term bank credit and long-term loans amounted to $ 3,848.
	b.	Royalties:
		The Company received in the past grants from the Office of the Chief Scientist of the Ministry of Industry and Trade (“the Chief Scientist”). The terms of the Israeli government participation also required that the manufacture of product 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. As of December 31, 2002, the Company fulfilled all of its obligations to the Chief Scientist.
		The Company has undertaken to pay royalties to the Bird Foundation (“Bird”), at the rate of 5% on sales proceeds of products developed with the participation of Bird up to the amount received, linked to the U.S. dollar. The contingent obligation as of December 31, 2002 is $ 1,925. Royalties amounted to $ 0, $ 14 and $ 45 in 2002, 2001 and 2000, respectively.
	c.	Lease commitment:
		Companies of the group have leased offices, cars, locations and equipment for periods through 2010. Minimum annual rental payments under non cancelable operating leases are as follows:

	Year ended December 31,
2003	$	461
2004		317
2005		128
2006		17
2007 and thereafter		22
	$	945

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

- 21 -

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.)
	d.	In September 2000, the Argentinean subsidiary of the Company entered into a 30-month contract with third party.  Pursuant to the contract the subsidiary committed to order from the third party a minimum level of unit installations. The subsidiary terminated this contract in October 2001 and thereafter ceased to make minimum payments to the third party.  The third party is claiming from the subsidiary approximately $ 120 out of which $ 33 refers to invoices, plus interest and legal costs and $ 87 for such amounts that would have been invoiced had the contract not been terminated. Management and its legal consultants believe that the company will have to pay only the amounts for past services and therefore a provision in the amount of $ 33 was recorded.
	e.	In June 2001, one of the company’s former employees filed a complaint against the Company in the Labor Court of Tel-Aviv. The employee is claiming that he is entitled to certain severance benefits, including overtime payment and redemption of accrued vacation days in the amount of approximately $ 50. Management and its legal consultants cannot estimate the outcome of this claim and therefore no provision was recorded.
NOTE 11:-	SHAREHOLDERS’ DEFICIENCY
	a.	Reverse stock split:
		In March 2001, a 1 to 3 reverse stock split of the Company’s Ordinary shares was effected. As a result of the reverse stock split, each three shares of the Company’s Ordinary shares with par value of NIS 0.01 each, were converted into one Ordinary share of NIS 0.03 par value. All shares and per share data have been retroactively adjusted to reflect this split.
	b.	Ordinary shares:
		Ordinary shares confer upon their holders voting rights, the right to receive cash dividends and the right to share in excess assets upon liquidation of the Company.
	c.	Issued and outstanding share capital:
		1.	In January 2000, the Company issued 2,866,667 shares to Soros fund management LLC, at $ 7.5 per share.
		2.	In March 2000, the Company issued 64,599 shares to B.V.R. Technologies Ltd. (“B.V.R.”) at $ 7.74 per share.
		3.	In March 2001, $ 2,500 of debentures were converted into Ordinary shares at a conversion price of $ 2.34 per share.
		4.	In March 2001, the Company issued 980,392 shares to B.V.R. at $ 2.03 per share.
		5.	In April 2001, the Company issued 997,397 shares to its shareholders in a private placement at their fair market price of $ 1.99 per share.
		6.	In January 2002, the Company issued 400,000 shares to AMS at $ 2.5 per share.

- 22 -

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.)
	d.	Options:
		1.	The Company has granted options to its employees and directors. The options were granted for a period of 5 years and usually have a vesting period of up to 3 years.
		2.	A summary of the status of the Company’s stock option plans as of December 31, 2002, 2001 and 2000, and changes during the years then ended, are as follows:

	2002					2001					2000
	Number of options			Weighted average exercise price		Number of options			Weighted average exercise price		Number of options			Weighted average exercise price
Options outstanding at the beginning of the year		984,364		$	6.5		511,496		$	8.55		472,434		$	8.91
Granted		286,500		$	1.46		505,333		$	2.55		134,000		$	7.95
Exercised		-		$	-		-		$	-		(42,280	)	$	11.5
Forfeited		(67,133	)	$	5.02		(32,465	)	$	7.5		(52,658	)	$	8.85
Outstanding at the end of the year		1,203,731		$	5.32		984,364		$	6.5		511,496		$	8.55
Options exercisable at the end of the year		660,025		$	7.92		448,475		$	10.1		343,329		$	10.2
Weighted average fair value on the date of grant				$	1.02				$	2.00				$	2.01

The following table summarizes information relating to stock options outstanding as of December 31, 2002, according to exercise price range:

		Options outstanding						Options exercisable
Range of exercise price		Number outstanding at December 31, 2002		Weighted average remaining contractual life		Weighed average exercise price		Number exercisable at December 31 2002		Weighed average exercise price
				Years
	$  0.03-2.55		757,339		3.53	$	2.13		225,522	$	2.37
	$  7.5-9.00		298,667		1.64	$	8.88		286,778	$	8.91
	$  13.5-16.5		147,725		0.70	$	14.50		147,725	$	14.50
			1,203,731			$	5.32		660,025	$	7.92

- 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 11:- SHAREHOLDERS’ DEFICIENCY (Cont.)

	Exercise price exceeds market price						Exercise price equal to market price
	2002		2001		2000		2002		2001		2000
Weighted-average exercise prices	$	-	$	-	$	9	$	1.46	$	2.55	$	-
Weighted-average fair value on grant date	$	-	$	-	$	5.43	$	1.11	$	2	$	-

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,
	2002			2001			2000
Net loss as reported		(7,589	)	$	(8,463	)	$	(20,508	)
Pro-forma net loss		(7,847	)	$	(8,875	)	$	(21,256	)
Pro-forma basic and diluted net loss per share		(0.70	)	$	(0.88	)	$	(2.88	)

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.

- 24 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 12:- INCOME TAXES

a.	Measurement of taxable income under the Income Tax Law (Inflationary Adjustments), 1985:
	Under this law, taxable income is measured in real terms after certain adjustments in accordance with the changes in the Israeli Consumer Price Index (CPI) or in the exchange rate of the U.S. dollar, for a “foreign investment company”. The Company and its Israeli subsidiary elected to measure their results on the basis of the changes in the Israeli CPI.
b.	Tax benefits under the law for the Encouragement of Capital Investments, 1959:
	According to the law, the Company’s investment in its new premises has been granted an “approved enterprise” status in 1993. Pursuant to the law, the Company has elected to enjoy “alternative benefits” - waiver of grants in return for tax exemption, and accordingly the Company’s income arising from the “approved enterprise” is tax-exempt for a period of two years commencing with the year it first earns taxable income and is subject to a reduced tax rate of 25% for an additional five years. The period of tax benefits, detailed above, is subject to the limits of 12 years from commencement of production or 14 years from date of the approval (1998), whichever is earlier.
	A dividend distribution from tax-exempt income will subject the Company to income tax at the rate of 25% of the dividend amount. Distribution of cash dividend from tax- exempt income due to the “approved enterprise” status, is subject to 15% tax.
	The entitlement to the above benefit is conditional upon the Company fulfilling the conditions stipulated by the abovementioned law, regulations published thereunder, and the instruments of approval for the specific investment in the “approved enterprise”. In the event of failure to comply with these conditions, the benefits may be canceled and the Company may be required to refund the amount of the benefits, in whole or in part, including interest.
	At the beginning of 2003, the Company received a warning from the Ministry of Industry and Trade, according to which, the Company does not meet all of the aforementioned conditions and therefore is about to lose its status of “approved enterprise”.
	Since the Company incurred tax losses through December 31, 2002, the tax benefits have not yet been utilized.
	Income from sources other than the abovementioned “approved enterprise” is taxed at the regular rate of 36%.
c.	Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:
	The Company and its Israeli subsidiary are an “industrial company”, as defined by this law and, as such, are entitled to certain tax benefits, mainly accelerated depreciation of machinery and equipment, as prescribed by regulations published under the Income Tax Law (Inflationary Adjustments), 1985 law, the right to claim public issuance expenses in three annual installments and annual deduction of 12.5% of patents and other intangible property rights as deductions for tax purposes.

- 25 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

U.S. dollars in thousands

NOTE 12:- INCOME TAXES (Cont.)

d.	Deferred taxes:
	Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes, and amounts used for income tax purposes. Significant components of the Company and its subsidiaries deferred tax liabilities and assets are as follows:

	December 31,
	2002			2001
Temporary differences regarding benefits to employees	$	210		$	196
Carryforward tax losses		12,228			8,641
Impairment of an investment		1,215			970
Other temporary differences, net		740			754
Net deferred tax assets before valuation allowance		14,393			10,561
Valuation allowance (*)		(14,393	)		10,561
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
	a.	Balances with related parties:

	December 31,
	2002		2001
Long-term loans to Eden (see Note 4a)	$	79	$	685

- 26 -

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.)
	b.          Income and expenses:

	Year ended December 31,
	2002		2001		2000
Management fees to B.V.R. Technologies Ltd.	$	-	$	120	$	120
Interest on loans and debentures paid to B.V.R. Technologies Ltd.	$	-	$	53	$	216

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,
			2002		2001		2000
1.	Revenues (*):
	South America		$	3,833	$	10,022	$	3,742
	Israel			1,592		2,259		2,293
	USA			820		-		-
	Other			116		202		-
			$	6,361	$	12,483	$	6,035
	(*)	Revenues are attributed to geographic areas based on the location of the end- customers.
			Year ended December 31,
			2002		2001		2000
2.	Long-lived assets:
	Israel		$	1,044	$	1,511	$	999
	Argentina			1,211		607		-
			$	2,255	$	2,118	$	999
3.	Revenues classified by major customer:
	Percentage of sales to customers       exceeding 10% of revenues:
			%
	Customer A			42		69		17
	Customer B			25		18		37
	Customer C			-		9		16
	Customer D			-		-		29
	Customer E			13		-		-
				80		96		99

- 27 -

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,
		2002			2001			2000
a.	Cost of revenues:
	Salaries, wages and employee benefits	$	650		$	(*   919		$	435
	Subcontractors and consulting		48			(*   146			26
	Raw materials and components		2,921			(*8,280			3,775
	Inventory write-offs		324			(*     13			86
	Depreciation		345			(*   133			50
	Others		188			(*   696			126
		$	4,476		$	10,187		$	4,498
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	$	2		$	5		$	40
	Expenses:
	Bank charges and interest on
	short-term credit		391			127			26
	Translation adjustments		(143	)		35			19
	Interest on convertible debentures		20			52			216
			268			214			261
		$	(266	)	$	(209	)	$	(221	)
e.	Other income (expenses):
	Impairment of investment	$	(680	)	$	(2,695	)	$	(13,000	)
	Fine in respect of customer advances		300			3,086			-
	Capital gain (loss)		-			6			(5	)
	Other		(60	)		177			(521	)
		$	(440	)	$	574		$	(13,526	)

*) Reclassified.

- 28 -

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.	Treatment of deferred income taxes:
		Under Israeli GAAP, companies reporting in or in currencies linked to the U.S. dollar provide deferred income taxes on differences between the financial reporting and tax bases of assets and liabilities.
		Under U.S. GAAP, however, paragraph 9(f) of SFAS No. 109, “Accounting for Income Taxes”, creates an exception which prohibits the recognition of deferred tax liabilities or assets that arise from differences between the financial reporting and tax bases of assets and liabilities that are remeasured from the local currency into U.S. dollars using historical exchange rates and that result from (i) changes in exchange rates or (ii) indexing for tax purpose.
		Since the Company recorded a valuation allowance against all of its deferred tax assets, the aforementioned difference is insignificant.
	b.	Net loss per share:
		According to Israeli GAAP (Opinion No. 55) the dilutive effect of options and warrants is included in the computation of basic earnings per share only if their exercise is considered to be probable, based on the ordinary relationship between the market price of the shares issuable upon the exercise of the options and warrants and the discounted present value of the future proceeds derived from the exercise of such options and warrants.
		According to U.S. GAAP basic net earnings per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net earnings per share is computed based on the weighted average number of Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year, in accordance with FASB Statement No. 128, “Earnings Per Share”.
		The aforementioned differences do not have any material effect on the Company’s net loss per share, as reported, since all the convertible securities of the Company have an anti-dilutive effect. As a result, the basic and diluted net loss per share of the Company, in accordance with Israeli GAAP, are identical to the basic and diluted net loss per share of the Company in accordance with U.S. GAAP. The total numbers of shares related to the outstanding options, warrants and convertible debentures, excluded from the calculations of diluted net loss per share for the years ended December 31, 2002, 2001 and 2000, were 1,583,932, 1,065,249 and 2,396,748, respectively.

- 29 -

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.)
	c.	Comprehensive income:
		Under Israeli GAAP, these specific income (loss) components are recorded in the Company’s statement of operations or as part of the additional paid-in capital, as applicable for the relevant income (loss) component.
		Under Statement of Financial Accounting Standard Board (“SFAS”) No. 130. “Reporting Comprehensive Income” the Company should include and present specific income component as comprehensive income as part of the shareholders equity.
		The comprehensive loss of the Company includes loss for the year and foreign currency translation adjustments. The comprehensive loss of the Company for the years ended  December 2002, 2001 and 2000 are $ 7,916, $ 10,035 and $ 20,508, respectively
	d.	Foreign currency translation:
		Under Israeli GAAP, the financial statements of a certain subsidiary, whose functional currency is not the US dollar, have been translated into U.S. dollar in accordance with interpretation No. 8 and No. 9 to Opinion No. 36 Statements of operation amounts have been translated using the average exchange rate for the year.
		According to US GAAP statement of operations amounts should be translated in accordance with SFAS No. 52 “Foreign Currency Translation” using the same method, therefore there are no material differences between Israel and U.S. 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 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.

- 30 -

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.)

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

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

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This Statement establishes standards for how issuer classifies and measures in its statement of financial position certain financial instruments that are within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic entities. The Company is in a process of valuating the implications of SFAS No. 150.

- 31 -

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
	a.	During 2003, the Company signed a share purchase agreement effective as of March 13, 2003. According to the agreement, Nexus issued to investors 58,545,454 shares (NIS 0.03 par value) for a total consideration of $ 2,576 ($ 4.4 cent per share). In addition, Nexus issued to the investors 40,981,818 warrants with an exercise price of $ 4.4 cent per share. The warrants shall be exercisable in cash or through cashless exercise at the election of its holder for a period which is the earlier of: (1) M&A transaction or (2) 3 years from the closing date.
		The Company and the lead investor have entered into a management services agreement pursuant to which the lead investor shall provide management services in consideration for an annual management fee of $ 180.
		Immediately after the closing, the board of directors of the Company shall consist of up to seven directors, four of which shall be nominated by the lead investor.
	b.	In March 2003, the Company reached an understanding with its Bank, according to which a  $ 3,000 short-term liability to the bank will be converted into long-term loan. According to FAS 6, this loan was presented in the balance sheet as a long-term loan.
	c.	In January 2003, the Company has amended its contract with AMS, as follows:
		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. The balance in the amount of $ 300 was repaid.
		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.
	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.

- 32 -

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		2001
Assets attributed to discontinued operations:
Cash and cash equivalents	$	-	$	-
Short-term deposit		21		85
Trade receivables		27		61
Other accounts receivable		99		75
Inventory		1,579		352
Severance pay fund		105		154
Property and equipment, net		797		969
Other assets, net		14		16
	$	2,642	$	1,712
Liabilities attributed to discontinued operations:
Short-term loans and bank credit, net	$	4,192	$	2,132
Trade payables		2,034		1,118
Other accounts payable		959		762
Long-term loan		449		-
Accrued severance pay		157		212
Receipts on account of options		3,375		3,375
	$	11,166	$	7,599

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		$	532		$	216
Cost of revenues		1,552			2,030			662
Gross loss		872			1,498			446
Operating expenses:
Research and development, net		1,202			1,479			1,174
Sales and marketing		631			727			568
General and administrative		1,151			1,453			1,172
		2,984			3,659			2,914
Operating loss		(3,856	)		(5,157	)		(3,360	)
Financial income (expenses), net		(144	)		57			297
Other expenses		-			(104	)		-
Net loss	$	(4,000	)	$	(5,204	)	$	(3,063	)

- 33 -

NEXUS TELOCATION SYSTEMS LTD. AND ITS SUBSIDIARIES

APPENDIX TO CONSOLIDATED FINANCIAL STATEMENTS

		Voting rights	Rights to profits
	Country of
	incorporation	%	%
Subsidiaries:
Tracsat S.A.	Argentina	100	92.5
Nexus Telocation Systems North America, LLC	U.S.A.	100	100
NexusData Inc. (1)	U.S.A	100	100
NexusData (1993) Ltd. (held by Nexus Data Inc.) (1)	Israel	100	100
Aptel Communication Services (1996) Ltd. (held by Nexus Data Ltd.) (1)	Israel	100	100
Nexus Telocation Systems Singapore Ltd. (Inactive)	Singapore	100	100
Nexus 1994 Ltd. (inactive)	United Kingdom	100	100
Nexus Telecommunications Chile Limitada (inactive)	Chile	100	100
(1)   See Note 1b.

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

- 34 -

EX-99

MANUFACTURING AND PURCHASE AGREEMENT

Between

A.M.S. ELECTRONICS LTD. (“AMS”),

and

NEXUS TELOCATION SYSTEMS LTD., NEXUSDATA (1993) LTD. and

NEXUSDATA, INC.

(“NEXUS”)

NEXUS agrees to order from AMS, and AMS agrees to manufacture and supply to NEXUS over a thirty-six month period not less than $36 million of products developed by NEXUS for vehicle location and automated meter reading and described on attached Appendices 1 and 2, as updated in writing by the parties from time to time (the “Products”) all in accordance with NEXUS’s Specifications and Quality Requirements, and AMS shall deliver the finished Products exclusively to Nexus and to the NEXUS Customers in accordance with the terms of this Agreement, all the foregoing subject to the terms and conditions set out herein.  The purchasing of customized items, components, manufacture, sale and purchase of the finished Products will be governed by the terms and conditions of this Agreement.  Unless otherwise agreed to by the Parties, AMS will provide all manufacturing technology, equipment, labor, materials and facilities necessary to perform its obligations hereunder.

This Agreement consists of the attached Terms and Conditions and the Appendices.

A.M.S. ELECTRONICS LTD.	NEXUS TELOCATION SYSTEMS LTD.	NEXUSDATA (1993) LTD.
By:	By:	By:
Signature	Signature	Signature
Typed or Printed Name	Typed or Printed Name	Typed or Printed Name
Title	Title	Title
NEXUSDATA, INC.
By:
Signature
Typed or Printed Name
Title

MANUFACTURING AND PURCHASE AGREEMENT

TABLE OF CONTENTS

SECTION      SUBJECT		PAGE
	SIGNATURE PAGE	2
1.	DEFINITIONS	5
2.	TERM
3.	LICENSE TO USE SOFTWARE	12
4.	PURCHASE ORDERS & PRODUCT PURCHASE ORDERS	13
5.	NEXUS FORECASTS & PURCHASE ORDER ADJUSTMENTS	15
6.	PROCUREMENT OF MATERIALS; INVENTORY MANAGEMENT	15
7.	DESIGN, MATERIAL AND PROCESS CHANGES	19
8.	PURCHASE PRICE AND PAYMENT TERMS	20
9.	DELIVERY, DELAYS, ACCEPTANCE, RETURNS, & CARRIER	22
10.	WARRANTIES, REMEDIES, LIMITATION OF LIABILITY	23
11	QUALITY AND INSPECTION	26
12.	NON-RECURRING ENGINEERING CHARGES	28
13.	INVENTORY INDEMNIFICATION	28
14.	TERMINATION	29
15.	REPRESENTATIONS, WARRANTIES AND COVENANTS	32
16.	CONFIDENTIALITY; PROPRIETARY INFORMATION	34
17.	INDEMNITIES	33
18.	MISCELLANEOUS

Appendix 1 - Products

Appendix 2 - Product Pricing

Appendix 3 - Unique Components

Appendix 4 - Statement of Work (SOW)

Appendix 5 - Purchase Order Form

Appendix 6 - [Intentionally Deleted]

Appendix 7 - Initial Inventory Purchase

Appendix 7A- NEXUS Components

Appendix 8 – NEXUS TELOCATION LTD. Specific Terms and Conditions

Appendix 9 – NEXUSDATA LTD. Specific Terms and Conditions

Appendix 10 – Product Life Test Reports

Appendix 11 - Related Manufacturing Agreement

Appendix 12 - Non-Disclosure Agreement

Appendix 13 - QVL/AVL (B.O.M. With Manufacturers/Vendors)

Appendix 14 - Outstanding Matters

TERMS AND CONDITIONS

1.	DEFINITIONS
	Whenever capitalized in this Agreement the following terms shall have the corresponding meanings:
	“Affiliate” with respect to any entity, means any other controlling entity, controlled by or under common control with such entity.  As used in this definition, the term “control” means direct or indirect ownership or voting control of fifty percent (50%) or more of the equity or voting securities of the entity in question or having the power, by commitment or otherwise, to elect a majority of the Board of Directors (or similar governing body) of the entity in question.
	“Agreement” means this Manufacturing and Purchase Agreement between NEXUS and AMS.
	“Assignees” has the meaning set out in Section 18.9 (Authorized Personnel).
	“B.O.M.” means the bill of materials of a Product.
	“Change Order” has the meaning set out in Appendices 8 and 9 (Change to Purchase Orders).
	“Confidential Information” means: (a) for NEXUS, including but not limited to, all data relating to NEXUS Proprietary Components supplied to AMS by NEXUS or a NEXUS Authorized Vendor, the Product Documentation, the Specifications, the Quality Requirements, the Production File, the Products, any Software, equipment or fixtures developed by or for NEXUS, and any trade secrets and intellectual property rights related to or arising from any of the foregoing; and (b) any information, including but not limited to any information relating to either Party’s product plans, designs, costs, prices and names, finances, marketing plans, business opportunities, customers, potential customers, personnel, research, development or know-how, that is provided in connection with this Agreement in any and all medium; and (c) the terms and conditions of this Agreement;  provided, however, that “Confidential Information” will not include information that: (i) is or becomes generally known or available by publication, commercial use or otherwise through no fault of the receiving Party; (ii) is independently developed by the receiving Party as can be substantiated by written records; (iii) is lawfully obtained from a third party who has the right to make such disclosure; or (iv) is required to be disclosed pursuant to applicable laws, including securities laws or stock exchange regulations.

“Delivery” or “Deliver” means delivery of, or to deliver, the quantity of Products ordered by NEXUS in a particular Purchase Order to the Delivery Point.

“Delivery Point” means NEXUS Customer’s site or NEXUS offices, as shall be specified by NEXUS in the relevant Purchase Order. 

“Effective Date” shall be defined as the first day of April 2002.

“Engineering Change Order” or “ECO” has the meaning set out in Section 7.2 (At NEXUS’s Request).

“Forecast” has the meaning set out in Appendices 8 and 9 (Forecasts).

 “Marked Materials” has the meaning set out in Section 16.3 (NEXUS Marks).

“Nexus” shall mean Nexus Telocation Systems Ltd., NexusData Ltd. and NexusData, Inc.

“NEXUS Authorized Vendor” means (i) NEXUS, (ii) third parties selected, approved and qualified by NEXUS in writing, including but not limited to vendors which appear on a QVL/AVL, and (iii) with NEXUS’s prior written approval, third parties selected by AMS.

“NEXUS Components” means components to be supplied by NEXUS Authorized Vendors to AMS from time to time for purposes of the assembly, manufacture and testing of the Products and/or Spare Parts hereunder.

“NEXUS Customer” means a NEXUS customer that has requested NEXUS to build and implement a custom designed solution for such customer’s use.

“Nexus Data” shall mean NexusData (1993) Ltd. and NexusData, Inc.

“NEXUS Marks” has the meaning set out in Section 16.3 (NEXUS Marks).

“NEXUS Proprietary Components” means components that are special and/or unique components manufactured for NEXUS Products and/or Spare Parts based upon NEXUS’s drawings and Specifications or at NEXUS’s order, and all derivatives, enhancements, improvements, modifications, adaptations, upgrades and updates thereto.
“Nexus Telocation” shall mean Nexus Telocation Systems Ltd.
“Notice” has the meaning set out in Section 13.1 (Continuing Manufacturing Obligations).
“NRE” has the meaning set out in Section 12 (Non-Recurring Engineering Charges).
“Pre-Production Deliverables” means those pre-production deliverables that are mutually agreed to by the Parties as part of the process of qualifying and introducing new Products.
“Procured Materials” means the components and other materials, if any, purchased by AMS to manufacture and/or deliver the Products to the NEXUS Customer under this Agreement.
“Production Files” or “PF” means the manufacturing production files in electronic format, including the process flow chart for each type of Product, which will be given to AMS by NEXUS prior to the commencement of manufacture of each Product.
“Product Catalog Number” has the meaning set out in Section 4.1.
“Product Documentation” means the materials making up the Production File which shall be provided by NEXUS to AMS in English, and may include some or all of the following, as they may be relevant to the performance of AMS’s obligations under this Agreement:
(i)	Product Specifications;
(ii)	Schematic, block, and component layout diagrams, and drawings, with reference designators where appropriate;
(iii)	Complete B.O.M., with reference designators to the schematics and vendor part numbers, of all levels within the Product;

(iv)	Test and inspection procedures and assembly and disassembly instructions, troubleshooting procedures, alignment and calibration procedures and safety procedures;
(v)	Data sheets for commercially available components with NEXUS-approved sources of supply, cross-referenced to the schematics and vendor part number; and
(vi)	Drawings and other materials relating to marking, labeling and packaging.
“Product Warranty” has the meaning set out in Section 10.1 (Product Warranty; Extended Warranty).
“Products” means the products identified on Appendix 1, and such new Products as NEXUS may wish to add pursuant to Section 4.7 (New Products) as manufactured by AMS hereunder.
“Purchase Price” has the meaning set out in Section 8.1 .
“Quality Requirements” means the quality requirements set forth in the SOW and other instruments, including without limitation, the Production File, as shall be provided by NEXUS to AMS in writing and updated from time to time.  IPC 610 C Class B standards shall be utilized.
“QVL/AVL” means the Qualified Vendor List/Approved Vendor List, which is limited to manufacturers appearing in the list which shall be supplied by NEXUS in respect of each component to be used in the manufacture of the Products.  If NEXUS shall wish to make any changes to the QVL/AVL it shall notify AMS of the desired change.  Within seven (7) calendar days after AMS’s receipt of notice of such change, AMS shall advise NEXUS in writing of any costs and other impacts arising from such change, and AMS shall not proceed to obtain such components until NEXUS has approved such impact in writing, following which approval AMS shall engage with such new QVL/AVL.  In the event that NEXUS does not approve such impact in writing, AMS shall continue with the procurement as before.
“Related Manufacturing Agreement” means the Related Manufacturing Agreement attached hereto as Appendix 11.

“Renewal Terms” has the meaning set out in Section 2.1 (Term; Renewal Terms).

“RMA” means return material authorization.

“Schedule” has the meaning set out in Appendices 8 and 9 (b).

“Software” means all or any portion of the software programs and custom software programs (in object code form), and any and all intellectual property rights therein and thereto, which are licensed to AMS by NEXUS to be integrated as part of the Product and to be used for the purposes set out herein.  Software shall also be deemed to include all corrections, modifications and updates to the Software and associated documentation provided by NEXUS to AMS.

 “Spare Parts” means spare parts of each Product, as separately identified by NEXUS for such Product according to the terms hereof. 

“Specifications” means the specifications for a Product and associated Pre-Production Deliverables for such Product.  Specifications may be amended by NEXUS from time to time by documented Engineering Change Orders.

“Standard Cost” of a component means the price of components quoted in the B.O.M. and actually being purchased by AMS from NEXUS Authorized Vendors (QVL or AVL) for the Products as may be adjusted from time to time by the mutual agreement of NEXUS and AMS to reflect changing vendor prices.

“Statement of Work” or “SOW” means an initial Statement of Work attached to this Agreement as Appendix 4, describing the initial assembly, manufacturing and testing of the Products and Spare Parts hereunder on a Turnkey Basis, and any amendment thereto as may be agreed upon in writing by the Parties.

“Termination Inventory” has the meaning set out in Section 13.1 (Continuing Manufacturing Obligations).

“Tooling” means the Product-specific manufacturing tooling used in the manufacture (assembly and testing) of a particular Product and/or Spare Part.

	“Turnkey Basis” means the delivery of the Products to the agreed Delivery Point after the performance of all of the following in accordance with this Agreement: purchasing of materials, manufacturing, testing and packaging.
	“Unique Components” means the components set forth in Appendix 3
	“Working Day” means Sunday through Thursday, except for legal holidays and days when most Israeli banks are not accepting customers.
2.	TERM AND COMMITMENT
2.1	Term; Renewal Terms.  Unless terminated as provided for below, the initial term of this Agreement shall be three (3) years from the Effective Date and, subject to the provisions hereof will be automatically renewed for one (1) year periods  (the “Renewal Terms”).  During the term of this Agreement it is the intention of NEXUS to only use AMS for the manufacture of the NEXUS products listed in Appendix 1 within the State of Israel.
2.2	Commitment Amount.  Subject to Section 2.3, during the initial term (3 years) of this agreement Nexus agrees to purchase a minimum of $36 million of Products.  The minimum amounts to be purchased each year shall be $9 million during the first twelve (12) months, $12 million during the second twelve (12) months, and $15 million during the final twelve (12) months.  In the event that Nexus exceeds its minimum purchase amount in any given year such excess amount shall be deducted from the following year’s minimum purchase amount and such revised figure shall become the minimum purchase amount for such year, provided, however, that under no circumstances shall the actual purchase amount for the second year be less than $5 million.

2.3 Nexus Penalties.  Notwithstanding Section 2.2 or the preamble of this Agreement, in the event that NEXUS purchases more than $30 million of Products over the three year term of this Agreement, NEXUS shall not be liable to pay penalties to AMS and AMS shall have no claim or cause of action against NEXUS hereunder.  In the event that NEXUS purchases Products for $30 million  or less over the three year term, for reasons other than due to termination of this Agreement by NEXUS due to breach hereof by AMS (“Termination Due to AMS’s Breach”) , NEXUS shall pay a penalty to AMS in the amount of five percent (5%) of the difference between $36 million and the actual total amount of purchases made.  The parties agree that any accounting will only take place at the end of the 3 years, except in the event that NEXUS fails, for reasons other than due to Termination Due to AMS’s Breach, to purchase at least 50% of the annual amounts set out in Section 2.2, in which case the following shall apply: (i) During the first year of the Agreement, if NEXUS fails to purchase at least $4.5 million, then NEXUS shall pay to AMS five percent (5%) of the difference (the “First Year Difference”) between $9 million and the actual purchase amount during such year (such amount hereinafter referred to as  the “First Year Penalty”); (ii) During the second year of the Agreement, (A) if NEXUS fails to purchase at least $6 million, then NEXUS shall pay 5% of the difference (the “Second Year Difference”) between $12 million and the actual purchase amount during such year (such amount hereinafter referred to as  the “Second Year Penalty”), or (B) if NEXUS shall purchase an amount equal to at least the sum of $12 million plus the First Year Difference, then AMS shall repay to NEXUS the First Year Penalty; (iii) at the end of the third year of the Agreement, a final accounting will take place as follows: (A) if NEXUS purchases $30 million or more over the three year period, and paid to AMS a First Year Penalty and/or a Second Year Penalty, AMS shall repay such amount(s) to NEXUS; or (B) if NEXUS purchased less than $30 million over the three year period, for reasons other than Termination Due to AMS’s Breach, then NEXUS must pay five percent (5%) of the difference between $36 million and the actual purchases made over the 3 year period (the “Final Penalty”); provided, however, that if NEXUS paid a First Year Penalty and/or a Second Year Penalty, then the Final Penalty shall be reduced by the First Year Penalty and/or a Second Year Penalty.

	In no event shall any penalty payable hereunder, or any cumulative penalty payable hereunder exceed $1.8 million.  Any penalty amounts due hereunder shall be paid within thirty (30) calendar days of the end of the applicable anniversary  date hereof.  AMS shall have the discretion to determine if the Final Penalty, if any, shall be paid in cash or in NEXUS Telocation’s ordinary shares, the quantity of which shall be determined by reference to the average closing price per share in the market over twenty (20) consecutive trading days prior to the payment date.  Any shares which may be issued to AMS under this Section 2.3 shall have piggyback registration rights (i.e., AMS shall be entitled to have all such shares registered in any registrations effected by NEXUS Telocation, not including registrations on Form S-8 and Form F-4, with all related costs to be borne by NEXUS Telocation).  In the event that AMS shall wish to have demand registration, AMS shall bear all expenses related thereto and NEXUS undertakes to file the registration statement with the Securities Exchange Commission within three months from the date of request by AMS.
3.	LICENSE TO USE SOFTWARE
3.1	NEXUS shall provide AMS the Software for the production of the Products. NEXUS grants to AMS a limited, non-exclusive, nontransferable, royalty free license during the term of this Agreement and any renewals thereof to use the Software solely for the manufacture of the Products and/or Spare Parts for the benefit of NEXUS in accordance with this Agreement.
3.2	Title and Limitations.  Title to and ownership of the Software shall remain with NEXUS, and nothing herein shall be construed as a transfer thereof pursuant to this Agreement. All rights to patents, copyrights, trademarks and trade secrets, confidentiality and proprietary provisions and other intellectual property rights in and to the Software shall remain with NEXUS, and nothing herein shall be construed as a transfer thereof pursuant to this Agreement.  Without derogating from Section 6.8 and Section 16, AMS shall not, nor authorize or permit any other party to, (i) transfer or otherwise convey the Software or any part thereof, and (ii) reverse engineer, disassemble, decompile or otherwise attempt to derive the source code of the Software or create derivative works based on the Software.

4.	PURCHASE ORDERS & PRODUCT PURCHASE PRICES
4.1	Production Files (PFs). NEXUS hereby provides a written PF to AMS for each and every Product.  Each PF references this Agreement contains the applicable Product catalog number (“Product Catalog Number”), Product Documentation, Specifications, Quality Requirements, and components applicable for each Product.  The PF is governed by the terms and conditions of this Agreement and the SOW attached hereto.  AMS shall manufacture the Products exclusively for NEXUS, subject to the terms and conditions set forth in this Agreement.
4.2	Purchase Orders (“PO”).
	(a)	Purchase Orders Under PFs.  AMS will manufacture, assemble, test and Deliver the Products and Spare Parts and NEXUS will purchase the Products and Spare Parts, in accordance with Purchase Orders provided by NEXUS to AMS, under the applicable PF and subject to the terms and conditions set forth in this Agreement.
	(b)	[Intentionally Deleted]
	(c)	PO Form and Acceptance.  Purchase Orders will be in writing and sent by facsimile or by electronic means.  To be effective, all Purchase Orders must contain the following terms:  (i) Product Catalog Number; (ii) quantity to be purchased; (iii) NEXUS Customer’s name and shipping address(s).  The required date for Delivery of the Product to the Delivery Point will either be provided on the Nexus Telocation purchase order or the NexusData Production Schedule.  AMS shall accept Purchase Orders in writing within seven (7) calendar days after its receipt thereof. NEXUS shall use its standard Purchase Order form, substantially in the form set out in Appendix 5.  Failure to deliver an acceptance to NEXUS within such seven (7) calendar day period will be deemed acceptance by AMS.  In the event that NEXUS supplies a Purchase Order that exceeds the Forecast, NEXUS shall so specifically indicate to AMS in the Purchase Order.  AMS may not reject any Purchase Order that is consistent with the Forecast and any rejection thereof shall be deemed breach of this Agreement.  Except where expressly stated otherwise in writing by the parties, in the event of a conflict between the provisions of this Agreement and the terms and conditions of a Purchase Order, the provisions of this Agreement shall prevail.
4.3	Authorized Purchasing Officials.  NEXUS will advise AMS in writing of the names of those NEXUS personnel that are authorized to commit NEXUS to Purchase Orders and other commitments relative to this Agreement.  As of the Effective Date the authorized personnel for NEXUS Telocation is Antony Freedman and for Nexus Data David Treichler.  The list of authorized purchasing officials may be revised from time to time by NEXUS, and NEXUS shall provide to AMS written notification thereof.
4.4	Tooling.  The costs and sources of Tooling, if any, for each Product shall be mutually agreed upon between AMS and NEXUS and specified in the applicable PF.  All Tooling provided or otherwise paid for by NEXUS shall be the property of NEXUS, and shall be used by AMS only for the manufacture, assembly and testing of Products and spare parts hereunder.  All Tooling provided or otherwise paid for by AMS shall be the property of AMS and may be used by AMS for any and all purposes, provided this does not interfere with AMS’s obligations hereunder.  AMS shall be responsible for all aspects of maintenance and calibration of all test systems and fixtures as required to maintain system accuracy and certifications.  AMS shall not be responsible for replacement or repair of systems due to obsolescence or exceeding normal equipment life.  NEXUS shall provide training of AMS personnel for maintenance procedures in connection with Tooling and fixtures provided by NEXUS.
4.5	Review Rights.  NEXUS shall be given the opportunity to review, on a reasonable basis, at its cost, at AMS’s premises, and upon provision of reasonable advance notice to AMS, the books and records of AMS and its Affiliates relevant  to its obligations hereunder to ensure compliance with the undertakings and principles included in this Agreement, including requesting the appropriate entity to provide reasonable documentation.

4.6	New Products.  NEXUS may add new Products to this Agreement from time to time.  The Parties shall negotiate in good faith the terms of payment and Delivery of such new Products, and NEXUS shall provide AMS with a PF regarding such new Products as set forth in Section 4.1 hereto.  NEXUS shall be solely responsible for determining new Products, the Specifications, Quality Requirements, and components included in each new Product.  The Parties will be jointly responsible for the identification of pre-production services and PreProduction Deliverables for new Products.
4.7	Provision of NEXUS Inventory and NEXUS Components.  AMS shall purchase NEXUS’s initial inventory of components at the fees set out and as specified in Appendix 7 (Initial Inventory Purchase).  NEXUS shall provide and deliver to AMS the NEXUS Components listed in Appendix 7A (NEXUS Components) and on terms and conditions to be agreed upon.  Without derogating from the generality of the foregoing and without being deemed as derogating from any remedies available to AMS under applicable law or this Agreement, it is clarified that any failure of NEXUS to provide the NEXUS Components according to AMS’s request may result in delays in the performance by AMS of its undertakings hereunder.  In such event, such delay shall not be deemed to be a breach of AMS’s obligations hereunder.
5.	NEXUS FORECASTS & PURCHASE ORDER ADJUSTMENTS
	The NEXUS Forecasts and Purchase Order Adjustment procedures are set out in Appendices 8 (for Nexus Telocation) and 9 (for NexusData).

6.	PROCUREMENT OF MATERIALS; INVENTORY MANAGEMENT
6.1	Procured Materials.  AMS shall perform all materials procurement from NEXUS Authorized Vendors, unless NEXUS shall notify AMS that NEXUS wishes to procure certain materials.  The warranty for any materials or components acquired by AMS from third party suppliers shall be passed through to NEXUS.
6.2	NEXUS Authorized Vendors.  AMS will procure materials only from NEXUS Authorized Vendors for the Products and/or Spare Parts.  NEXUS hereby provides AMS with a QVL/AVL for each B.O.M. item of a Product to be manufactured as set out in Appendix 13.  AMS may not change to other vendors without NEXUS’s advance written approval.  In no event shall AMS change to a vendor that does not appear on the relevant QVL/AVL without NEXUS’s express prior written consent (in NEXUS’s sole discretion), such consent not to be unreasonably withheld.  AMS shall pass through to NEXUS the component intellectual property (software licenses or licenses for intellectual property rights) where applicable.
6.3	Supply of Components by NEXUS.
	Notwithstanding Section 6.2 (NEXUS Authorized Vendors), whenever AMS shall be required to purchase new components for the Products and/or Spare Parts, NEXUS shall be entitled to supply such components unless AMS is able to supply such component at a price less than offered by NEXUS.  If NEXUS shall decide for tax and duty purposes to supply components, AMS will purchase these components from NEXUS at terms equal to terms negotiated with NEXUS suppliers, subject to the aforesaid qualification regarding pricing.
6.4	Procurement Through AMS.  NEXUS shall be entitled, from time to time, to purchase Spare Parts, components or materials through AMS’s procurement department, provided that NEXUS reimburses AMS for its cost of such procurement, plus 4%.

6.5	Inventory Management.  Without derogating from the other provisions of this Agreement, AMS shall purchase and manage its inventory of Procured Materials in a manner:
	6.5.1	better or consistent with standard industry inventory management practices (on a first-in-first-out (FIFO) basis), including but not limited to the use of economic order quantities, and ABC buy policies; and
	6.5.2	that will ensure that AMS can fill NEXUS Purchase Orders and Purchase Orders on a Turnkey Basis according to Delivery dates, and make commercially reasonable efforts to obtain competitive prices for such Procured Materials, without derogating from the quality of the Procured Materials and the management thereof.
	6.5.3	that will ensure that the cancellation and rescheduling window for all components except non-cancelable – non-returnable (NCNR) materials shall be no more than 30 days unless identified in Appendix 3 (Unique Components). This appendix may be updated from time to time upon mutual written consent.
	6.5.4	that will ensure that batteries and magnets shall be inspected and tested upon receipt to ensure they meet Specifications and shall be managed according to a first-in first-out (FIFO) inventory approach.
6.6	Product End-of-Life; Disengagement.  Nexus shall use its best efforts to notify AMS in writing at least four (4) months prior to Nexus ceasing to purchase Product(s) and Spare Parts (whether due to Product end-of-life or disengagement), which notice shall include Nexus’ requirements for such Product(s) during such four (4) months, or longer, period.  Upon receipt of such notice, AMS shall:
	1.	Make commercially reasonable efforts to reduce or cancel its outstanding purchase orders for components and raw materials in excess of the Nexus end-of-life requirements.

	2.	Provide Nexus, upon request, with an inventory exposure report for excess finished goods (including yield excess finished goods), work-in-process and material inventory on hand at AMS which identifies any partial reels of components that may be remaining.
	3.	Provide Nexus with documentation reasonably requested, within a mutually agreed upon time frame, indicating the quantities and type of inventory.
	AMS shall not reallocate Procured Materials to the manufacture of products for a customer other than NEXUS such that it affects the delivery of NEXUS products without the prior written approval of NEXUS.  NEXUS shall be required to purchase from AMS all products, materials and components which may be of no further use due to NEXUS’s actions hereunder, provided that AMS provides satisfactory evidence to NEXUS that AMS fulfilled its obligations hereunder inclusive of Sections 6.6 (1) through 6.6 (3). .
6.7	Unique Components. Set forth in Appendix 3, as updated from time to time by the parties, shall be a list of Unique Components per Product Catalog Number and a cancellation window thereof. If any components contain or utilize software or licenses for intellectual property rights they shall be identified on this list.
6.8	Use of NEXUS Proprietary Products and Components.  Without derogating from the generality of Section 16 (Confidentiality; Proprietary Information), AMS agrees to use NEXUS Proprietary Components and Software for the sole purpose of manufacturing the Products and Spare Parts for NEXUS and not for any other purpose, and agrees not to engage in, nor will it authorize others to engage in, the reverse engineering, disassembly or the decompilation of any NEXUS Products or any of NEXUS’s Proprietary Component or Software, unless authorized by NEXUS in advance in writing.
6.9	Reports and Notices.  AMS shall provide to NEXUS, copies of electronic or written reports on, including but not limited to, Open PO’s, MRP recommendations, Projected Excess stock (valued), current inventory and production scheduling & Quality Requirements at the same frequency such reports shall be prepared for AMS’s internal purposes, but in any event, at least on  a weekly obligation hereunder unless consent is given for a different frequency by NEXUS. AMS will supply to NEXUS, upon request, the acceptance reports performed on components purchased according to Nexus Specifications.  AMS shall also provide Nexus notices of discontinued components within three (3) Working Days upon receipt from the manufacturer to provide the Nexus Design teams adequate lead time to find a suitable substitute.

6.10		Packaging and Printed Materials.  All packaging, product graphics, instructional materials and other NEXUS specified print matter related to the Products, if any, shall be created, developed and produced by AMS in accordance with NEXUS commercially reasonable requirements.
6.11		Program Managers. NEXUS and AMS will name a person in writing to be a single point of contact to handle matters related to the day-to-day administration of this Agreement.
		For NEXUS Data:	David Triechler
			Tel: 817-416-9805
			Fax: 817-416-8336
			Email:davidt@nexusdata.com
		For NEXUS Telocation: Antony Freedman
			Tel: 972-3-572-3111
			Fax: 972-3-571-6911
			Email: antonyf@nexus.co.il
		For AMS:	Daniel Mitlansky
			Tel: 972-8-997-2929
			Fax: 972-8-997-1287
			Email: amselc@netvision.net.il
7.	DESIGN, MATERIAL AND PROCESS CHANGES
7.1	At AMS’s Request.  AMS shall not change any Product or Spare Part, including any component or material, or any production methodology used in any Product  or Spare Part, without obtaining NEXUS’s prior written consent.  AMS’s request shall specify any cost, schedule or other impact of such change.  If NEXUS requests, AMS shall also provide on mutually agreed terms, sample units of the modified Product or Spare Part for NEXUS evaluation. NEXUS shall attempt to approve or disapprove AMS’s request within fifteen (15) calendar days after receipt or, at a minimum, within such period advise AMS of the estimated date such decision will be made by NEXUS.

7.2	At NEXUS’s Request.  Should NEXUS desire modifications in the design of a Product, NEXUS will submit a written request to AMS to make the change (an “Engineering Change Order” or “ECO”). Within three (3) Working Days after AMS receipt of the ECO, AMS shall advise NEXUS in writing of the direct labor and materials cost, schedule or other impact of such change, and shall not implement any such change unless and until NEXUS has approved such impact in writing.  The hourly regular labor tariff will be $12.
	AMS shall use its best commercial efforts to implement the required changes in a timely manner which is mutually agreeable to NEXUS and AMS, and which shall comply with the applicable Product Lead Times. NEXUS shall own all right and title in and to any modifications and/or engineering changes made hereunder. Any cost savings resulting from an engineering change proposed by NEXUS shall be reflected in the Purchase Price of the applicable Product.
7.3	Emergency Changes.  If NEXUS submits an emergency ECO clearly identified as such, AMS shall commence implementation of such ECO within twenty-four (24) hours; provided, that AMS has advised NEXUS of, and NEXUS has approved in writing any estimated cost or other impact of such change and the required components are available.  If the required components are not available, AMS shall use its best commercial efforts to procure such components as soon as possible.

8.	PURCHASE PRICE AND PAYMENT TERMS
8.1	Purchase Price.  The initial purchase prices for the Products (“Purchase Prices”) are set forth in Appendix 2 for each Product and are effective for the period(s) and on the terms stated therein.  The purchase price for Spare Parts shall be agreed upon between the parties.  The Purchase Price beyond the initial Purchase Price shall be determined in accordance with the procedures set out in Appendices 8 and 9.  AMS shall be solely responsible for its own taxes based on its revenues or property ownership, including, without limitation, municipality taxes and similar payments.  For the avoidance of doubt, NEXUS shall not be charged separately for any taxes except for VAT and any other taxes which NEXUS is able to recover from the taxing authority.  For the avoidance of further doubt the Purchase Prices shall be adjusted to reflect any cost changes resulting from an engineering change consistent with the provisions set out in Section 7.2.
8.2	Payment Terms.  All payments shall be made by NEXUS to AMS in U.S.  Dollars or Israeli Shekels at the representative exchange rate on the payment day.  AMS shall issue an invoice upon Freight-on-board at the Israeli port as stated on the PO, or otherwise at NEXUS’s Israeli premises.  Upon receipt of a verified invoice, NEXUS shall pay AMS the Purchase Price for the Products and the agreed price for Spare Parts shipped and any applicable shipment and delivery costs in accordance with Section 9 plus VAT as applicable within current terms plus 60 days.  Past due payments will accrue interest at a rate equal to 0.75% compounded monthly; for avoidance of doubt, this shall not be deemed as derogating from any remedies which may be available to AMS under any applicable law or this Agreement.  In addition to the foregoing, if NEXUSDATA becomes delinquent by more than 30 days, then the terms and conditions as specified in the Related Manufacturing Agreement (Appendix 11) shall apply. For avoidance of doubt, execution, delivery and/or performance of the Related Manufacturing Agreement shall not be deemed or interpreted as any release by AMS of NexusData of any of NexusData’s obligations and undertakings towards AMS, or as any waiver by AMS of any rights, demands, claims or suits it may have against NexusData under this Agreement.

9.	DELIVERY, DELAYS, ACCEPTANCE & RETURNS
9.1	Delivery.  Upon fulfillment of AMS’s obligations under the applicable Purchase Order, AMS shall Deliver on a Turnkey Basis the total number of Products and Spare Parts ordered in such Purchase Order to the Delivery Point on the date specified either in such Purchase Order or Nexus Production Schedule, subject to the provisions in Appendices 8 and 9 (NEXUS Forecasts, Purchase Order & Adjustments).  All Products delivered shall be suitably and carefully packed for shipment in accordance with NEXUS’s instructions, if any.  Delivery shall be considered late if made one (1) or more Working Days late.  In the event that AMS shall wish to deliver prior to the Delivery date for other than NexusData products, AMS shall request NEXUS’s approval, which shall be subject to NEXUS’s sole discretion.  Labeling and reports shall conform to the Nexus or Nexus customer specifications and requirements, which shall be provided in writing.
9.2	Delay Notification.  AMS shall maintain a sufficient number of qualified staff to enable AMS to fulfill its obligations under the terms and conditions of this Agreement.  Should AMS discover that an agreed upon Delivery date cannot be met, AMS shall immediately notify NEXUS in writing or by electronic means, stating the cause for the delay and an estimate of when the Delivery can be made.  NEXUSDATA shall monitor the installation days in buffer for each customer and shall provide AMS with weekly reports of this information.
9.3	Acceptance and Return.  NEXUS shall notify AMS of any discrepancies in the shipment quantity.  AMS shall be responsible for promptly shipping, at its sole expense, any missing components, units or documentation to the Delivery Point.  If units of Product are returned to the AMS pursuant to Sections 9.4 (In-Warranty Returns) or 9.5 (Returns After First Use) below, NEXUS shall obtain an RMA from AMS, and NEXUS will be under no obligation to pay the Purchase Price or Delivery costs for any such Products.

9.4	In-Warranty Returns.  AMS shall accept returns of Products during the warranty period set forth in Section 10 (WARRANTIES, REMEDIES, LIMITATION OF LIABILITY) hereof.
9.5	Returns After First Use.  NEXUS may return any Product to AMS, which is found, upon first use by the NEXUS Customer or NEXUS, to be damaged or defective (for reasons other than misuse or mishandling either during shipping including as a result of inadequate packaging design from NEXUS, or by the NEXUS Customer or where the defect is caused by errors or defects in the PFs), including without limitation any electrical, mechanical, performance, or cosmetic defect.  AMS shall accept such return and replace such damaged or defective Product with a replacement unit which performs in accordance with the relevant PF specifications, shipped with next regular shipment to the Delivery Point or within fifteen (15) calendar days from receipt of the returned Product if the delivery point is within Israel, all at AMS’s cost and expense.  If the product is discontinued by NEXUS and unrepairable, AMS will credit NEXUS the cost of the unit.
	If AMS is not able to comply with this Section and the NEXUS Data Customer with which the Related Manufacturing Agreement is signed, cancels the agreement between NEXUS and such customer due to damaged or defective Products, it shall be construed to be grounds for termination of the Agreement.
10.	WARRANTIES, REMEDIES, LIMITATION OF LIABILITY
10.1	Product Warranty; Extended Warranty.  AMS warrants to NEXUS that all material and supplies used by AMS in its performance or the performance of any authorized subcontractor hereunder and each Product and Spare Part shall (i) be free from defects in workmanship and materials, (ii) conform to the PF’s provided by NEXUS, and where design is AMS’s responsibility, will be free from defects in design, (iii) be Delivered to Nexus or the NEXUS Customer free and clear of any lien, encumbrance or other claim by any person or entity other than NEXUS, and (iv) be manufactured and shipped by AMS without infringing on any  contractual or intellectual property right of any other manufacturer, person or entity (the “Product Warranty”).  Except for the Product Warranty against third party claims – subsections (iii) and (iv) above, which shall not be limited in time, the Product Warranty for any Product or Spare Part shall be effective for fifteen (15) months from the date of shipment from the factory. AMS shall pass through to NEXUS the component intellectual property warranty and/or indemnification received from NEXUS Authorized Vendors and shall cooperate with NEXUS in pursuing intellectual property claims.  The warranty period shall be identified in the shipment data files provided to NEXUS and NEXUS customers per the reports specifications provided.
	10.1.1	The materials portion of the Product Warranty shall not apply to (i) NEXUS consigned or supplied materials and NEXUS Components, (ii) Product that is abused, damaged, altered or misused after title passes to the NEXUS Customer (other than by AMS), or (iii)  Product damaged after title passes to the NEXUS Customer by external causes not directly or indirectly contributed to by AMS.  NEXUS shall not be responsible for costs arising from defects in components used in the manufacturing of the products or defects in parts supplied by NEXUS to meet importation duty regulations.
	10.1.2	Products shall be considered free from defects in workmanship if they are manufactured in accordance with AMS’s manufacturing workmanship standards, conform to the product Specifications, and successfully complete any mutually agreed upon Product acceptance tests.  NEXUS may perform acceptance testing which measures a different array of performance criteria but the parties agree that the mutually agreed upon Product acceptance test will be the measurement standard to determine if the Product meets Specifications.  NEXUS shall have the right to observe any acceptance tests performed by AMS at AMS’s production site and  shall have all test and yield records and reports provided on a weekly basis.

10.2	Warranty Limitations and Exclusions.
	10.2.1	ALL CLAIMS ARISING UNDER THE WARRANTY MUST BE FILED BY NEXUS NO LATER THAN NINETY (90) CALENDAR DAYS AFTER THE EXPIRATION OF THE WARRANTY PERIOD (AS DEFINED IN SECTION 10.1) FOR THE PRODUCT.
	10.2.2	THE WARRANTIES SET OUT IN THIS AGREEMENT, INCLUDING WITHOUT LIMITATION THE PRODUCT WARRANTY PROVIDED UNDER SECTION 10.1, ARE THE SOLE WARRANTIES PROVIDED BY AMS.  AMS MAKES, AND NEXUS RECEIVES, NO OTHER WARRANTY EITHER EXPRESSED OR IMPLIED.  ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, AND ALL IMPLIED WARRANTIES OF TITLE FOR ANY CONSIGNED OR NEXUS SUPPLIED MATERIALS, IF ANY, ARE EXPRESSLY DISCLAIMED AND EXCLUDED HEREFROM.  FOR THE AVOIDANCE OF DOUBT, THE PROVISIONS OF THIS SECTION DO NOT DEROGATE FROM THE OTHER WARRANTIES CONTAINED IN THIS AGREEMENT.
	10.2.3	UNLESS EXPRESSLY AGREED TO BY AMS IN WRITING, AMS MAKES NO WARRANTY THAT THE PRODUCTS WILL MEET ANY SPECIFICATION NOT MADE KNOWN TO AND AGREED TO BY AMS, EXCLUDING SPECIFICATIONS PROVIDED BY NEXUS IN ACCORDANCE WITH THIS AGREEMENT.

10.3	Remedy on Breach of Warranties.  NEXUS’s exclusive remedy for any breach of the Product Warranty shall be, at AMS’s option, repair by AMS at a facility of its choice, replacement of the defective Product with a functionally equivalent product, or return of the Purchase Price.  For repair or replacement of the Product or Spare Part, AMS shall perform such repair or replacement, as applicable, within five (5) calendar days from the date the Product or Spare Part is delivered to AMS for a Product or Spare Part that is in production, and twenty (20) calendar days from the date the Product or Spare Part is delivered to AMS for a Product or Spare Part that is currently not in production. For a credit or refund, the purchase price of the Product or Spare Part shall be refunded or credited within thirty (30) calendar days from AMS’s receipt of the Product or Spare Part.  AMS shall be responsible for all shipping costs.
	In the event that AMS repairs a defective Product or Spare Part, AMS will affix to each repaired or replacement Product a new date code specifying the week and year in which the repaired or replacement Product was scheduled to be delivered to NEXUS. The applicable Product warranty period shall automatically be extended with no additional charge  for an additional fifteen (15) months following the date the repaired Product is shipped to the NEXUS Delivery Point.
10.4	Survival of Warranties.  AMS’s warranties under Section 10 shall survive any inspection, delivery, acceptance of, or payment by NEXUS for the Products manufactured by AMS, and shall survive the termination or expiration of this Agreement for any reason whatsoever, and shall benefit NEXUS, its successors and assigns. AMS shall notify NEXUS of any error, inaccuracy or incompleteness that AMS identifies within the PFs, including without limitation, any drawings, Product Specifications and Product Documentation, which NEXUS provides to AMS.
11.	QUALITY AND INSPECTION
11.1	Quality Requirements. AMS shall manufacture the Products and Spare Parts in accordance with the NEXUS Quality Requirements.  The Quality Requirements shall specify the cosmetic standards to be applicable.  Such cosmetic standards  shall be based upon samples to be provided by NEXUS acceptable to AMS prior to manufacturing.  AMS shall provide NEXUS weekly reports and analysis of all test results and the yields of each of the quality tests performed in accordance with NEXUS’s Quality Requirements. AMS shall also provide NEXUS its failure analysis reports, corrective action reports and defect containment plan. AMS will supply to NEXUS the acceptance reports performed on components purchased according to Nexus Specifications.

11.2	Inspections by NEXUS
	(i)	AMS shall allow NEXUS’s quality control auditors to make visits and inspections of facilities/finished Products used by AMS in connection with the manufacturing, storing, and shipment of the Products and Spare Parts, and any other materials provided to AMS by NEXUS during the usual business hours of such facilities and upon reasonable prior coordination  for the purpose of inspecting and performing quality audits, unlimited in scope, during any stage of AMS’s manufacturing process, and to ensure compliance with the Quality Requirements.  NEXUS shall have the right, but not the obligation, to conduct periodic physical inventories at the facilities of AMS in order to determine AMS’s compliance with the terms of this Agreement and upon reasonable prior coordination.
	(ii)	NEXUS may inspect any Products and Spare Parts Delivered under this Agreement for deficiencies in material and/or workmanship, in accordance with the SOW, at AMS’s or NEXUS’s facilities.
11.3	Agency Approvals.  AMS will be responsible, at its expense, for obtaining any governmental body, agency, third party and/or regulatory approvals in connection with the manufacture of the Products or which are required in connection with the execution, delivery and performance of this Agreement; provided, however, that NEXUS will provide AMS all information and assistance reasonably requested by AMS for the purpose of obtaining such approvals.
12.	NON-RECURRING ENGINEERING CHARGES
12.1	NEXUS and AMS will mutually agree on AMS provided non-recurring engineering charges and set-up fees (“NRE”) required to manufacture the Products.  NRE charges will be billed to NEXUS as mutually agreed upon.
12.2	New Product Introduction and Non Recurring Expense – The unit pricing of this contract includes all New Product Introduction costs and non-recurring expense except the one-time cost of new stencils if not provided by NEXUS for initial manufacture.
13.	INVENTORY INDEMNIFICATION
13.1	Continuing Manufacturing Obligations.  Upon cancellation of a Purchase Order, or upon expiration of this Agreement or termination of this Agreement other than for a material breach by AMS, AMS will be obligated, subject to Section 14.1(iii) (Effect of Termination) to manufacture and sell to NEXUS, at its request, and NEXUS thereupon shall be responsible for the purchase and payment of:
	(a)	all finished Products scheduled for shipment within the thirty (30) days immediately following AMS ’s receipt of the cancellation or termination notice (the “Notice”);
	(b)	all work-in-process scheduled for shipment within the thirty (30) days immediately following receipt of the Notice.
	(c)	all Unique Components and in any event not to exceed the Unit Number of Products set forth in the PO and the corresponding Cancellation Window period per each Unique Component set forth  in Appendix 3.  Items (a)-(c) are referred to as the “Termination Inventory”.

13.2	Efforts to Reduce Termination Inventory.  AMS will make every reasonable effort to use the Termination Inventory other than NEXUS Proprietary Components on other current programs, will cancel all outstanding material orders with vendors, and will attempt to return piece parts to vendors.  NEXUS will be responsible for costs, charges and fees actually incurred by AMS to cancel or return any portion of the Termination Inventory to vendors and, upon mutual agreement, the cost to modify the Products for other programs.
13.3	Purchase of Remaining Termination Inventory.  Within thirty (30) days from termination or cancellation, AMS will invoice, and NEXUS will purchase, the Termination Inventory remaining after vendor cancellations and returns and after other program use, as follows:  (i) for Unique Components, at AMS ’s Standard Cost; (ii) for WIP, at a mutually agreed upon reasonable pro rata percentage of the finished Product purchase price; and (iii) for finished Product, at the Purchase Price in effect at termination or cancellation.  NEXUS will be responsible for any negative price differentials between the price AMS paid for the Unique Components and the price at which AMS was able to return and/or utilize the items on other programs.  AMS will credit NEXUS for any positive price differentials. For the avoidance of any doubt, nothing contained in this Section shall be construed to impose an obligation of payment for a sum higher than the actual value of any Purchase Order placed by NEXUS, accepted by AMS and subsequently canceled hereunder.
13.4	AMS’s Records.  NEXUS shall be entitled to request that AMS provide reasonable documentation and invoices to substantiate any and all payments requested to be made hereunder.

14.	TERMINATION
14.1	(i)	Termination with Cause. This Agreement may be terminated, by written notice, by either party upon the occurrence of any one or more of the following events: (i) failure by either party to perform any of its material obligations under this Agreement and to cure such failure within thirty (30) calendar days after receipt of written notice describing the failure in sufficient detail, or if the failure cannot be completely cured within thirty (30) calendar days, failure to make substantial progress towards a cure within the thirty (30) calendar day period; or immediately upon (a) a material breach of Section 16.1 (Confidentiality) or (b) the second paragraph of Section 9.5 (Returns After First Use) (i.e.- failure by AMS to comply following which the specific Nexus Data Customer referred to therein cancels its agreement with NEXUS Data); (ii) entering into or filing of a petition, arrangement or proceeding seeking: an order for relief under the bankruptcy laws of the State of Israel or similar laws of any other jurisdiction; a receivership for any of its assets; a composition with or assignment for the benefit of its creditors; a readjustment or debt; or its dissolution or liquidation all of which unless cancelled or removed within thirty (30) calendar days.
	(ii)	Termination without cause.  This Agreement may be terminated, by written notice, by either party without cause upon six (6) months prior written notice to the terminated party.  For avoidance of doubt, such termination shall not derogate from NEXUS’ full undertaking under Section 2.3 of this Agreement, and the final accounting referred to in Section 2.3 shall take place on the date of termination under this Section 14.2 (i.e- as if a full period of three years has passed since the Effective Date), provided the termination is by NEXUS without cause.
	(iii)	Effect of Termination.  Upon termination of this Agreement:
		(a)	AMS will, to the extent and at times specified by NEXUS, stop all work on outstanding Purchase Orders,  take actions to incur no further direct costs, and protect all property in which NEXUS has or may acquire an interest.  Unless terminated by AMS under Section 14.1, NEXUS will have the option to request that AMS complete work in process pursuant to any Purchase Orders open on the date of termination and, in such case, AMS shall complete such work-in-process; for remaining work-in-process not to be completed as per NEXUS stop work order, NEXUS will pay a mutually agreed upon reasonable pro rata percentage of the finished Product’s purchase price;

(b)	NEXUS will pay AMS the price for all Products Delivered to NEXUS as of the termination date;
(c)	Each Party will return to the other, freight collect, all materials that contain the other’s Confidential Information, including all manufacturing files of NEXUS and all copies thereof and all documents or things containing any portion of any Confidential Information, or if the other Party gives written instructions to do so, destroy all such materials and copies thereof and all documents or things containing any portion of any Confidential Information, and provide the other a written certificate of destruction within thirty (30) days after such destruction; and
(d)	AMS shall use no less than commercially reasonable efforts to cancel without charge any outstanding purchase order with third party suppliers relating to this Agreement, unless otherwise requested by NEXUS.

		(e)	In the event of Termination under Section 14.2, except as otherwise provided in this Agreement, neither Party shall be liable to the other Party hereto for damages, losses, indemnity, compensation or expenses of any kind or character whatsoever on account of the expiration or termination of this Agreement in accordance with the terms hereof, whether such damages, losses, costs or expenses arise from loss of prospective sales, or expenses incurred or investments made in connection with the establishment, development or maintenance of a Party’s business, creation of goodwill, markets and customers for the Products or any other reason whatsoever.  Subject to survival, notwithstanding anything to the contrary contained herein, expiration or termination of the Agreement shall not affect any claim, demand, liability or right of a Party arising pursuant to this Agreement prior to the expiration or termination hereof.
		(f)	In the event that NEXUS should seek another manufacturer in Israel during the term of the agreement, NEXUS agrees not to enter into any agreement for manufacture if the price per unit is not greater than $1 less expensive than the offer from AMS.
15.	REPRESENTATIONS, WARRANTIES AND COVENANTS
15.1	AMS.  AMS hereby represents, warrants and covenants that:
	15.1.1	all corporate and other proceedings required to be taken by or on behalf of it, to authorize the execution, delivery and performance of this Agreement and all documents and agreements ancillary hereto, has been duly taken, it has full authority to enter into this Agreement and all documents and agreements ancillary hereto, and the person signing and executing this Agreement and all documents and agreements ancillary hereto on AMS’s behalf is duly authorized to bind it;

	15.1.2	it has the necessary experience, expertise, capability and manpower to carry out its obligations and undertakings under this Agreement and all documents and agreements ancillary hereto;
	15.1.3	any approval, permit or consent of, or filing with any governmental body, official authority or any other third party required in connection with the execution, delivery and performance of this Agreement and all documents and agreements ancillary hereto by AMS has been obtained;
	15.1.4	it has obtained and will continue to maintain an ISO 9002 Statement of Compliance; and
	15.1.5	the execution and delivery of this Agreement and all documents and agreements ancillary hereto, and/or the consummation of the transactions contemplated hereby, will not give rise to a right to terminate, result in a breach of terms and conditions of, constitute a default under or violate any other agreement or undertaking of AMS and any other third party, which may have a material adverse effect on AMS.
15.2	NEXUS.  NEXUS hereby represents, warrants and covenants that:
	15.2.1	all corporate and other proceedings required to be taken by or on behalf of it, to authorize the execution, delivery and performance of this Agreement and all documents and agreements ancillary hereto, have been duly taken, it has full authority to enter into this Agreement and all documents and agreements ancillary hereto, and the person signing and executing this Agreement and all documents and agreements ancillary hereto on NEXUS’s behalf is duly authorized to bind it; and

	15.2.2	the execution and delivery of this Agreement and all documents and agreements ancillary hereto, and/or the consummation of the transactions contemplated hereby, will not give rise to a right to terminate, result in a breach of terms and conditions of, constitute a default under or violate any other agreement or undertaking of NEXUS and any other third party, which may have a material adverse effect on NEXUS.
16.	CONFIDENTIALITY; PROPRIETARY INFORMATION
16.1	Confidentiality. Each Party shall protect the other Party’s Confidential Information from unauthorized dissemination and shall prevent disclosure of Confidential Information to any third party, and shall treat the Confidential Information with at least the same degree of care that each such Party uses to protect its own like information, but at a minimum, with a reasonable degree of care or, a higher standard of care if reasonable under the circumstances.  Each Party shall not use the other Party’s Confidential Information for purposes other than those necessary to perform this Agreement and only employees, consultants and permitted subcontractors (collectively for purposes of this section “employees”) of the receiving Party who have a need to know such Confidential Information will have access thereto, which employees shall be bound by confidentiality undertakings no less stringent than set out herein.  A party receiving from the other party any information in the form of hardware, products or any other tangible form of equipment (“Units”), shall not allow access to the Units by any other third party, nor shall such receiving party make any attempt to open the Units, remove any seal or remove any screw or connector from the Units. Except as permitted under this Agreement, each Party shall not disclose to third parties the other Party’s Confidential Information without the prior written consent of the other Party.  Immediately upon termination or expiration of this Agreement, or upon the request of a Party prior to the termination or expiration of this Agreement, each Party shall return the other Party’s Confidential Information,  and all copies thereof and all documents or things containing any portion of any Confidential Information, or obtain written approval for the destruction of the other Party’s Confidential Information, and all copies thereof at the disclosing party’s option, and in such case, shall provide a written certificate of destruction within thirty (30) days after such destruction.

	Upon the execution and delivery of this Agreement, the Non-Disclosure Agreement dated January 1, 2002 between the Parties shall be superceded by the provisions of this Agreement.
16.2	Proprietary Information.  All Confidential Information of NEXUS and any improvements to any designs, plans, inventions, concepts or ideas of NEXUS, including, without limitation, during AMS’s performance under this Agreement, are proprietary to NEXUS and shall at their inception be and remain the sole and exclusive property of NEXUS and nothing contained herein shall be construed as giving AMS any license or rights with respect to any thereof. AMS agrees that any idea, discovery or improvement which is conceived or first reduced to practice by AMS or NEXUS in connection with any work performed by AMS, or AMS using the Confidential Information of NEXUS shall be the sole property of NEXUS.  AMS agrees to make prompt and complete disclosure to NEXUS of all such ideas, discoveries or improvements  and AMS agrees to execute any and all documents reasonably requested by NEXUS, including but not limited to patent applications, to perfect, secure or record NEXUS’s property rights therein.
	All Confidential Information of AMS and any improvements to any designs, plans, inventions, concepts or ideas of AMS’s not related specifically to NEXUS’s Products including, without limitation, during AMS’s performance under this Agreement, are proprietary to AMS and shall at their inception be and remain the sole and exclusive property of AMS.

16.3

NEXUS Marks.  AMS will not, without NEXUS’s prior written consent, use any NEXUS trademarks, service marks, trade names, logos or other commercial or product designations or any other intellectual property right of NEXUS or any of its Affiliates (the “NEXUS Marks”), for any purpose other than with respect to  the Products and Spare Parts, including, but not limited to, use in connection with any AMS products, promotions, advertisements or exhibitions.  No license or permission to use any of the NEXUS Marks is granted except for the purpose of manufacturing goods for NEXUS which are delivered to NEXUS or a third party designated by NEXUS.  AMS warrants that any goods manufactured, assembled or obtained by AMS which contain any of the NEXUS Marks shall be sold or Delivered to NEXUS pursuant to this Agreement and shall not be Delivered, sold or conveyed to any third party.  For any materials manufactured by AMS and/or Delivered to AMS by NEXUS, or that otherwise are obtained by AMS containing any of the NEXUS Marks (the “Marked Materials”), AMS agrees to maintain control over and an accurate account of all the Marked Materials.  Except as used by AMS in connection with its performance under this Agreement, AMS shall return to NEXUS all unused Marked Materials or (at NEXUS’s option) provide NEXUS with a written report identifying all Marked Materials that have been destroyed during AMS’s performance hereunder.  AMS shall not retain, sell or dispose of any goods containing or bearing the NEXUS Marks without NEXUS’s prior written consent.

16.4

Equitable Enforcement.  Each party hereby acknowledges the significance of the confidentiality and intellectual property concerns of the other party and acknowledges that the provisions of this Section 16 are essential to the other party, and of extreme importance to its ongoing business operations.  Each party accordingly acknowledges and agrees that in the event of any breach or threatened breach by such party or its representatives of the provisions of this Section 16, money damages alone will be inadequate to compensate the other party, and, accordingly, each party agrees that the other party may seek, obtain and have enforced equitable relief, including preliminary, temporary or permanent injunctions issued by a court of competent jurisdiction restraining and prohibiting the breaching or threatening party and its representatives from such breach or threatened breach.  Each party acknowledges that the other party’s rights to obtain such equitable relief are in addition to (and are not meant to replace) any other  remedies (legal, equitable or otherwise) which may be available to such other party.

16.5	No Waiver.  The failure of a Party to enforce any provision of this Section 16 (Confidentiality; Proprietary Information) shall not constitute a waiver of any term hereof.
16.6	Survival.  The rights and obligations of the Parties under this Section 16 (Confidentiality; Proprietary Information) shall survive any termination or expiration of this Agreement for a period of two (2) years.
17	INDEMNITIES
17.1	Infringement by NEXUS.  Except in the event that AMS designs Products or portions of the Products, NEXUS shall be responsible for the design of the Products.  Upon AMS’s demand, NEXUS will promptly defend, indemnify and hold AMS, its officers, directors, employees, agents, successors and assigns, harmless from and against reasonable direct cost, expense or loss (including reasonable attorneys’ fees and legal costs) directly relating to any claim or threatened claim: (a) that any Product or portion of a Product violates the intellectual property rights of a third party (foreign or domestic); (b) that the Product has a design defect; or (c) arising from or related to the distribution, sale or use of any Product or portion of a Product.  The immediately preceding sentence will apply whether the claim is based upon contract, tort or any other legal theory.
17.2	Infringement by AMS.  Upon NEXUS’s demand, AMS will promptly defend, indemnify, and hold  NEXUS, its officers, directors, employees, agents, successors and assigns, harmless from and against reasonable direct cost, expense or loss (including reasonable attorneys’ fees and legal costs) directly relating to any claim or threatened claim arising out of or in connection with a third party claim or action, whether the claim is based upon contract, tort or any other legal theory, alleging:

	(i)	that AMS’s manufacturing process and materials (other than those provided by NEXUS or any vendor or supplier listed in the initial QVL/AVL supplied under this Agreement) incorporated by AMS into a Product, portion of a Product or Spare Parts violates the intellectual property rights of a third party (foreign or domestic)..  In the event that any new supplier or vendor is added to the QVL/AVL, the party adding such supplier or vendor shall ensure that any materials acquired from such vendor or supplier for the purposes hereunder do not infringe any patent, copyright, license, trademark right, trade secret, mask work right or other proprietary right of any kind of any third party; and
	(ii)	in any way directly arising out of or directly associated with AMS noncompliance with laws, regulations or ordinances, including penalties and expenses.
17.3	Conditions.  A Party’s obligation to indemnify the other under this section (Indemnities) is conditioned upon and subject to: (a) the indemnified Party giving the indemnifying Party reasonably prompt notice in writing of any such charge of infringement, claim or suit and permitting the indemnifying Party through counsel of its choice, to answer the charge of infringement and defend such claim or suit; (b) the indemnified Party providing the indemnifying Party information, assistance and authority, at the indemnifying Party’s expense, to enable the indemnifying Party to defend the suit; and (c) the indemnifying Party will not be responsible for any settlement made by the indemnified Party without its prior written consent.  The indemnifying Party agrees not to disclose or publicize the terms of any settlement of a suit against the indemnified Party without first obtaining the indemnified Party’s written permission.
18.	MISCELLANEOUS
18.1	Entire Agreement.  This Agreement and its attachments contain the entire agreement between the parties regarding the subject matter hereof.  This Agreement supersedes all prior oral and written agreements and understandings between the parties relating to the subject matter hereof, and may only be amended or modified in writing signed by an authorized representative of each party.  The terms and conditions of any Purchase Order, Schedule, or any other form or document of NEXUS or AMS shall not apply unless agreed in writing, as an amendment to this Agreement.

18.2	Survival.  In addition to provisions elsewhere in this Agreement, the obligations of the Parties under Sections 2.3 (NEXUS Penalties), 10 (Warranties, Remedies, Limitation of Liability), 13 (Inventory Indemnification), 17 (Indemnities), 18.3, 18.8 18.10, 18.11 and 18.12 and anything by their nature should survive termination or expiration hereof shall survive any termination or expiration of this Agreement.
18.3	Limitation of Liability.  Each party’s liabilities under this Agreement is limited to direct damages only. Neither party’s liability for direct damages under this Agreement (whether in contract or tort) shall exceed one million eight hundred thousand dollars ($1,800,000).
	Notwithstanding the above, if Nexus is assessed penalties by its Customers as a result of workmanship caused defects AMS shall be liable for these penalties.
18.4	Insurance.  AMS hereby represents to NEXUS that it has and will maintain adequate insurance as is required by law or as is the common practice in AMS’s trade or business throughout the term of this Agreement and any renewals hereof.  AMS shall provide to NEXUS within one (1) week from the date this Agreement is signed a letter confirming the types and amounts of coverage AMS has relevant to its undertakings hereunder.
18.5	Beneficial Parties.  This Agreement is intended solely for the benefit of the executing parties and their permitted successors and assigns.  No other person or entity shall have any rights under or in connection with this Agreement.

18.6	Assignment.  Neither party may sell, transfer or assign any right, duty or obligation granted or imposed upon it under this Agreement without the prior  written consent of the other party, which consent shall not be unreasonably withheld or delayed.  Provided, however, that either party retains the right to assign its rights under this Agreement to Affiliated Companies or under the Related Manufacturing Agreement(s).  Provided, further, that such consent shall not be required for a Party to assign or transfer its rights under this Agreement to a successor to all or substantially all of such Party’s assets or business relating to the subject matter of this Agreement, whether by merger, reorganization, operation of law or by the sale or transfer of all or substantially all of such Party’s assets or business relating to the subject matter of this Agreement, provided such successor shall assume in writing the obligations of such party under this Agreement in a written assumption agreement delivered to the other parties.
18.7	Subcontractors.  AMS will not subcontract its obligations with respect to the production of the Products hereunder unless NEXUS consents in writing in each instance, such consent not to be unreasonably withheld, and the subcontractor (i) enters a non-disclosure agreement substantially in the form set out in Appendix 12, and (ii) is located in Israel.  NEXUS’s consent to any subcontractor shall not relieve AMS from any obligation imposed by this Agreement, and the warranties granted by AMS hereunder shall also apply to any manufacture of components by or services provided by any subcontractor.
18.8	Force Majeure.  Neither party shall be liable for damages and costs to the other party arising out of delays or failures to perform under this Agreement if such delays or failures result from causes beyond the reasonable control of a party, and are not caused by an act or omission of such party.  Notice of any such delays or failures and explanation of their causes must be given to the other party within reasonable time of the occurrence.  As soon as it is reasonably apparent that the occurrence will likely cause a delay of more than one hundred and eighty (180) days, the party against whom this section is invoked shall have the right to terminate this agreement.

18.9	Authorized Personnel.   NEXUS is the only entity authorized to purchase Products hereunder and the individual executing this Agreement certifies they  have the legal authority to bind NEXUS.  Any affiliates, subsidiaries, and permitted assigns (“Assignees”) of NEXUS which NEXUS wishes to purchase Products hereunder must execute a copy of this Agreement and NEXUS warrants that any and all obligations and debts of the Assignees will be discharged in a timely fashion.
18.10	Governing Law; Arbitration.
	18.10.1	This Agreement and performance by AMS and NEXUS under it shall be governed solely by the laws of the state of Israel, without regard to conflicts of laws or the choice of law principles, and all questions concerning the validity and construction hereof shall be determined in accordance with such laws.
	18.10.2	Both parties pledge their full cooperation and good faith to settle any differences under this Agreement in a reasonable, businesslike and commercial manner.  However, in the event any difference cannot be so settled it shall be finally settled by arbitration under the Israel Arbitration Law – 1968, as amended, before a mutually agreed arbitrator in Israel appointed in accordance with the said Israel Arbitration Law – 1968, as amended, rules. Notwithstanding the foregoing, each party may have recourse to any court or tribunal in any jurisdiction in order to enforce any of its intellectual property rights by injunctive or other relief, and the other party submits to and agrees not to contest any such jurisdiction.  The prevailing party in any such proceeding taken outside of arbitration shall be entitled to reimbursement for its reasonable attorneys fees and costs incurred in such proceeding from the non-prevailing party.
18.11	Independent Contractor.  Each party represents that it is acting on its own behalf as an independent contractor and is not acting as an agent for or on behalf of any third party.  This Agreement and the relations hereby established by and between the parties do not constitute a partnership, joint venture, franchise,  agency or contract of employment.  Neither party is granted, and shall not exercise, the right or authority to assume or create any obligation or responsibility on behalf of or in the name of the other party or its Affiliates.  Neither party nor their employees, agents or subcontractors are agents or employees of the other party, and therefore are not entitled to any employee benefits of the other party, including but not limited to, any type of insurance.

18.12	Notices.  All notices and other communications under this Agreement shall be in writing and shall be deemed to have been given one (1) Working Day after being sent by facsimile or electronic mail with return receipt requested, or five (5) Working Days by certified mail.  All notices and other communications under this Agreement shall be given to the party to which such notice is directed at the following addresses or addressed to a person or party at such other address as that party may have given by written notice in accordance with this provision:
	For NEXUS Data:	David Triechler
		2557 S.W. Grapevine Parkway
		Grapevine, Texas, 76051
		Tel: 817-416-9805
		Fax: 817-416-8336
		Email:davidt@nexusdata.com
	For NEXUS Telocation: Antony Freedman
		1 Korazin Street
		Givatayim, Israel
		Tel: 972-3-572-3111
		Fax: 972-3-571-6911
		Email: antonyf@nexus.co.il
	For AMS:	Daniel Mitlansky
		41 haTa’asia Street
		Arad, Israel 80700
		Tel:  972-8-997-2929
		Fax:  972-8-997-1287
		Email: amselc@netvision.net.il

18.13 Guarantee.  NEXUS undertakes to provide to AMS a bank guarantee, guaranteeing the performance by NEXUS of its undertakings hereunder any payment of any damages which may be due by it under this Agreement (the “Guarantee”). Such Guarantee shall be provided by an Israeli reputable bank acceptable to AMS within six months from the date hereof.  The amount of the Guarantee shall be $1.25 million. 

In order to secure the grant of the Guarantee, NEXUS will issue 600,000 Ordinary Shares of NEXUS Telocation (the “Escrow Shares”), to be held in escrow by Adv. Orly Tsioni (the “Escrow Agent”).  The Escrow Shares shall be included in the next registration statement to be filed by NEXUS Telocation with the Securities Exchange Commission.  Immediately after the grant of the Guarantee the Escrow Agent shall transfer the Escrow Shares per the instructions of NEXUS.  In the event that NEXUS will not grant the Guarantee, the Escrow Agent will sell the Escrow Shares and the consideration of this sale shall be held as a deposit to secure NEXUS’ liabilities under this Agreement.

Upon the deposit of the Escrow Shares with the Escrow Agent NEXUS shall provide the Escrow Agent with an irrevocable letter of instructions acceptable to AMS.

18.14. V.A.T.   V.A.T. is to be added to any payment or amount which may be due under this Agreement, if applicable.

18.15 Outstanding Matters.  The parties shall complete all outstanding matters as set out in Appendix 14 within the timeframe set out therein.

APPENDIX 1

Products

GS0001	American Residential Gas Transmitter
GS0002	Invensys Residential Gas Transmitter
GS0003	Schlumberger Residential Gas Transmitter
GS0005	Invensys Commercial / Industrial Gas Transmitter
GS0006	American Commercial / Industrial Gas Transmitter
RMU 1.7 UHF
RMU 1.7 VHF

APPENDIX 2

Product Pricing

For NEXUSDATA, pricing is predicated upon a minimum quantity of 200,000 units in the aggregate within each 12 month period.
GS0001	American Residential Gas Transmitter- $24.65
GS0002	Invensys Residential Gas Transmitter- $25.017
GS0003	Schlumberger Residential Gas Transmitter- $25.191
GS0005	Invensys Commercial / Industrial Gas Transmitter- $25.822
GS0006	American Commercial / Industrial Gas Transmitter- $26.584
The above prices 2-6 are based on a table received from NEXUS Data.

1. Manufacturing Prices (RMU-1.7-UHF)

Condition A: Based on annual quantity between 25,000 to 50,000 pcs.

Item	Description	RMU-1.7-UHF
1.	Material Cost CIF Arad The details attached (*)	US$	62.30
2.	Logistics (1.5%)	US$	0.94
3.	Manufacturing cost	US$	13.64
4.	Overhead cost (14.5%)	US$	2.10
5.	Scrap (1%)	US$	0.62
6	Mfg Profit (8%)	US$	1.26
	Total:	US$	80.86

        All prices in US$ + VAT
(*) Data provided by Nexus Communication Ltd

 Condition B: Based on annual quantity between 50,000 to 75,000 pcs.

Item	Description	RMU-1.7-UHF
1.	RMU-1.7-UHF complete	US$	79.12

        All prices in US$ + VAT

1.1 Conditions of Offer

1.1.1	Base of Offer
	A.	This offers is based on the estimated annual quantity:
		Condition A: 25,000pcs up to 50,000pcs.  Condition B: 50,000pcs up to 75,000pcs. Cumulative VHF+UHF ON ANNUAL BASIS.
	B.	Nexus Telocation. is acquainted with the fact that condition A and B are proceed on logistical cooperation between Motorola Communication Israel Ltd and AMS Electronics Ltd under AMS full warranty and commitments.
	C.	The following items are included in the offer:

Item	Description	Quantity
1.	TOP Assembly of RMU-1.7-UHF unit	One

1.1.2	Prices and Fees
	All prices in USD + VAT FOB Arad Israel.

1.1.3	Delivery Schedule
	Based on monthly batch order placement, and the products quoted herein can be delivered within 4 weeks after receipt of a firm purchasing order. Weekly shipment can be obtained upon request.
1.1.4	Warranty Policy
	According to the agreement .
1.1.5	Cost Down Objective
	There will be around additional 3% cost down for annual volume over 75,000pcs.
1.1.6	Cost Reduction Process
	According the agreement.
1.1.7	Terms of payment
	According to the agreement.

1.     Manufacturing Prices (RMU-1.7-VHF)

Condition A: Based on annual quantity between 25,000 to 50,000 pcs.

Item	Description	RMU-1.7-VHF
1.	Material Cost CIF Arad The details attached (*)	US$	56.00
2.	Logistics (1.5%)	US$	0.84
3.	Manufacturing cost	US$	13.64
4.	Overhead cost (14.5%)	US$	2.10
5.	Scrap (1%)	US$	0.56
6.	Mfg Profit (8%)	US$	1.26
	Total:	US$	74.40

        All prices in US$ + VAT
(*) Data provided by Nexus Communication Ltd

 Condition B: Based on annual quantity between 50,000 to 75,000 pcs.

Item	Description	RMU-1.7-VHF
1.	RMU-1.7-VHF complete	US$	72.56

        All prices in US$ + VAT

1.1 Conditions of Offer

1.1.1	Base of Offer
	A.	This offers is based on the estimated annual quantity: Condition A: 25,000pcs up to 50,000pcs.  Condition B: 50,000pcs up to 75,000pcs. Cumulative VHF+UHF ON ANNUAL BASIS.
	B.	Nexus Telocation is acquainted with the fact that condition A and B are proceed on logistical cooperation between Motorola Communication Israel Ltd and AMS Electronics Ltd under AMS full warranty and commitments.
	C.	Tthe following items are included in the offer:

Item	Description	Quantity
1	TOP Assembly of RMU-1.7-VHF unit	One

1.1.2	Prices and Fees
	All prices in USD + VAT FOB Arad Israel.

1.1.3	Delivery Schedule
	Based on monthly batch order placement, and the products quoted herein can be delivered within 4 weeks after receipt of a firm purchasing order. Weekly shipment can be obtained upon request.
1.1.4	Warranty Policy
	According to the agreement
1.1.5	Cost Down Objective
	There will be around additional 3% cost down for annual volume over 75,000pcs.
1.1.6	Cost Reduction Process
	According the agreement.
1.1.7	Terms of payment
	According to the agreement .

APPENDIX 3

Unique Components

Component	Cancellation
NexusData ASIC	NCNR
NexusData MicroController	NCNR
NexusData Plastic Enclosures	NCNR
(5 model types)
Nexus Telocation (will be
provided later)

APPENDIX 4

Statement of Work (SOW) – RMU 1.7

1.	This document defines the Statement of Work and deliverables regarding the Turnkey production of Nexus RMU 1.7 products.
2.	Applicable Documents
	2.1	RMU 1.7 Production files and documents within.
	2.2	B.O.M. with manufacturer part numbers and Nexus specifications for components.
3.	Deliverables
	3.1	Purchasing.  Manufacturer will purchase and perform Incoming Inspection of all components for the assembly of the RMU.
	3.2	Inventory Management.  Manufacturer will be responsible for efficient and effective management of components and work in progress.
	3.3	Assembly.  Manufacturer will perform all aspects of the assembly process of the RMU including component programming and all aspects of quality control.
	3.4	Testing.  Manufacturer will perform 100% testing of product.
	3.5	Packing.  Packing will be performed by manufacturer in accordance with the specification in production file.
	3.6	Documentation/Traceability. Manufacturer will provide electronic documentation to allow the traceability of products supplied to Nexus per types of products.
	3.7	Delivery.  Manufacturer shall deliver products as agreed in the Agreement.

4. Warranty.      As detailed in the Agreement.

SOW- NEXUS DATA – AMR PROJECT

Process – battery pack
1.	Tabs welding
	o	Two tabs in each cell.
	o	Nexus Data will assign contractor.
2.	Mechanical assembly phase 1
	o	2 contacts assembly and plastic placing pins squeezing.
	o	PCB assembly and plastic placing pins squeezing.
3.	Soldering station
	o	Soldering contacts to PCB (two soldering pads).
	o	Soldering batteries to PCB (4 soldering pads).
4.	Ultra sonic
	o	Standard ultra sonic machine.
	o	Nexus Data provide special horn.
5.	Labeling
		One label.
6.	Testing
	o	Fully automatic station.
	o	Nexus Data provides equipment.
	o	Net testing time 11 - 12 sec.

Processes – main unit
1.	SMT assembly.
	o	223 components (Fully SMT).
	o	SMT RF shields.
	o	No BGA.
	o	1 fine pitch IC.
2.	De–panelize
	o	Main board – 4 boards on panel.
	o	Coil – V-cut.
	o	Requires Jig for de–panelize
3.	Coil assembly
	o	Two manual soldering pads.
	o	Requires Jig for the assembly.
4.	Labeling
	o	3 labels on board.
	o	1 optional label for internal tracking.

5.	Functional testing
	o	Fully automatic testing station.
	o	Testing one board at a time.
	o	Net testing time 65 - 70 sec.
	o	Nexus Data provides equipment.
	o	Pass/Fail label.
6.	Cleaning
	o	Solvent – Kyzen, Ionox2950.
	o	12 min. in degreaser.
	o	10 min. in vacuum chamber (requires jig).
	o	15 min. in oven.
7.	Conformal coating.
	o	Masking – two pads.
	o	Material – Parylene.
	o	Nexus Data will assign an Israeli contractor.
	o	After conformal coating – remove two masking pads.
8.	Mechanical assembly phase 1
	o	Insert board and solder two pads.
	o	Grease injection on two pads and under the board (requires jig for placing
		unit box).
	o	Back cover assembly.
	o	Requires transportation Jig.
	o	Requires grease-filling Jig.
9.	RTV dispensing
	o	RTV 5249.
	o	XY table.
	o	Gear pump.
	o	Valve.
	o	Requires five jigs.
	o	40 sec per unit.
	o	Off line curing time 15 min.
10.	Mechanical assembly phase 2
	o	Rear gasket assembly.
	o	Insert magnet to cum.
	o	Cum and cum shaft assembly.
	o	Labeling – 3 labels.
	o	Screws drilling and pulling – 6 screws (requires jig).
11.	Battery pack assembly
	o	One screw (require jig)
	o	Grease injection.
12.	Activation station
	o	Automatic station.
	o	Net activation time – 45 - 50 sec.
	o	Nexus Data provides equipment.
13.	Mechanical assembly phase 3
	o	Assemble front gasket to index cover.
	o	Kit of 13 screws and clear cover.

14.	Packaging
	o	30 units in a box.
	o	Two layers.

APPENDIX 5

Purchase Order Form

APPENDIX 6

[INTENTIONALLY DELETED]

APPENDIX 7

Initial Inventory Purchase

For NexusData components for approximately 10,000 Residential and Commercial/ Industrial Gas Transmitters.

Nexus Telocation  - will be provided at a later stage in accordance with the terms of Appendix 14.

APPENDIX 7A

NEXUS Components

Component	Cancellation
NexusData ASIC	NCNR
NexusData MicroController	NCNR
Nexus Telocation in
accordance with the terms of
Appendix 14

APPENDIX 8

NEXUS TELOCATION LTD. - Specific terms and conditions

1.	Cost Reductions.  Purchase Prices will be reviewed by NEXUS Telocation and AMS on the first week of each financial quarter, and will be increased or decreased by mutual consent according to the most cost effective cost per component, presented by either Party.  AMS will be proactive and make every effort to reduce costs both of the materials purchased and of the development of the manufacturing process. Such cost reductions shall be shared equally between AMS and NEXUS Telocation if the cost reduction was initiated by AMS or be entirely transferred and enjoyed solely by NEXUS Telocation if initiated by NEXUS Telocation.  The revised Purchase Prices shall become effective on the 1st day of the following month or earlier if applicable.  In the event of component shortages, allocation to NEXUS Telocation shall be not less favorable than, on a proportional basis, compared to other customer’s purchase orders requiring the same components during the said period.
2.	Forecasts.  Initially, NEXUS Telocation will provide AMS, every calendar month during the Term, a rolling forecast covering the period of at least three (3) calendar months (the “Forecast”) in addition to 3 month PO.  The Forecast will specify the number of units of the Products NEXUS Telocation anticipates purchasing during such three (3) month period.  The Forecast will be non-binding and will not be regarded by either Party as a commitment to order, purchase, deliver or meet any volume commitment specified therein with the exception of NCNR components specified in Appendix 3, whose actual lead time is longer than 3 months.  NEXUS Telocation may adjust the Forecast at its reasonable discretion at any time.
3.	Purchase Order Adjustments and Rescheduling
	(a)	Decrease or Cancellation of Products.  NEXUS Telocation shall be entitled to decrease the quantity of Products or cancel particular Products set forth in any Purchase Order with no additional charge or cost to NEXUS Telocation, pursuant to the chart below or  cancellation window per component, as specified in Appendix 3, whichever allows a more favorable cancellation period to NEXUS Telocation.

(b)	Rescheduling of Products.  The parties will agree on a suitable schedule for Delivery in any Purchase Order (the “Appendix”). From time to time, NEXUS Telocation may request reports as to the progress of the Product production in accordance with the then outstanding Purchase Order. NEXUS Telocation shall be entitled to reschedule the Delivery dates of Products under a Purchase Order without any extra charge pursuant to the chart below. NEXUS Telocation shall have the right to decrease, increase or cancel Products which could have been decreased/increased or cancelled under Sections 2(a) and 2(c).
(c)	Increase of Products.  NEXUS Telocation may increase the quantity of Products previously set forth in any Purchase Order, in accordance with the chart set forth below without any extra charge pertaining to AMS’ ability to acquire necessary components.
(d)	Change to Purchase Orders Which are not Covered by Chart Below.  NEXUS Telocation shall confirm in writing delivered to AMS any changes (“Change Order”) to a Purchase Order, and AMS shall acknowledge such changes in writing within two (2) working days of NEXUS’s Telocation confirmation, which shall include a quote of the cost and/or schedule impact, if any, of implementing the change, and which shall be subject to the written confirmation of NEXUS Telocation.
(e)	Permissible Percentages of Change.  The following chart defines the permissible percentage of change by periods covered by any Purchase Order:

TYPE OF CHANGE	DAYS	% OF PERMISSIBLE ADJUSTMENT
Decrease or	0-30 Days	0%
Cancellation	30-60 Days	30%
	60-90 Days	60%
	Over 90 Days	Unlimited
Rescheduling	0-30 days past the scheduled Delivery   date for the applicable Purchase Order.	Unlimited
Increase	0-30	30%
	30-60	60%
	Over 90 Days	Unlimited

*	“Days” means the number of calendar days between NEXUS’s order adjustment and the Delivery date, as amended in the PO.
**	“Adjustment” means the percentage of any Product ordered for Delivery on such Delivery date that NEXUS may add to or subtract from (as applicable) the Purchase Order.
	(e)	Notwithstanding the foregoing, in the event that AMS shall have materials in stock and manufacturing capacity sufficient to enable it to increase the quantity of Products with less advance notice, or at a higher percentage rate than specified in the chart above, AMS, with the prior written consent of NEXUS, shall increase the quantity of Products to be supplied under the relevant Purchase Order without limitation.  AMS is committed to use its best commercial efforts to meet NEXUS’s adjustments when greater flexibility than the permissible adjustments (as set forth in the chart above) is required.

	(f)	The flexibility agreed upon in the above table is based on the assumption that the monthly quantities will be equally distributed throughout each month.
4.	Product Lead Time Reduction Program. AMS and NEXUS shall meet quarterly to discuss options to effect reductions in Product Lead Times to allow improved flexibility in ordering and delivery.  The agenda for each meeting will include identification of such options, schedules for determination of associated cost and schedules for implementation.
5.	Manufacturing Site.  NEXUS will be entitled to choose within each Purchase Order (and AMS shall accept such choice) the site where the assembly and manufacture of the Product shall take place, should AMS acquire additional assembly or manufacturing sites.
6.	Assembly Lead-Time.  NEXUS will issue rolling manufacturing forecasts and Purchase Orders, to guide AMS in purchasing the required components per Product Catalog Number for the required number of Products under the relevant PO.  For the avoidance of any doubt: (i) AMS shall not commence assembly or manufacture of a Product prior to the expiration of 50 calendar days prior to the delivery date under the Purchase Order; and (ii) the foregoing shall not derogate from AMS’s obligation to Deliver Products in the volumes appearing in the Forecast and the Purchase Order.
7.	Inspections by NEXUS AMS will inform NEXUS Telocation of Delivery dates at least five (5) Working Days prior to any Delivery date, and AMS shall make the Products and/or Spare Parts to be Delivered available to NEXUS Telocation for the performance of acceptance tests at least one (1) full Working Day prior to the Delivery date.  If NEXUS Telocation did not perform the acceptance tests within such period, after being duly and timely notified by AMS as aforesaid, AMS shall be entitled to Deliver such Products and/or Spare Parts. Notwithstanding such inspections, or the lack thereof, NEXUS Telocation may return defective or non-conforming Products to AMS, at AMS’s expense, during the Warranty Period, in accordance with the RMA procedure described in Section 9.4 (Acceptance and Return)

8.

Consequences of Delay.  AMS shall utilize all best commercial efforts in order to remedy the anticipated delay, to expedite the Delivery and give highest priority and attention to the matter, including the engagement and involvement of senior management. If AMS is more than seven (7) days late in Delivery of the Products to the Delivery Point,  AMS shall be liable for late Delivery charges of 1% per week (at the end of each week starting from the second week). This will be applicable only in a case where Nexus Telocation will show AMS  that damage was caused.

9.

Additional Cost of Expedited Freight.  AMS will pay the difference between expedited freight mode and normal freight mode on scheduled shipments that were missed due to AMS’s failure to meet its obligations hereunder.

APPENDIX 9

NEXUSDATA LTD. - Specific Terms and Conditions

1.	Purchase Price Adjustments.  AMS shall agree to use best commercial efforts to obtain thirty-six (36) month fixed price contracts with all component suppliers.  In the event that any such contracts are terminated or not available, AMS and NEXUSDATA shall meet to determine the current best price available for replacement agreements.  Beginning in March, 2003 until the end of the term of the Agreement, and any renewals thereof, each year on the first Working Day in March AMS and NEXUSDATA shall meet to determine the change in the B.O.M. resulting from the new component supply contracts.  The Purchase Price of Products will then be adjusted up or down by the change in the cost of the B.O.M. as determined and agreed as per the above.  The result of this process shall then fix the Purchase Price for the next twelve (12) months.
2.	Forecasts.  NEXUS Data will provide AMS, every calendar month during the Term, a rolling forecast covering the period of at least six (6) calendar months (the “Forecast”). The Forecast will specify the number of units of the Products NEXUS Data anticipates purchasing during such period.
3.	Purchase Order Adjustments and Rescheduling.
	(a)	Decrease or Cancellation of Products.  NEXUS Data shall be entitled to decrease the quantity of Products or cancel particular Products set forth in any Purchase Order with no additional charge or cost to NEXUS Data, pursuant to the chart below or cancellation window per component, as specified in Appendix 3, whichever allows a more favorable cancellation period to NEXUS Data.
	(b)	Rescheduling of Products. The parties will agree on a suitable schedule for Delivery in any Purchase Order (the “Production Schedule”).  NEXUS Data will require weekly reports as to the progress of the Product production in accordance with the then  outstanding Purchase Order. NEXUS Data shall be entitled to reschedule the Delivery dates of Products under a Purchase Order without any extra charge pursuant to the chart below. NEXUS Data shall have the right to decrease, increase or cancel Products which could have been decreased/increased or cancelled under Sections 3.2(a) and 3.2(c).

(c)	Increase of Products.  NEXUS Data may increase the quantity of Products previously set forth in any Purchase Order, in accordance with the chart set forth below without any extra charge.
(d)	Change to Purchase Orders.  NEXUS Data shall confirm in writing delivered to AMS any changes (“Change Order”) to a Purchase Order, and AMS shall acknowledge such changes in writing within two (2) working days of NEXUS Data’s confirmation, which shall include a quote of the cost and/or schedule impact, if any, of implementing the change, and which shall be subject to the written confirmation of NEXUS Data.
(e)	Permissible Percentages of Change.  The following chart defines the permissible percentage of change by periods covered by any Purchase Order:

TYPE OF CHANGE	DAYS	% OF PERMISSIBLE ADJUSTMENT
Increase	0-60 Days	0%
Decrease	61-120 Days	10%
Rescheduling or	121-180 Days	30%
Cancellation

*	“Days” means the number of calendar days between NEXUS Data’s order adjustment and the Delivery date, as amended in the PO.
**	“Adjustment” means the percentage of any Product ordered for Delivery on such Delivery date that NEXUS Data may add to or subtract from (as applicable) the Purchase Order.
	(f)	AMS is committed to use its best commercial efforts to meet NEXUS Data’s adjustments when greater flexibility than the permissible adjustments (as set forth in the chart above) is required.
4.	Expedited deliveries from time to time NexusData may require an expedited delivery of product. AMS shall use best commercial efforts to comply with these requests and shall be entitled to charge additional expediting and air delivery fees to NexusData.
5.	AMS agrees to execute a Related Manufacturing Agreement with a specific NexusData customer for products to be delivered under a purchase order to be executed  under this contract, as set forth in Appendix 11 to the Agreement.
6.	Shared Technical Expertise AMS shall utilize NexusData technical personnel during the first year of production or longer if necessary to put into effect the turnkey production systems necessary to meet the terms and conditions of this contract.  AMS and NexusData shall mutually agree to the personnel and charges for these technical services.
7.	Shutdown Periods Directed by NEXUS Data. In the event NEXUS should require AMS to cease production for a period greater than 24 hours of regularly scheduled production time for other than New Product Introductions, AMS shall be entitled to direct damages. Payment will be made to AMS thirty (30) days after receipt of invoice for such charges.  The aforesaid shall not apply if the shutdown occurs due to noncompliance or breach by AMS of its undertakings hereunder.

8.

Deliveries.  All Deliveries made under this Agreement shall be by sea freight.  Notwithstanding the above the initial quantities shall be Delivered by airfreight.  By January 28, 2002, AMS and NEXUS DATA shall discuss and agree on the time schedule and initial quantity which shall be Delivered by airfreight.  All such airfreight costs to be borne by NEXUS.  AMS declares that it will make commercially reasonable efforts in order to expedite commencement of delivery by way of sea freight.

9.

Consequences of Delay.  AMS shall utilize all best commercial efforts in order to remedy the anticipated delay, to expedite the Delivery and give highest priority and attention to the matter, including the engagement and involvement of senior management.  If AMS is unable to deliver NexusData products Freight on Board at the Israeli port at least six weeks prior to the scheduled delivery date, it shall at its cost airfreight the products to the scheduled delivery point. AMS shall bear all incremental costs, including without limitation, for the expedited Delivery and costs for overtime.  Notwithstanding the above, NEXUS Data hereby declares that it will not demand delivery by way of airfreight unless commercially needed, such determination to be made at NEXUS Data’s sole discretion.  In addition, and without derogating from other remedies available to NEXUS Data under this Agreement and/or applicable law, AMS shall be liable for late Delivery charges equal to penalties assessed against Nexus Data by its customer as described in  Article II and Article VIII of the NEXUS Data IMServe Purchase and License Agreement, a copy of which is attached as Schedule A hereto.  It is agreed that NEXUS Data will not penalize AMS for delay of the first supply of up to 30 days resulting from deficiency of components.

APPENDIX 10

Product Life Test Reports

APPENDIX 11

Related Manufacturing Agreement

APPENDIX 12

Non-Disclosure Agreement

APPENDIX 13

QVL/AVL (B.O.M. With Manufacturers/Vendors)

APPENDIX 14

Outstanding Matters

1.	Appendix 3 - Unique Components:  NEXUS Telocation to submit by March 1, 2002
2.	Appendix 5 - Purchase Order Form:  NEXUS Data to provide by January 17, 2002
3.	Appendix 7 - Initial Inventory Purchase:  NEXUS Data to complete purchase by January 31, 2002
4.	Appendix 7 and 7A - Initial Inventory Purchase:  NEXUS Telocation to provide within one (1) week of request by AMS
5.	Appendix 13 - QVL/AVL (B.O.M. With Manufacturers/Vendors): NEXUS Telocation to provide by February 1, 2002
6.	AMS to provide summary of insurance coverage and amounts in accordance with Section 18.4 within one (1) week from the date this Agreement is signed.
7.	NEXUS to provide AMS with the Letter of Instructions to the Escrow Agent within one (1) week from the date this Agreement is signed.

APPENDIX 15

NEXUSDATA LTD.

Specific Terms and Conditions

EX-99

Confidential

December 24, 2002

To
Nexus Telocation Systems Ltd.

Offer to Acquire NexusData Inc.

The purpose of this agreement is to outline the principals of an agreement between Nexus Telocation Systems Ltd. (“Nexus”) and STORM International represented by Shlomo Nimrodi or any new entity, which shall be established for this purpose (the “Investor”) to acquire NexusData Inc. (“ND” or the “Company”). 

1.	After working closely with the Company in the last three months the Investor is interested in acquiring the Company and undertakes to take the following immediate actions:
		a.	To invest the necessary funds, at least US$75,000 in order to enable the Company sufficient time to secure the deal with its first client.
		b.	To reach an agreement with Bank Hapoalim B.M. (the “Bank”) to receive additional credit line.
		c.	To reach an agreement with the Bank regarding the outstanding debt of the Company. The intent is to convert as much debt as possible to a long-term loan with sufficient grace period. In addition the Bank will increase the credit facility at an agreed upon amount.
		d.	To keep the minimum number of the employees required to secure the first customer deal within the next three to four months and reach an agreement with all the employees on spreading any outstanding liabilities (over due compensation and severance payment) over several months.
		e.	To work closely with all the other debt holders of ND in order to reach acceptable arrangements regarding ND liabilities.
2.	The Investor is offering to acquire 100% of the outstanding share capital of ND as well as the outstanding debt of ND to Nexus in an amount of approximately $10 million, for the consideration of US$1 (one US dollar).

Confidential

3.	The Investor acquires ND as is and waives any claim and/or demand against Nexus, its officers and directors.
4.	ND will commit to pay Nexus a total amount of up to US$1.0 million in four equal quarterly payments in an earn out that will be paid after ND would have had 4 consecutive cash positive quarters and net assets of at least US$10 million.
5.	A bridge loan to ND provided by certain shareholders of Nexus Telocation Systems Ltd. (the “Lenders”) in an amount of approximately US$500,000 (the “Loan”) plus the accrued interest shall be converted into shares of the Company, in the Next Round of Financing, as defined herein, under such terms as more specifically set forth in an agreement among the Company and the Lenders.
	“Next Round of Financing” shall mean an investment in the equity of the Company of at least US$2 million.
	In addition, it is agreed between the Bank and the Lenders that in the event of repayment of any debt to the Bank the Lenders will also be repaid at a ratio of 3:1 between the Bank and the Lenders.
6.	This agreement is binding subject to the Investor reaching arrangements with (i) the Bank; and (ii) the employees of the Company, and both parties undertake to sign any additional documents required in order to finalize successfully this transaction.

Nexus Telocation Systems Ltd. STORM International

EX-99

To: March 12, 2003

AMS Electronics Ltd.
41 Ha’taasia Street
Arad

Dear Sirs,

In connection with the Manufacturing and Purchase Agreement entered into between AMS Electronics Ltd. (“AMS”), Nexus Telocation Systems Ltd. (“Nexus Telocation”) and Nexus Data Inc. and Nexus Data (1993) Ltd. (collectively, “Nexus Data”), dated January 15, 2002 (the “Original Manufacturing Agreement”; capitalized terms used herein and not specifically otherwise defined shall have the meaning ascribed to them in the Original Manufacturing Agreement); and , and further to our correspondence to this matter we would like to put in writing our understanding regarding the changes and amendments to the Original Manufacturing Agreement.

WHEREAS,	Nexus Telocation and AMS signed a letter agreement amending the Original Manufacturing Agreement on January 27, 2003 (the “Prior Amendment”); and
WHEREAS	Nexus Telocation and AMS agree to terminate the Prior Amendment and it shall be replaced in its entirety by this letter agreement; and
WHEREAS	Nexus Telocation has sold all its holdings in Nexus Data on December 24, 2002, to third parties, subject to certain conditions, and since such sale has already been completed, Nexus Data is no longer a subsidiary of Nexus Telocation; and
WHEREAS	AMS reached separate agreements with Nexus Telocation and Nexus Data in such a way that the Original Manufacturing Agreement shall continue to apply with each of Nexus Telocation and Nexus Data separately such that each of Nexus Telocation and Nexus Data shall only be responsible for its liabilities; and
WHEREAS	Nexus Telocation and AMS reached an agreement regarding certain changes to the terms of the Original Manufacturing Agreement as herein detailed; and
WHEREAS	the parties wish to set forth their agreements with respect to the Original Manufacturing Agreement as it shall continue to apply to and between Nexus Telocation and AMS;

Now therefore, it is agreed to amend the terms of the Original Manufacturing Agreement between Nexus Telocation and AMS as follows:

1.

All reference to Nexus Data and its products and liabilities shall be deleted including all terms and conditions regarding Nexus Data and all such terms and conditions shall be deemed to apply and be binding on Nexus Data, subject to any amendment reached in a separate agreement between Nexus Data and AMS. Appendix 9 and all reference thereto and the term “Related Manufacturing Agreement” shall be deleted from the Original Manufacturing Agreement.

2.

The preamble to the Original Manufacturing Agreement is hereby cancelled and is null and void.

3.	Section 2 in to the Original Manufacturing Agreement is cancelled and is null and void in its entirety.  Instead of Section 2, Nexus Telocation commits to purchase from AMS during a four (4)-year period commencing on March 12, 2003 (the “Manufacturing Term”) Products for the lower of: (i) at least $2.5 million per year and for at least $10 million in the aggregate over the entire Manufacturing Term; or (ii) the actual amount purchased by Nexus Telocation, provided, however, that Nexus Telocation exclusively purchased the Products listed in Appendix 1 to the Original Manufacturing Agreement from AMS (subject to certain reservations provided below) and any other RMU products, including any developments and derivatives thereof.
	If a customer of Nexus Telocation shall demand, in writing in its agreement with Nexus Telocation, that Products required by it be manufactured abroad, then Nexus Telocation will grant AMS the right of first refusal to provide the manufacturing in those countries through AMS manufacturing agreements with manufacturers in those countries.  In the event that AMS elects not to exercise the aforementioned right of first refusal, Nexus Telocation shall be entitled to manufacture such Products through any third party at its election and the same shall not be regarded as a violation of the “exclusivity” of AMS under Subsection (ii) of the preceding paragraph.
4.	Notwithstanding anything to the contrary, the parties agree and acknowledge that as the exclusivity granted under the Subsection (ii) of the first paragraph of Section 3 above is based on the competitiveness of the prices offered, therefore, in the event Nexus Telocation shall receive an offer from another manufacturer (a “Third Party Manufacturer”) to manufacture all Products being manufactured by AMS at a price per unit lower by at least 6% (six percent) than the offered prices of AMS under the Original Manufacturing Agreement as amended hereunder, then Nexus Telocation shall offer AMS to manufacture and sell the Products to Nexus Telocation at such lower price and under all other terms as shall be agreed upon with such Third Party Manufacturer (the “Proposed Terms”), subject to such reasonable adjustments which may required in order to apply the Proposed Terms to AMS rather than to the Third Party Manufacturer, which required adjustments shall be negotiated in good faith discussions between Nexus Telocation and AMS; and if AMS elects not to accept such an offer, then Nexus Telocation will be entitled to enter into an agreement for the manufacture of the Products by such Third Party Manufacturer at the Proposed Terms, and the same shall not be regarded as violation of the “exclusivity” under Subsection (ii) of the first paragraph of Section 3 above.  In the event that AMS elects not to accept the offer to manufacture the Products under the Proposed Terms this Agreement shall be terminated in accordance with the amended Section 14.1(iii) to the Original Manufacturing Agreement attached hereto as Exhibit A. It is hereby clarified that Nexus Telocation is not entitled to approach AMS with competitive prices during the first two years of the Manufacturing Term and thereafter no more than once every nine months.
5.	Section 8.2 to the Original Manufacturing Agreement shall be amended such that the last two sentences shall be deleted commencing with “In addition to the foregoing…” until the end of the paragraph.
6.	Section 14 to the Original Manufacturing Agreement shall be deleted and instead it shall be replaced with Section 14 detailed in Exhibit A hereto.
7.	Section 18.3 to the Original Manufacturing Agreement shall be amended such that the last sentence thereof shall read as follows: “Neither party’s liability for direct damages under this Agreement (whether in contract or tort) shall exceed $900,000, if at all.
8.	Sections 18.13 and 18.15 and Appendix 14 to the Original Manufacturing Agreement are hereby cancelled and is null and void in its entirety.
9.	Notwithstanding anything in this Agreement to the contrary, AMS and Nexus Telocation acknowledge that Nexus Telocation is still responsible towards AMS for the debts and liabilities accrued to date under the terms of the Original Manufacturing Agreement regarding Nexus Telocation payments, which shall be repaid and settled by Nexus Telocation and AMS by April 1st, 2003 (“Current Liability”).

- 2 -

10.	The parties agree that the table of Permissible Percentages of Change in Section 3(e) of Appendix 8 to the Original Manufacturing Agreement is hereby replaced by the table attached hereto as Exhibit B and shall apply only as of January 27, 2003.
11.	Each party declares that, other than the payment of the Current Liability under Section 8 above, it hereby irrevocably waives any and all claims, demands and causes of action (“Claims”) it has or may have against the other party and undertakes not to make any Claim based on the Original Manufacturing Agreement related to the period prior to this date. AMS confirms that Nexus Telocation shall not be liable for any liabilities, obligations or undertakings of Nexus Data, and that in no event shall a Claim be made by AMS against Nexus Telocation relating to Nexus Data’s liabilities, obligations or undertakings.
12.	All other terms and conditions shall remain without change except for those changes required to give effect to the changes above detailed and the deletion of Nexus Data from the Original Manufacturing Agreement and except for the provisions of the following Sections of the Original Manufacturing Agreement which shall be deleted and amended as specified above.

Sincerely,

Nexus Telocation Systems Ltd.

Yaron Sheinman - Chairman of the Board

Shlomo Sadovsky - CEO

The undersigned, AMS Electronics Ltd., hereby agrees to the above detailed changes to the Original Manufacturing Agreement.

AMS Electronics Ltd.

By:

Title:

By:

Title:

- 3 -

Exhibit A

14.
14.1           (i)          Termination with Cause. This Agreement may be terminated, by written notice, by either party upon the occurrence of any one or more of the following events: (a) failure by either party to perform any of its material obligations (including re-occurring late deliveries of the Products (i.e., at least 2 consecutive delays in a given quarter and more than four delays a year) resulting from substantial financial difficulties of AMS) under this Agreement and to cure such failure within thirty (30) calendar days after receipt of written notice describing the failure in sufficient detail, or if the failure cannot be completely cured within thirty (30) calendar days, failure to make substantial progress towards a cure within the thirty (30) calendar day period; or immediately upon a material breach of Section 16.1 (Confidentiality); (b) entering into or filing of a petition, arrangement or proceeding seeking: an order for relief under the bankruptcy laws of the State of Israel or similar laws of any other jurisdiction; a receivership for any of its assets; a composition with or assignment for the benefit of its creditors; a readjustment or debt; its dissolution or liquidation all of which unless cancelled or removed within thirty (30) calendar days; or in the event that the accountants of AMS shall opine in the financial statements of AMS that there is substantial doubt that AMS shall be able to continue its operations.

(ii)             Termination without cause.  This Agreement may be terminated, by written notice, by either party without cause upon six (6) months prior written notice to the terminated party, provided however, that, other than for a termination for cause under Section 14.1(i) above, Nexus Telocation may so terminate this Agreement only as of after the end of the Manufacturing Term.

(iii)            Effect of Termination.  Upon termination of this Agreement:

(a)	In the event of: (1) termination by Nexus Telocation under Section 14.1(i) or (2) termination by AMS under Section 14.1(ii), AMS will, to the extent and at times requested and specified by Nexus Telocation, stop all work on outstanding Purchase Orders, and take reasonable actions to incur no further direct costs.  In the above referred to events referred to above in this sub-clause (a), Nexus Telocation will have the option to request that AMS complete work in process pursuant to any Purchase Orders open on the date of termination (in the event of termination without cause by Nexus the parties will assure that all work shall be performed prior to the expiration of the prior written notice period, provided that no Purchase Order shall be submitted with a delivery date later than the end of the notice period, unless specifically so agreed by AMS) and, in such case, AMS shall complete such work-in-process; for remaining work-in-process not to be completed as per Nexus Telocation stop work order, Nexus Telocation will pay a mutually agreed upon reasonable pro rata percentage of the finished Product’s purchase price;
(b)	Nexus Telocation will pay AMS the price for all Products Delivered to Nexus Telocation as of the termination date, and for all additional deliverables to be provided by AMS if so required by Nexus Telocation under sub-clause (a) above;
(c)	Each Party will return to the other, freight collect, all materials that contain the other’s Confidential Information, including all manufacturing files of Nexus Telocation and all copies thereof and all documents or things containing any portion of any Confidential Information, or if the other Party gives written instructions to do so, destroy all such materials and copies thereof and all documents or things containing any portion of any Confidential Information, and provide the other a written certificate of destruction within thirty (30) days after such destruction; and
(d)	AMS shall use no less than commercially reasonable efforts to cancel without charge any outstanding purchase order with third party suppliers relating to this Agreement, unless, in the events referred to in sub-clause (a) above, otherwise requested by Nexus Telocation.

- 4 -

(e) Except as otherwise provided in this Agreement, neither Party shall be liable to the other Party hereto for indirect, incidental or consequential damages, losses, indemnity, compensation or expenses of any kind or character whatsoever on account of the expiration or termination of this Agreement in accordance with the above terms of this section 14.1, whether such damages, losses, costs or expenses arise from loss of prospective sales, or expenses incurred or investments made in connection with the establishment, development or maintenance of a Party’s business, creation of goodwill, markets and customers for the Products or any other reason whatsoever.  Subject to survival, notwithstanding anything to the contrary contained herein, expiration or termination of the Agreement shall not affect any claim, demand, liability or right of a Party arising pursuant to this Agreement prior to the expiration or termination hereof.

14.2           Notwithstanding the above, this Agreement shall terminate upon the earlier of (i) the end of the Manufacturing Term; or (ii) the purchasing from AMS of Products for the amount of at least $10 million.

- 5 -

Exhibit B

Type of Change	Days	% of Permissible Adjustment
Decrease    or	0-30 Days	0%
Cancellation	30-60 Days	25%
	60-90 Days	50%
	90-120 Days	80%
	Over 120 Days	Unlimited
Rescheduling	0-30 days past the scheduled Delivery date for the applicable Purchase Order.	Unlimited
Increase	0-30	0%
	30-60	30%
	60-90	60%
	Over 90 Days	Unlimited

*                “Days” means the number of calendar days between NEXUS’s order adjustment, plus 10 days, and the Delivery date, as amended in the PO.

6

EX-99

SHARE PURCHASE AGREEMENT

This Share Purchase Agreement (this “Agreement”) is made and entered into effective as of March 13, 2003 by and between Nexus Telocation Systems Ltd. (hereinafter “Nexus”), a company organized under the laws of the State of Israel, with offices at 1 Korazin Street, Givatayim, Israel, and each of the persons and entities whose names and addresses are set forth in Exhibit A attached hereto and who are signatories hereto (each of them, a “Purchaser”, and, severally and not jointly, the “Purchasers”). Additional purchasers may join this Share Purchase Agreement during a period of six (6) months following the Closing (as defined below) subject to the approval of the Lead Purchaser (as defined below) by executing a joinder letter in the form attached hereto as Exhibit B (each an “Additional Purchaser” and collectively, the “Additional Purchasers”) and upon execution thereof each Additional Purchaser shall be deemed a “Purchaser” hereunder; and the names and details of the Additional Purchasers, as well as the number of Shares purchased by them, shall be added to Exhibit A.

W I T N E S S E T H

WHEREAS   The Purchasers desire to purchase shares in Nexus and Nexus wishes to sell and issue shares to the Purchasers on the terms as set forth herein.

NOW THEREFORE, in consideration of the covenants and conditions hereinafter set forth, the parties hereto agree as follows:

1.	Agreement to Purchase and Sell
	1.1.	Shares.  Subject to and in accordance with the terms and conditions of this Agreement, at the Closing Nexus shall sell and issue, and the Purchaser shall purchase such number of Ordinary Shares of Nexus, nominal value NIS 0.03 each (the “Shares”) to be allocated between the Purchasers as set opposite their names in Exhibit A, at a price per share of 4.4 US cents (US$0.044) (the “Price Per Share”), and a total consideration as set forth in Exhibit A (the “Purchase Price”).
	1.2.	Warrants. Subject to and in accordance with the terms and conditions of this Agreement, at the Closing Nexus shall issue to the Purchasers warrants for the purchase of an aggregate number Ordinary Shares as set forth in Exhibit A, as may be calculated by multiplying the Shares by 0.70, so as that each Purchaser shall receive a warrant representing (when duly executed) seven (7) Ordinary Shares of Nexus, for each ten (10) shares acquired by such Purchaser under this Agreement as set forth opposite such Purchaser’s name in Exhibit A, at an exercise price per share of 4.4 US cents (US$0.044) (subject to recapitalizations, adjustments and the like) (the “Warrants”). The Warrants shall be exercisable in cash or through cashless exercise at the election of its holder for a period which is the earlier of (i) a Merger and Acquisition transaction, as defined in the Warrants, or (ii) three years from the date of Closing and shall substantially be in the form attached hereto as Exhibit 1.2.
	1.3.	Certain of the Purchasers may, in their discretion, extend a convertible bridge loan to the Company pursuant to such terms and conditions as shall be agreed upon between the Company and such Purchasers. The entire amount extended as a loan will be applied towards an investment by such Purchasers as part of their respective portion of the Purchase Price at a price per Share equal to the Price Per Share; and following such application and the issuance to such Purchasers of the Shares to be issued to it hereunder in respect of said loan, the loan shall be deemed fully repaid and discharged.

2.	Closing
	2.1.	Closing Date.  The Closing of the transaction contemplated hereby (the “Closing”) shall take place on  ______, 2003, at the offices of Yigal Arnon & Co., 1 Azrieli Center, Round Building, 46th Floor, Tel Aviv, Israel, or such other time and place as shall be agreed upon between the parties.
	2.2.	Transfer of Funds and Issuance of Certificate.  At the Closing, which shall take place upon the completion of all requirements and conditions for Closing setout in this Agreement (no transaction shall be deemed to have been completed or any document delivered until all such transactions have been completed and all required documents delivered), the following actions will take place, all of which shall be deemed to have occurred simultaneously:
		(i)	the Purchase Price shall be transferred to Nexus, by wire transfer into the account of Nexus, Bank Ha’Poalim, Branch 615, Account # 543210;
		(ii)	Nexus shall deliver to the Purchasers copies of the resolutions of the Board of Directors and shareholders meeting attached hereto as Exhibit 2.2(ii), approving (A) the execution and performance of this Agreement including the issuance of Shares and the Warrants, and (B) the execution and performance of the Management Agreement (as defined below).
		(iii)	Nexus shall deliver to the Purchasers a copy of the approvals of the transactions contemplated hereby from: (i) the Office of the Chief Scientist of the Ministry of Industry and Trade of the State of Israel (the “OCS”); and (ii) the Investment Center; and (iii) the Anti-Trust Controller; and (iv) any other approval that may be required. Copies of said approvals shall be attached hereto as Exhibit 2.2(iii).  In addition, Nexus shall deliver to the Purchasers the approval of the OCS regarding the sale of Nexus Data Inc. resulting in the change of ownership of Nexus Data (1993) Ltd.
		(iv)	Nexus shall deliver to each Purchaser a validly executed Warrant certificate in the form attached hereto as Exhibit 1.2.
		(v)	Nexus shall have recorded the issuance of the Shares in the name of the Purchasers on the records of Nexus as evidenced in Exhibit 2.2(v) attached hereto.
		(vi)	a certificate from the chief executive officer of Nexus in the form attached hereto as Exhibit 2.2(vi), certifying that the conditions for Closing specified in this Agreement have been fulfilled and certifying as to the matters set forth in Section 3.
		(vii)	Nexus and the Lead Purchaser shall have entered into a Management Services Agreement in the form attached hereto as Exhibit 2.2(vii) (the “Management Agreement”), pursuant to which the Lead Purchaser shall provide management services to Nexus in consideration for an annual management fee of one hundred eighty United States dollars (US$180,000), and the Management Agreement have been approved by the general meeting of the shareholders of Nexus.

- - 2 - -

		(viii)	an opinion of Yigal Arnon & Co. Law Offices, counsel to Nexus, in the form attached hereto as Exhibit 2.2(viii) addressed to the Purchasers and dated as of the date of Closing.
		(ix)	Nexus shall deliver written consents of each shareholder of Nexus who has pre-emptive rights with respect to issuance of securities in Nexus, by which such shareholders agree to the termination of their pre-emptive rights in the form attached as Exhibit 2.2(ix)A; and a confirmation of Nexus in the form attached hereto as Exhibit 2.2(ix)B that all previously granted pre-emptive rights in Nexus have been terminated.
		(x)	Nexus shall deliver to DBSI Investments Ltd. (the “Lead Purchaser”) a proxy in the form attached hereto as Exhibit 2.2(x) executed by A.M.S. Electronics Ltd. (hereinafter “AMS”).
		(xi)	Nexus shall deliver a written agreement with Bank Hapoalim in the form attached hereto as Exhibit 2.2(xi).
	2.3.	Nexus hereby agrees, undertakes and covenants that it shall promptly after the Closing, but in no event later than within 30 days thereafter, (i) issue validly executed share certificates covering the Ordinary Shares issued in the name of the Purchasers and deliver it to the Purchasers; and (ii) Nexus shall pay the stamp duty required, and any other taxes, expenses and fees on the issuance of the Shares, and shall notify the Israeli Registrar of Companies of the issuance of the Shares promptly after the Closing and shall deliver a copy of such notice duly stamped by the tax authorities and by the Israeli Registrar of Companies to the counsel of the Lead Purchaser.
3.	Representations and Warranties of Nexus.
	Nexus hereby represents and warrants to the Purchasers that, as of the date hereof and as of date of Closing, the following representations and warranties are true and accurate in all respects, and acknowledges that the Purchasers are entering into this Agreement in reliance thereon:
	3.1.	Organization; Power; etc.
		(a)	Nexus is a public company duly organized and validly existing under the laws of the State of Israel. Tracsat S.A., which is a Subsidiary (as defined below) of Nexus, is a company duly organized and validly existing under the laws of the State of Argentina (“Tracsat”). Attached hereto in Exhibit 3.1(a) are true and correct copies of the Certificate of Incorporation of Nexus and Tracsat and their Articles of Association and other organizational documents as in effect on the date hereof (the “Corporate Documents”).
		(b)	Nexus has all requisite power and authority to execute, deliver and perform this Agreement, to issue to the Purchasers the Shares, the Warrants and the Ordinary Shares upon exercise of the Warrants and to consummate the transactions contemplated hereby, subject to the approval of this Agreement and the transactions contemplated hereby by the shareholders meeting of Nexus and any other approvals as detailed in this Agreement.  The execution, delivery and performance by Nexus of this Agreement and consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate actions of Nexus.  Following the execution of this Agreement, this Agreement will constitute a valid and binding obligation of Nexus, enforceable in accordance with its terms.

- - 3- -

	(c)	Nexus and the Subsidiaries have all requisite corporate power and authority to carry on their business as now conducted and as proposed to be conducted; and  to own and operate its property and assets, to perform all its obligations under all agreements and instruments to which it is a party or by which they are bound.
	(d)	Nexus and the Subsidiaries are duly qualified to transact business in each jurisdiction in which the failure so to qualify is reasonably likely to have a material adverse effect on their assets, financial condition, operating results, prospects or business of Nexus or its Subsidiary as presently conducted and as proposed to be conducted.
3.2.	Capitalization.  At the Closing the authorized capitalization of Nexus shall consist of 3,300,000 New Israeli Shekel divided into 110,000,000 Ordinary Shares, par value NIS 0.03 each, of which 27,725,432 Ordinary Shares are issued and outstanding on the date hereof, (including 16,435,500 Ordinary Shares to be granted at the Closing as a result of the conversion of a convertible debenture dated January 15, 2002 to AMS). All of the outstanding Ordinary Shares have been duly and validly authorized and issued, and are fully paid and non-assessable, with no personal liability attaching to the ownership thereof. Other than the outstanding options of Nexus’ share capital issued, which are set forth in Exhibit 3.2A attached hereto, there are no outstanding or enforceable subscriptions, options, warrants, calls, rights (including preemptive rights), convertible securities, commitments, or any other agreements of any character for the purchase of or acquisition from Nexus of any shares of its capital stock or any security convertible into, or exchangeable for, or evidencing the right to subscribe for, any of its shares or securities. The rights, privileges and obligations of all outstanding shares are as set forth in the Corporate Documents and the relevant share purchase agreements as in effect at the Closing listed in Exhibit 3.2A attached hereto, and there are no additional or other rights, privileges or obligations applying to such shares. At the Closing, the outstanding share capital of Tracsat is as set forth in Exhibit 3.2B attached hereto, and other that as set forth therein, there are no outstanding or enforceable subscriptions, options, warrants, calls, rights (including preemptive rights), convertible securities, commitments, or any other agreements of any character for the purchase of or acquisition from Tracsat of any shares of its capital stock or any security convertible into, or exchangeable for, or evidencing the right to subscribe for, any of its shares or securities.
3.3.	Voting Rights; Directors.Nexus is not a party or subject to any agreement, obligation, commitment or understanding, and, to the best of the Nexus’ knowledge, there is no agreement, obligation, commitment or understanding between any persons and/or entities, or among its shareholders, which affects or relates to the voting or giving of written consents with respect to any security or by which any individual or individuals may be elected to the Board of Directors of Nexus or its Subsidiaries.

- - 4- -

3.4.	Subsidiaries.  The subsidiaries of Nexus are listed in Exhibit 3.4 attached hereto (the “Subsidiaries”). Except as detailed in Exhibit 3.4, there are no other share capital, preemptive rights, convertible securities, outstanding warrants, options or other rights to subscribe for, purchase or acquire from any Subsidiaries or from Nexus, any share capital of such Subsidiaries and there are no contracts or binding commitments providing for the issuance of, or the granting of rights to acquire, any share capital of any Subsidiaries. All issued and outstanding share capital of the Subsidiaries was duly authorized, and is validly issued and outstanding and fully paid and nonassessable.
3.5.	Patents and other Intellectual Property.
	3.5.1.	Registered Intellectual Property.  Exhibit 3.5.1 attached hereto sets forth a true, complete and accurate list of the patents, registered copyrights, mask design rights, URL’s and trademarks, (all including pending or granted applications) which are owned by Nexus or to which Nexus has a proprietary interest (the “Registered Intellectual Property”) specifying status and jurisdiction of each filing. Nexus has complied with all the requirements of, and have filed all documentation required and/or necessary in connection with the registration or perfection of the Registered Intellectual Property in the respective jurisdictions in which Nexus has sought intellectual property protection. Nexus did not pay all required fees in connection with the Registered Intellectual Property as further detailed in Exhibit 3.5.1.  Except as set forth in Exhibit 3.5.1, all the Registered Intellectual Property is fully valid and in effect and there is no prior registration or any other possible claim or challenge, which renders, or may render, any of the Registered Intellectual Property applications and/or related documentation invalid. Furthermore, to Nexus’ best knowledge, Nexus is entitled to be granted all intellectual property rights with respect to any and all of the Registered Intellectual Property and it is not aware of any reason whatsoever that any such Registered Intellectual Property will not be registered for the sole and exclusive ownership of Nexus. With respect to the Registered Intellectual Property, which rights have not yet been granted, if and when granted, shall be fully owned by Nexus, free and clear of all liens, claims and restrictions, third party claims of ownership or rights and/or any kind of payment undertakings, except for a floating charge of the first degree granted to Bank Hapoalim B.M, and Nexus shall have the exclusive right to freely use such Registered Intellectual Property.

- - 5 - -

3.5.2.

Rights to Intellectual Property.  Except as set forth in Exhibit 3.5.2 attached hereto and other than with respect to off-the-shelf software products, Nexus fully owns and/or has the good, valid, unexpired, full right to use, free and clear of all liens, claims, restrictions and any kind of payment liability or undertaking, all Registered Intellectual Property, patents, copyrights, trademarks, service marks, trade names, mask design rights, URL’s, and applications, licenses and/or rights with respect to the foregoing, and all trade secrets and know-how, technology, moral rights, including but not limited, to inventions, designs, processes, works of authorship, proprietary rights and process, computer programs and technical data and information and other intangible assets (collectively herein “Intellectual Property”) used and sufficient for use in the conduct of their business as currently conducted and as proposed to be conducted. Without derogating from the aforementioned the use of the Intellectual Property by Nexus and/or the Subsidiaries has not been in conflict with, infringed upon or violated, nor does it, to Nexus’ best knowledge conflict with, infringe upon or violate any right, lien or claim of others including without limitation all of the Nexus’ past and present employees.

3.5.3.

Non-Infringement/Conflicting Engagement.  Neither Nexus nor the Subsidiaries nor to the best knowledge of Nexus any of their employees, officers, directors have received any communications alleging that they have violated or, by conducting the business of Nexus as currently conducted and as proposed to be conducted, are violating or would violate the intellectual property rights or other proprietary rights of any other person or entity. Neither Nexus nor the Subsidiaries are obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of its best efforts to promote the interests of Nexus and/or the Subsidiaries or that would conflict with Nexus’ business or the business of the Subsidiaries as conducted and as proposed to be conducted. None of Nexus’ or the Subsidiaries’ employees, officers, directors or consultants is obligated under any contract, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use by any such person of his/her best efforts to promote the interests of Nexus or the Subsidiaries.  Neither the execution nor delivery of this Agreement or the Exhibits hereto, nor the carrying on of Nexus’ business by its employees, officers and/or directors, nor the conduct of Nexus’ and the Subsidiaries’ business as conducted and as proposed to be conducted, will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any covenant, or material agreement under which Nexus and/or the Subsidiaries are now obligated.

- - 6 - -

3.5.4.	Treatment of Intellectual Property by Employees.  Any and all Intellectual Property of any kind that has been developed, or is currently being developed by any employee of Nexus during or in connection with his/her employment by Nexus, or similar form of engagement, has been assigned and is solely the property of Nexus, nor is such Intellectual Property the prior property of any employee or any of such employee’s prior employers and/or academic or research institution. It is not, and will not become, necessary to utilize any inventions and/or other Intellectual Property of any of the Nexus’ employees, consultants, officers, and/or directors made prior to or during their employment and/or engagement by Nexus, other than those that have been assigned to Nexus pursuant to the employment agreement signed by such employee including provisions governing confidential information, assignment of Intellectual Property and non-competition.
3.5.5.	Treatment of Intellectual Property of Third Parties.  To the extent that any part of the Intellectual Property has been developed outside Nexus, whether by consultants, sub-contractors, contract manufacturers, research arrangements, or similar form of engagements with other third parties, or whether on any third party’s property, all rights in such Intellectual Property, needed for its use by Nexus or its Subsidiaries in the conduct of their business as now conducted and as is proposed to be conducted have been lawfully assigned to Nexus or the Subsidiaries, as the case may be. Neither Nexus nor any of its Subsidiaries is a party to any licenses and/or royalty agreements excluding off-the-shelf software and hardware products other than as disclosed in Exhibit 3.5.5 attached hereto.
3.5.6.	Conflicting Rights to Intellectual Property.  Except as disclosed in Exhibit 3.5.6 attached hereto, at no time during the conception of or reduction of any of the Intellectual Property to practice was Nexus operating under any grants from any governmental entity or agency, performing research sponsored by any governmental entity or agency or private source, or subject to any obligation with any third party that could adversely affect Nexus’ rights in such Intellectual Property. Except as disclosed in Exhibit 3.5.6 attached hereto, at no time during the conception of or reduction of any of the Intellectual Property to practice was any inventor or any developer or other contributor to such Intellectual Property developed by or for Nexus, operating under any grants from any governmental entity or agency, performing research sponsored by any governmental entity or agency or private source, or subject to any employment agreement, or invention assignment or nondisclosure agreement, or other obligation with any third party that could adversely affect Nexus’ rights in such Intellectual Property.

- - 7 - -

	3.5.7.	Protection of Intellectual Property.  Nexus has taken security measures to protect the secrecy and confidentiality of all the Intellectual Property, which measures are reasonable and customary in the industry in which they respectively operate. It is the practice of Nexus to contract employees and/or consultants by written agreements which include provisions regarding non-disclosure of confidential information, non-solicitation and non-competition with Nexus, and under which said employees and/or consultants assign to Nexus all rights in the Intellectual Property developed in the course of their employment by, or engagement with Nexus
	3.5.8.	Subsidiaries Intellectual Property.  None of the Subsidiaries has any right to any Intellectual Property.
3.6.	Title of Shares.   Each of the Shares of Nexus which will be issued to the Purchasers according to this Agreement (including Ordinary Shares issuable upon the exercise of the Warrants), when issued as provided for herein or in accordance to the Warrants, will be duly authorized, validly issued, fully paid, and non assessable, and free and clear of liens, security interests, pledges, charges, claims, encumbrances, pre-emptive rights, or any other third party rights of any kind, and such Shares will have the rights, preferences, privileges set forth in this Agreement, and shall be subject only to the restrictions and obligations set forth in this Agreement or in the Articles of Association of Nexus, there being no other restrictions or obligations applying to the Purchasers or their holdings in Nexus; shall be issued in full compliance with the requirements of the US Securities Act of 1933, as amended (the “Securities Act”) and the Exchange Act (as defined below) and any applicable state securities law and the exemptions from registration therefrom, and otherwise with no violation of any applicable law.
3.7.	Due Authorization; No Conflicts.  The execution and delivery by Nexus of this Agreement and each other certificate or document executed or to be executed by it, the performance by Nexus of all its obligations hereunder and the issuance and delivery of the Shares, the Warrants and Ordinary Shares upon exercise of the Warrants by Nexus pursuant to this Agreement (A) shall be, prior to the Closing, duly authorized by all necessary corporate proceedings on part of Nexus (and no other corporate proceedings or actions on the part of Nexus or its board of directors or shareholders are necessary thereof), (B) subject to the approval of this Agreement and consummation of the transactions contemplated hereby by the shareholders of Nexus, do not require any approval or consent which has not been obtained, except for the approval of the OCS and the Investment Center as well as the approval of the Anti-Trust Controller which shall be received by the Closing, (C) do not and will not conflict with, result in any violation of, or constitute any default under, any provision of the Memorandum and Articles of Association of Nexus or other governing documents of Nexus, any provision of any instrument, agreement or indenture of Nexus or any of its assets, properties or operations and will not result in or require the creation or imposition of any security interest on any of the properties of Nexus or any Subsidiary pursuant to any instrument or result in the acceleration of any indebtedness of Nexus or any of its Subsidiaries, (D) do not require approvals, permits or consents of, or filing with any state or local governmental body, official authority, or any other third party, under any applicable law or instrument in connection with the execution and delivery of this Agreement, or the consummation of the transactions contemplated hereby, nor shall it contravene, conflict with, or result in a violation of any of the existing terms or requirements of, or give any governmental body the right to revoke, withdraw, suspend, cancel, terminate or modify, any permit, authorization, license or consent that is held by Nexus or by the Subsidiaries, or that otherwise relates to the business of, or any of the assets owned or used by them, (E) violate any law, rule, administrative regulation, order or decree of any court, or any governmental agency or body having jurisdiction over Nexus or the Subsidiaries or applicable to them or to any of Nexus’ or the Subsidiaries’ properties, and (F) will not give to others any rights, including rights of termination, cancellation or acceleration, in or with respect to any agreement, contract or commitment referred to this Agreement, or to any of the properties of Nexus or of the Subsidiaries, and (G) will not contravene, conflict with, or result in a violation of, or give any governmental body or other person or entity the right to challenge any of the transactions contemplated under this Agreement or to exercise any remedy or obtain any relief under, any existing applicable laws or any order to which Nexus, the Subsidiaries or any of their assets may be subject.

- - 8 - -

3.8.	Validity, Etc. This Agreement, including all Exhibits attached hereto, constitutes on the due execution and delivery thereof, the legal, valid and binding obligations of Nexus enforceable in accordance with their respective terms.
3.9.	Financial Statements; Books and Records.
	3.9.1.	The audited consolidated financial statements and related schedules and notes included in the documents files by Nexus with the U.S. Securities and Exchange Commission (the “SEC”) comply in all respects with the requirements of the Securities Exchange Act of 1934 (the “Exchange Act”), were prepared in accordance with Israeli GAAP consistently applied throughout the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial condition, results of operations, cash flows and changes in shareholders’ equity of Nexus and its consolidated subsidiaries at the dates and for the periods presented.  The audited consolidated financial statements for the year ending December 31, 2001 (the “2001 Financial Statements”) and the consolidated financial statements for the nine months ending September 30, 2002 (the “Quarterly Financials”) attached hereto as Exhibit 3.9.1 fairly present the consolidated financial condition, results of operations, and changes in shareholders’ equity of Nexus and its subsidiaries at the dates and for the periods to which they relate, have been prepared in accordance with Israeli GAAP applied on a consistent basis except as otherwise stated therein.

- - 9 - -

	3.9.2.	Except as set forth in Exhibit 3.9.2 attached hereto, neither Nexus nor any of the Subsidiaries is a guarantor of any debt, non performance or obligation of another, nor has any of them given any indemnification, loan, security or otherwise agreed to become liable for any obligation of any other person or entity, and no other person or entity has given any guarantee of or security for any obligation of Nexus or any of the Subsidiaries, as the case may be. Neither Nexus nor any Subsidiary have liability unrelated to the business or operations conducted by them.
	3.9.3.	The books of account, minute books, share record books, and other records of each of Nexus and the Subsidiaries are complete and correct.
3.10.	Filing and Reports.  As of  the date of Closing, all documents, reports and/or press releases which Nexus is required to file or submit under any applicable securities and/or stock exchange law, rule or regulation, as amended or supplemented, if applicable (including the Exchange Act and the Securities Act)   have been filed  in a duly manner and have (a) complied in all material respects with the applicable requirements of any such law, rule or regulation, and (b) did not contain any untrue statements of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Nexus has delivered or made available to the Purchasers true and complete copies of: (i) its annual report on Form 20-F for the 2001 fiscal year, and (ii) any other reports filed under cover of Form 6-K filed with the SEC since January 1, 2002. A list of all such documents is attached hereto in Exhibit 3.10A. Nexus has delivered or made available to the Purchasers true and complete copies of all correspondence between the SEC and Nexus or its legal counsel, accountants or other advisors since January 1, 2002, if any. A list of all such correspondence is attached hereto in Exhibit 3.10B. Nexus has timely filed all forms, reports, statements and other documents required to be filed with the SEC since the date of its initial public offering.
3.11.	Absence of Certain Developments; Material Adverse Change.
	3.11.1.	Since the date of the Quarterly Financials, there have been material adverse change in the business or financial condition of Nexus, the material adverse changes are as set forth in Exhibit 3.11.1.  Since the date of the Quarterly Financials, there have been no material adverse change in the business, operations, properties, assets or financial condition of the Subsidiaries, except as set out in Exhibit 3.11.1.

- - 10 - -

	3.11.2.	Except as set out in Exhibit 3.11.2 attached hereto, since  September 30, 2002, (A) Nexus and its Subsidiaries have conducted their business in the ordinary course consistent with past practice and have not incurred any material liability, guarantee or obligation (indirect, direct or contingent), or entered into any material oral or written agreement or other transaction, that is not in the ordinary course of business or that could reasonably be expected to result in a material adverse change or effect to the assets, liabilities, financial condition or operating results of Nexus or its Subsidiaries and no dividend or distribution of any kind declared, paid or made by Nexus or any of the Subsidiaries; (B) Nexus and its Subsidiaries have not sustained any material loss, damage, distraction or interference  to their business or properties which is not in the ordinary course of business (whether or not covered by insurance); (C) neither Nexus nor any of its Subsidiaries has made (nor does it propose to make) (i) any material change in its accounting methods or practices or (ii) any material change in the depreciation or amortization policies or rates adopted by in, in either case, except as may be required by law or applicable accounting standards; and (D) there are no material agreements, judgments, orders, writs or decrees to which Nexus or the Subsidiaries are a party or by which Nexus or its Subsidiaries are bound; and (E) neither Nexus nor any Subsidiary have made any payment or increased any bonuses, salaries, or other compensation to any shareholder or, except in the ordinary course of business, director, officer, employee or consultant, or entered into any employment, severance, or similar agreement with any director, officer, employee or consultant; and (F) neither Nexus nor any Subsidiary have terminated, entered into, or received any notice of termination of any Material Agreement (as defined below) or other instrument; and  (G) any material change in the assets, liabilities, condition (financial or otherwise) or business of Nexus or the Subsidiaries from that reflected in the Quarterly Financials.
	3.11.3.	Except as set forth in the 2001 Financial Statements and the Quarterly Financials, neither Nexus nor the Subsidiaries have material liabilities or obligations of any type or nature whatsoever, whether absolute, accrued, or otherwise.
	3.11.4.	A list of all amounts due to suppliers, lenders or other creditors of Nexus or any of the Subsidiaries is attached hereto as Exhibit 3.11.4. Nexus and the Subsidiaries have not paid all amounts due to their respective suppliers, lenders or other creditors, as fully detailed in Exhibit 3.11.4 attached hereto.
3.12.	Litigation. Except as set out in Exhibit 3.12, there is no claim, action, suit, proceeding, arbitration or investigation pending or threatened against or affecting Nexus or any of its Subsidiaries or any of their respective properties, assets or operations, or with respect to which Nexus or any such Subsidiaries is responsible by way of indemnity or otherwise that questions the validity of this Agreement or that would individually, or in the aggregate with all other such claims, actions, suits, investigations or proceedings, reasonably be expected to have, a material adverse effect on Nexus or its Subsidiaries or the validity of this Agreement or on the ability of Nexus to perform its obligations under this Agreement and consummate the transactions contemplated hereby; and, to the best knowledge, information or belief of Nexus no such claims, actions, suits, proceedings or investigations are threatened or contemplated nor is there any basis for any of the aforementioned. Neither Nexus nor the Subsidiaries are a party to, or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality nor are there any pending or threatened action, suit, proceeding or investigation (or of any basis for same) against any of them by any government agency or instrumentality. There is no action, suit, proceeding or investigation by Nexus and/or by any of its Subsidiaries currently pending or that Nexus and/or that any of its Subsidiaries intends to initiate.

- - 11 - -

3.13.	Compliance with Other Instruments. Nexus or its Subsidiaries are not in violation or default of any provisions of their respective Memorandum or Articles of Association, or of any instrument, judgment, order, writ, decree or contract to which Nexus or its Subsidiaries are a party or by which they are bound or, of any provision of law applicable to Nexus or its Subsidiaries, which violation or default is reasonably likely to have a material adverse effect on Nexus or its Subsidiaries, as the case may be, or their financial condition. The execution, delivery and performance by Nexus of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and/or giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which is reasonably likely to result in the creation of any lien, charge or encumbrance upon any assets of Nexus or the Subsidiaries, suspension, revocation, impairment, forfeiture or non-renewal of any permit, license, authorization, or approval applicable to Nexus or the Subsidiaries, their business or operations or any of their assets or properties.
3.14.	Agreements; No Defaults.
	3.14.1.	Exhibit 3.14.1 contains true and complete copies  of all material agreements, contracts, leases,  and commitments to which Nexus or the Subsidiaries are a party or by which they are bound (or, if any of the same is oral - a summary thereof) (each a “Material Agreement” and together “Material Agreements”).
	3.14.2.	Except as set out in Exhibit 3.14.2, each Material Agreement is in full force and effect, and is valid and enforceable against Nexus or the Subsidiaries, as applicable, and against the other parties thereto, in accordance with its terms; each of the parties to each of the Material Agreements is, and at all times has been, in compliance with its terms and requirements; no event has occurred or circumstance exists that (with or without notice or lapse of time) may contravene, conflict with, or result in a violation or breach of, or give Nexus or the Subsidiaries, or any other person or entity the right to declare a default or exercise any remedy under, or to accelerate the maturity or performance of, or to cancel, terminate, or modify, any Material Agreement; and neither Nexus nor the Subsidiaries have given to or received from any other person or entity, any notice or other communication regarding any actual, or alleged violation or breach of, or default under, any Material Agreement.

- - 12 - -

3.15.	Related-Party Transactions. Except as set out in Exhibit 3.15, no employee, officer, or director of Nexus or its Subsidiaries or member of his or her immediate family is indebted to Nexus or to the Subsidiaries, and neither Nexus nor its Subsidiaries are indebted (or committed to make loans or extend or guarantee credit) to any of them. None of such persons has any direct or indirect ownership interest in any firm or corporation with which either Nexus or the Subsidiaries are affiliated or with which Nexus or the Subsidiaries have a business relationship, or any firm or corporation that competes with Nexus. No member of the immediate family of any employee, officer or director of Nexus or the Subsidiaries is directly or indirectly interested in any Material Agreement with Nexus or the Subsidiaries.
3.16.	Permits. Nexus and the Subsidiaries have all franchises, permits, licenses, and any similar authority (each, a “License” and collectively, the “Licenses”) necessary for the conduct of their business as now being conducted and as proposed to be conducted, the lack of which is reasonably likely to have a material adverse effect, and Nexus believes that it or the Subsidiaries can obtain, without undue burden or expense, any similar authority for the conduct of their business.  Nexus or the Subsidiaries are not in default in any material respect under any of such License and each License is valid and in full force and effect, and no event has occurred or circumstance exists that may (with or without notice or lapse of time) constitute or result directly or indirectly in a material violation of or a failure to comply with any material term or requirement of any such License, or result directly or indirectly in the revocation, withdrawal, suspension, cancellation, or termination of, or any modification to, any such License. Neither Nexus nor the Subsidiary have received any notice from any person, entity that it is, or claiming that it is, in violation of or otherwise not in compliance with, any term or requirement of any License, or that any such License may be revoked, withdraw, suspended, canceled, terminated or modified.
3.17.	Properties; Liens; Condition of Assets.
	3.17.1.	Except as set forth in Exhibit 3.17.1: (i) Nexus and the Subsidiaries own with good and marketable title all properties and assets (whether real, personal, or mixed) reflected as owned in the books and records of Nexus and the Subsidiaries, as applicable; and (ii) all properties and assets of Nexus and Subsidiaries are free and clear of all liens, encumbrances, charges, mortgages, pledges or other third party’s rights of any kind whatsoever (collectively, “Liens”). No default (or event that, with notice or lapse of time or both, would constitute a default) exists under any existing Lien described in Exhibit 3.17.1.
	3.17.2.	All material equipment of Nexus and the Subsidiaries is in good operating condition and repair, and is adequate for the uses to which it is being put, and none of such equipment is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost.

- - 13 - -

3.18.	Employees.
	3.18.1.	No key employee has been dismissed in the last six months or has given notice of termination of his employment. To Nexus’ knowledge, no key Employee and no group of Nexus’ or the Subsidiaries’ employees, consultants or independent contractors has any plans to terminate their employment or relationship as an employee, consultant or independent contractor with Nexus or the Subsidiaries, nor does Nexus have any present intention to terminate the employment of any key Employee, group of employees, consultant or independent contractor.
	3.18.2.	Except for extension orders of common application to all employees in Israel, Nexus is not a party or subject to any collective bargaining agreement with any labor union or any local or subdivision thereof. There is no current union organising activity among any of the employees of Nexus or the Subsidiaries or any union representative petition pending or threatened.
	3.18.3.	Nexus and the Subsidiaries have not made timely payments of the amounts of all taxes (including but not limited to, Israeli income taxes) required to be withheld or collected with respect to their employees to the proper tax receiving officers or authorized depositories. Nexus have reached with the Israeli Income Tax Authority and the National Insurance Authority settlement for payment in installments of its liabilities thereto regarding Nexus’s employees, copies of the agreement reached with the National Insurance Authority and a summary of the oral agreement reached with the Income Tax Authority were provided to each Purchaser.
	3.18.4.	Except as set out in Exhibit 3.18.4, neither Nexus nor the Subsidiaries are delinquent in payments to any of their employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed through the date hereof or amounts required to be reimbursed to them through the date hereof.  Except as set out in Exhibit 3.18.4 Nexus and the Subsidiaries are in compliance with all laws, rules and regulations respecting employment, employment practices, labor, terms and conditions of employment and wages and hours. There is no labor strike, dispute, slowdown or stoppage pending or threatened against or involving Nexus or the Subsidiaries.
3.19.	Compliance with Laws and Orders.
	3.19.1.	Except as set out in Exhibit 3.19.1, neither Nexus nor the Subsidiaries are in violation of or default under any provisions of the Corporate Documents or the corporate documents of the Subsidiaries, respectively. Nexus and the Subsidiaries are in compliance, in all material respects, with all applicable statutes, laws, regulations and executive orders of the its place of jurisdiction and all states, foreign countries or other governmental bodies and agencies having jurisdiction over any of the its business or properties.

- - 14 - -

	3.19.2.	Nexus and the Subsidiaries are in compliance with all awards, decisions, injunctions, judgments, orders, rulings, subpoenas, or verdicts entered, issued, made, or rendered by any court, administrative agency, or other governmental body or by any arbitrator (collectively, “Orders”) to which it, or any of the properties owned or used by it, are subject.
	3.19.3.	No event has occurred or circumstance exists that (with or without notice or lapse of time) can reasonably be expected to constitute or result in a material violation by Nexus or the Subsidiaries of, or a failure on the part of Nexus or the Subsidiaries to comply, in any all material respect, with, any applicable statutes, laws, regulations, executive orders or Orders; and except as set out in Exhibit 3.19.3 neither Nexus nor the Subsidiaries have received any notice from any administrative agency or other governmental body or any arbitrator that it is, or claiming that it is, in violation of or otherwise not in compliance with, such applicable statutes, laws, regulations, Orders or executive orders.
3.20.	Completion of Certain Transactions. Without derogating from the generality of the representations and warranties above:
	3.20.1.	Nexus has consummated the sale of all the outstanding share capital of NexusData, Inc., a formerly wholly owned subsidiary of Nexus (“NexusData”), to STORM Consulting Inc. (“Storm”) pursuant to a certain Offer to Acquire NexusData Inc., dated December 24, 2002 copies of which were provided to each Purchaser (the “ND Sale Agreement”). The ND Sale Agreement provides that Storm purchased NexusData “as is” and has waived Nexus and any of its officers and directors from any claims and/or demands. In addition, NexusData has executed a confirmation letter on _________, 2003 a copy of which is also attached in Exhibit 3.20.1 pursuant to which NexusData irrevocably waived any and all claims, demands or other causes of action of any nature it has or may have against Nexus, its shareholders, directors, officers and employees.
	3.20.2.	Nexus has assigned and transferred to NexusData a certain bridge loan in the amount of five hundred thousand United States dollars (US$500,000) which was made to Nexus by certain lenders (the “Lenders”) pursuant to the Bridge Loan Agreement, dated September 20, 2002 copies of which were provided to each Purchaser (the “Loan Agreement”) pursuant to a certain letter agreement, dated January 2003 copies of which were provided to each Purchaser (the “BL Assignment Agreement”). The BL Assignment Agreement provides that each Lender has irrevocably waived, released and discharged Nexus and any of its officers, directors, shareholders and employees from claims, demands, and causes of action which such Lender has or will have, whether known or unknown, of whatever nature, which exist or may exist on their behalf in connection with or related to the Loan Agreement or its assignment.

- - 15 - -

	3.20.3.	Nexus and AMS have signed on March __, 2003 a letter agreement in the form attached hereto as Exhibit 3.20.3 pursuant to which the Manufacturing and Purchase Agreement entered between the Nexus, AMS and NexusData on January 15, 2002 was amended so that it will continue to apply with respect to Nexus and NexusData separately such that each of Nexus and NexusData shall be responsible to its liabilities (the “AMS Agreement”). The AMS Agreement provides that AMS confirms that Nexus shall not be liable for any liabilities of NexusData, and that it in no event shall a claim be made by AMS against Nexus relating to NexusData liabilities.
	3.20.4.	The ND Sale Agreement, the BL Assignment Agreement and AMS Agreement are completed, unconditional and in full force and effect, and are valid and enforceable against Nexus, NexusData and the other parties thereto, in accordance with their respective terms.
3.21.	Directors. Upon the Closing there shall be no contractual right to any shareholder of Nexus to elect any individual or individuals to Nexus’ Board of Directors, except as detailed herein, nor shall there be any valid voting agreement, voting trust, or other arrangement among Nexus’ shareholders. Exhibit 3.21 attached hereto contains a complete and accurate list of all directors of Nexus.
3.22.	Disclosure.  No representation or warranty contained in this Agreement, the schedules or exhibits hereto, or information appearing in any writing furnished by Nexus to the Purchasers or their representatives pursuant hereto or in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading.  There is no fact which Nexus has not disclosed to the Purchaser which is reasonably likely to have a material adverse effect on Nexus or its Subsidiaries, their respective financial condition, their respective business as presently conducted or proposed to be conducted or any of their respective properties and/or respective material assets, or is reasonably likely to adversely affect the ability of Nexus to perform its obligations under this Agreement.
3.23.	Registration Rights. Except as provided in section 5 hereunder, Nexus has not granted or agreed to grant any registration rights, including piggyback rights and F-3 registration rights, to any person or entity.

- - 16 - -

	3.24.	Tax Returns, Payments and Elections. Nexus has filed all tax returns and reports (including information returns and reports) until the year 2001 as required by any applicable law.  These returns and reports are true and correct in all material respects. Nexus hereby represents and warrants that the provision for taxes of Nexus as shown in the 2001 Financial Statements and the Quarterly Financials is adequate for taxes due or accrued as of the date thereof.  Neither Nexus nor the Subsidiaries have elected pursuant to any applicable tax law any election that would have a material adverse effect on Nexus or the Subsidiaries, as the case may be, their respective financial condition, their respective business as presently conducted or proposed to be conducted or any of their respective properties and/or their respective material assets.  Except as set out in Exhibit 3.24 neither Nexus nor the Subsidiaries have had any tax deficiency proposed or assessed against them that were not settled and have not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge. None of Nexus’ or the Subsidiaries’ income tax returns have ever been audited by governmental authorities.  Since the date of the Quarterly Financials, neither Nexus nor any Subsidiary have incurred any taxes, assessments or governmental charges other than in the ordinary course of business and Nexus and the Subsidiaries have made adequate provisions on its books of account for all taxes, assessments and governmental charges with respect to their respective business, properties and operations for such period.  Nexus hereby represents and warrants that Nexus and the Subsidiaries have withheld or collected from each payment made to each of its respective employees, the amount of all taxes (including, but not limited to, Israeli income taxes) required to be withheld or collected therefrom, and have paid the same to the proper tax receiving officers or authorized depositories or have accrued such amounts for payment.
4.	Representations and Warranties of the Purchaser.
	Each of the Purchasers hereby represents and warrants to Nexus, only in respect of itself, as follows:
	4.1.	Organizations; Power.
		(a)	The Purchaser is a duly organized, validly existing and in good standing under the laws of the jurisdiction in which it has been incorporated.
		(b)	The Purchaser has the requisite power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. Following the execution of this Agreement, and subject to the approval of this Agreement and the transactions contemplated hereby by the shareholders meeting of Nexus and any other approvals as detailed in this Agreement, this Agreement will constitute a valid and binding obligation of the Purchaser, enforceable in accordance with its terms.
	4.2.	Authorization of Agreement.  The execution, delivery and performance by the Purchaser of this Agreement and consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action of the Purchaser.
	4.3.	Purchase for Investment.  The Purchaser is acquiring all of the Shares to be acquired by it hereunder for its own account for investment and without a view to the distribution or resale of such Shares, it being understood that this Section 4.3 shall not prevent the Purchaser from selling or otherwise disposing of any of the Shares, at its sole discretion, in any transaction which does not violate the Securities Act.

- - 17 - -

	4.4.	U.S. Federal Securities Laws. Without derogating from Nexus’s obligations under Section 5 below, the Purchaser has been made aware that none of the Shares acquired hereunder may be sold, transferred or otherwise disposed of (any such sale, transfer or other disposition, a “sale”), except in compliance with (i) United States Federal Securities laws (which generally provide for a 12 month waiting period before resale of restricted securities), (ii) state blue sky laws. The Purchasers are aware of the provisions of Rule 144 promulgated under the Securities Act and its requirements for the resale of the Shares which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being effected through a “broker’s transaction” or in transactions directly with a “market maker” and the number of shares being sold during any three-month period not exceeding specified limitations.
	4.5.	Investment Experience. Each Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the purchase of the Shares pursuant to the terms of this Agreement and of protecting its interests in connection therewith. Each Purchaser is able to bear the economic risk of the purchase of the Shares pursuant to the terms of this Agreement including an entire loss of the value of such investment.
	4.6.	Legend on Shares. The Purchaser is aware that the certificate representing the Shares shall be stamped or otherwise imprinted on its face with a legend in the following form:
		“The shares represented by this certificate have not been registered under the Securities Act of 1933 (the “Securities Act”) and may not be sold, transferred, pledged, hypothecated or otherwise disposed of in the absence of (1) an effective Registration Statement under the securities act, (2) to the extent applicable, an exemption pursuant to Rule 144 under Securities Act (or similar rule under the Securities Act relating to the disposition of securities) or (3) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel for issuer, that an exemption from registration under the Securities Act is available.  The Shares have been acquired for investment and may not be sold, transferred or otherwise disposed of except in compliance with the Securities Act.”
5.	Registration Rights.
	5.1.	Definitions.  As used in this Agreement, the term “Registrable Securities” means (i) the Shares and the Ordinary Shares resulting from the exercise of the Warrants held by the Purchasers; and (ii) any securities issued or issuable with respect to shares acquired or exercised by the Purchasers by way of bonus shares, share splits, reverse share splits, dividend, share conversions or other distribution with respect to, or in exchange for, on account of, or in replacement of, the Shares and/or the Ordinary Shares resulting from the exercise of the Warrants; the term “registration” means a registration effected by preparing and filing a registration statement or similar document under and in compliance with the Securities Act, or similar securities act in a jurisdiction other than the United States; the term “Form F-3” means such form under the Securities Act as in effect on the date hereof or substantially similar thereto and available to Nexus or any registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by Nexus with the SEC; and the term “AMS Registrable Securities” means the Ordinary Shares issued to AMS by the Company pursuant to a certain Share Purchase Agreement, dated January 15, 2002 and the Ordinary Shares issuable upon conversion of seven hundred thousand United States dollars of a certain debenture issued to AMS as set forth in a letter agreement, dated March 2003 a copy of which is attached hereto as Exhibit 5.1.

- - 18 - -

5.2.	Registrable Securities.  As to any particular Registrable Securities, such securities will cease to be Registrable Securities when they have been effectively registered under the Securities Act and/or any other applicable securities law pursuant to this Section 5, although they will again become Registrable Securities if later deregistered.
5.3.	Demand Registration.   As of the date of Closing majority in interest of the holders of Registrable Securities (the “Initiating Holders”) may request in writing that all or part of their Registrable Securities shall be registered for trading on any securities exchange on which Nexus’s shares are traded. Within twenty (20) days after receipt of any such request, Nexus shall give written notice of such request to the other holders of Registrable Securities and shall include in such registration all Registrable Securities held by all such holders of Registrable Securities who wish to participate in such demand registration and provide Nexus with written requests for inclusion therein within fifteen (15) days after the receipt of the Nexus’s notice (the “Participating Holders”). Thereupon, Nexus shall effect the registration of all Registrable Securities as to which it has received requests for registration (the “Participating Registrable Securities”) for trading on the securities exchange(s) specified in the request for registration. If the managing underwriters advise Nexus in writing that in their opinion the number of securities requested to be included in such registration exceeds the number that can be sold in such offering without adversely affecting such underwriters’ ability to effect an orderly distribution of such securities, Nexus will include in such registration the Registrable Securities with priority upon any other shares that may be registered under the same registration statement, except for the AMS Registrable Securities which shall be registered with the Registrable Securities; provided, however, that if the a majority in interest of the Participating Holders then disapprove of the terms of the underwriting, they may elect to withdraw all Participating Registrable Securities therefrom by written notice to Nexus and the underwriter, in which case such registration shall not be deemed a registration for the purposes of this Section 5.3 and shall not be counted as a demand registration. Nexus shall not be required to effect more than two (2) registrations under this Section 5.3.
5.4.	Incidental Registration. Nexus shall file a registration statement on Form F-3 (the “Registration Statement”) registering the Registrable Securities with priority upon any other shares that may be registered under the same registration statement the except for the AMS Registrable Securities which shall be registered with the Registrable Securities, and shall supply all qualifications and compliances as Nexus may be so requested, and will endeavor and use its best efforts to have such Registration Statement declared effective by the SEC as soon as practicable thereafter. Each Purchaser shall be entitled to request only once, in addition to the rights of the holders of Registrable Securities right to request registrations under Section 5.3 above, from Nexus to effect a registration under this Section 5.4.

- - 19 - -

5.5.	General Obligations. Nexus agrees, if necessary in respect to any registration under Section 5.3 or Section 5.4 above, to supplement or amend the registration statement, if required by the rules, regulations or instructions applicable to the registration Form F-3 or any other form used by Nexus for such registration statement or by the Securities Act or by any other rules and regulations thereunder for shelf registration.
5.6.	Right to Piggyback.  Whenever Nexus proposes to register any of its securities under the Securities Act (other than pursuant to a registration primarily for sales of shares or options to employees of Nexus), and the registration form to be used is suitable for the registration of the Registrable Securities (a “Piggyback Registration”) (it being understood that Form S-8 and Form F-4 may not be used for such purposes), Nexus will give written notice to the holders of Registrable Securities of its intention to effect such a registration and, subject to the priority provisions of Section 5.7 below, will include in such registration all the Registrable Securities with respect to which Nexus has received written requests for inclusions therein within thirty (30) days after Nexus gives such notice. Such notice shall be delivered to the holders of Registrable Securities at least thirty (30) days prior to the initial filing of a registration statement with the SEC. The holders of Registrable Securities shall be entitled to participate in an unlimited number of Piggyback Registrations under this Section 5.6.
5.7.	Priority on Piggyback Registration.  If a Piggyback Registration is effected in an underwritten offering of Nexus’ Securities (“Nexus’ Securities”) and the managing underwriters advise Nexus in writing that in their opinion the number of securities requested to be included in such registration exceeds the number that can be sold in such offering without adversely affecting such underwriters’ ability to effect an orderly distribution of such securities, Nexus will include in such registration:  (i) Nexus’ Securities;  (ii) the Registrable Securities and the AMS Registrable Securities (allocated among the holders of Registrable Securities and AMS pro rata to their respective number of Registrable Securities or AMS Registrable Securities, as applicable, required by the holders of Registrable Securities or AMS to be included in the registration); and (iii) the unregistered securities held by other shareholders of Nexus (“Unregistered Securities”) requested to be included that, in the opinion of such underwriters, can be sold pro rata, among the holders of such securities on the basis of the number of Unregistered Securities then owned by each such holder. In any event that under subsection 5.7 (ii) hereto, due to the registration of the AMS Registrable Securities, not all of the Registrable Securities are registered Nexus shall be obligated to file a registration statement on Form F-3 registering the remaining Registrable Securities, with priority upon any other shares that may be registered under the same registration statement, within three (3) months from the date of such Piggyback Registration.

- - 20 - -

5.8.	Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement, Nexus will use its best efforts to effect the registration with the proper authorities in the United States and Israel and the sale of such Registrable Securities in accordance with the intended method of disposition thereof and to list such shares on the stock exchange (or NASDAQ) on which Nexus’ shares are then trading.  In connection therewith, Nexus will make available for inspection by any seller of Registrable Securities, and any attorney, accountant, or any other agent retained by such seller, all pertinent financial and other records, other pertinent corporate documents of Nexus, and cause Nexus’ respective officers, directors, and employees to supply all information reasonably requested by such seller, attorney, accountant, or agent in connection with such Registration Statement.
5.9.	Registration Expenses.  Nexus shall be responsible for all registration expenses incurred in connection with the transactions described in this Section 5. Registration expenses include all expenses incident or ancillary to Nexus’ performance of or compliance with this Agreement, including without limitation expenses incurred in connection with the preparation of a prospectus, filing and qualification fees, printers’ and accountant fees, and the reasonable fees and expense of one legal counsel for the Purchasers.
5.10.	Nexus Indemnity. Nexus hereby agrees to indemnify and hold harmless the Purchasers, and its directors, officers, employees, agents, legal counsel or accountants of such Purchaser, any underwriter (as defined in the Securities Act) for such Purchaser and controlling persons (the “Indemnified Person”) (within the meaning of section 15 of the Securities Act or Section 20(a) of the Exchange Act), from and against any and all claims, liabilities, losses, damages and expenses (including reasonable attorneys’ fees and disbursements) asserted against or incurred by any such Indemnified Person which shall be caused by any untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities, including any amendment or supplement thereto, or shall be caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or caused by any violation by Nexus of the Securities Act, the Exchange Act or any other securities law, except insofar as such losses, claims, damages, liabilities and expenses shall be caused by any untrue statement or omission based upon information furnished in writing to Nexus by the Purchasers or on the Purchasers’ behalf for use therein.

- - 21 - -

	5.11.	Purchaser Indemnity.   Each Purchaser will indemnify and hold harmless Nexus, any underwriter for Nexus and each person, if any, who controls Nexus or such underwriter, from and against any and all losses, damages, claims, liabilities, costs or expenses (including any amounts paid in any settlement effected with such Purchaser’s consent) to which Nexus any such underwriter or any such controlling person may become subject under applicable law or otherwise, insofar as such losses, damages, claims, liabilities (or actions or proceedings in respect thereof), costs or expenses arise out of or are based on (i) any untrue statement of any material fact contained in the Registration Statement or included in the prospectus, as amended or supplemented, or (ii) the omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, and the Purchaser will reimburse Nexus, any such underwriter and each such controlling person of Nexus or any such underwriter, promptly upon demand, for any reasonable legal or other expenses incurred by them in connection with investigating, preparing to defend or defending against or appearing as a third-party witness in connection with such loss, claim, damage, liability, action or proceeding; in each case to the extent, that such untrue statement or omission is contained in any information so furnished in writing by the Purchaser to Nexus specifically for inclusion in the Registration Statement or such prospectus and that such information was reasonably relied upon by Nexus for use in the Registration Statement, such prospectus or such form of prospectus or to the extent that such information related to the Purchaser or the Purchaser’s proposed method of distribution of Registrable Securities and was reviewed and expressly approved in writing by the Purchaser expressly for use in the Registration Statement, such prospectus or such form of prospectus; provided, however, that the indemnity agreement contained in this Section 5.11 shall not apply to amounts paid in settlement of any losses if such settlement is effected without the prior written consent of the Purchaser.  In no event shall the liability of the Purchaser hereunder be greater in amount than the dollar amount of the net proceeds received by the Purchaser upon the sale of the Registrable Securities giving rise to such indemnification obligation.
	5.12.	The provisions of this Section 5 shall also apply in connection with any registration, listing or public offering of the Nexus’s securities outside of the U.S., mutatis mutandis.
6.	Board of Directors.
	Immediately after the Closing the Board of Directors of Nexus shall consist of up to seven directors, four of which shall be nominated by the Lead Purchaser.
7.	Survival and Indemnification.
	All representations and warranties contained in this Agreement are deemed to be made on the date of this Agreement and at the Closing, and shall survive and remain in full force and effect for a period of two (2) years thereafter, provided, however, that the representations made in Sections 3.1, 3.2, 3.5, 3.9 and 3.10 shall remain in full force and effect after Closing indefinitely.  Nexus agrees to indemnify and hold harmless the Purchasers and their affiliates and their respective officers, directors, agents, employees, subsidiaries, partners and controlling persons (each, an “indemnified party”) to the fullest extent permitted by law from and against any and all losses, claims, damages, expenses (including reasonable fees and disbursements of counsel) or other liabilities (“Liabilities”) resulting from any breach or misrepresentation of any covenant, agreement, representation or warranty made by Nexus under this Agreement or any legal, administrative or other actions brought by any person or entity, proceedings or investigations (whether formal or informal), or written threats thereof, based upon, relating to or arising out of  the Purchasers entering into this Agreement; provided, however, that Nexus shall not be liable under this Section 7: (i) for any amount paid in settlement of claims without its consent (which shall not unreasonably withheld), (ii) to the extent that it is finally judicially determined that such Liabilities resulted directly from a breach by  the Purchasers of any representation, warranty, covenant or agreement of  the Purchasers contained in this Agreement or the gross negligence or the willful misconduct of the Purchasers. Each Purchaser irrevocably agrees and undertakes that a notice of indemnification to be submitted to the Company under this Section 7 requires the prior written approval of Purchasers of majority of the Shares under this Agreement (the “Majority Purchasers”) and any indemnification request not signed by the Majority Purchasers will be invalid and of no force and effect. Each Purchaser further agrees and undertakes that the proceeds received from the Company under this Section 7 (the “Indemnification Amount”) shall be distributed among the Purchasers on a pro-rata basis, so that each Purchaser shall be entitled to receive an amount equal to the Indemnification Amount multiplied by a fraction its numerator being the number of Shares purchased by the Purchaser as set forth in Exhibit A, and its denominator being the aggregate number of Shares purchased hereunder.

- - 22 - -

8.	Conditions to Closing.
	The obligations of the Purchasers under sections 1 and 2 of this Agreement are subject to the fulfillment on or before the Closing, of each of the following conditions precedent, any one or more of which may be waived in whole or in part by the majority in interest of the Purchasers (based on their amount of investment hereunder) with respect to all Purchasers, which waiver shall be at the sole discretion of such majority of the Purchasers:
	8.1.	Representations and Warranties. The representations and warranties contained in Section 3 shall be true and correct when made and shall be true and correct on and as of the Closing as though such representations and warranties had been made on and as of the date of the Closing.
	8.2.	Performance. Nexus shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it or by any third party (other than the Purchasers) on or before the Closing.
	8.3.	Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing, and all documents incident thereto shall be reasonably satisfactory in form and substance to the counsel of the Lead Purchaser, and the Purchasers shall have received all such counterpart originals or certified or other copies of such documents as the Lead Purchaser may reasonably request.
	8.4.	Consents and Approvals, Delivery of Documents. Nexus shall have received and shall have provided the Purchasers with copies, satisfactory to counsel of the Lead Purchaser, of all permits, consents, approvals and authorizations which shall be necessary or required to consummate this Agreement and to issue and sell the Shares, the Warrants and the Ordinary Shares issuable upon the conversion of the Warrants.
	8.5.	Termination of Pre-Emptive Rights.  At the Closing all pre-emptive rights granted to shareholders of Nexus shall terminate and there shall no longer be any pre-emptive rights in Nexus.
	8.6.	Agreement with AMS.  At the Closing AMS shall convert $700,000 of the convertible debenture issued to it on January 15, 2002, at a conversion price of the Price Per Share and Nexus shall repay AMS an amount of $300,000.  A copy of the agreement entered into between Nexus and AMS on March 2003 is attached as Exhibit 5.1.

- - 23 - -

	8.7.	Management Agreement.  Nexus and the Lead Purchaser shall have entered on or before the Closing into a Management Agreement in the form attached hereto as Exhibit 2.2(vii), pursuant to which the Lead Purchaser shall provide management services to Nexus in consideration for an annual management fee of $180,000 and the Management Agreement shall have been approved by the general meeting of the shareholders of Nexus.
	8.8.	Opinion of Nexus’s Counsel. On or prior to the Closing, the Purchaser shall have received from Yigal Arnon & Co., Law Offices, counsel for Nexus, an opinion, dated as of Closing, in form and substance acceptable to the counsel of the Lead Purchaser attached hereto as Exhibit 2.2(viii).
	8.9.	Absence of Adverse Changes. With respect to the Closing, there will have been no material adverse change in the financial or business condition of Nexus or its Subsidiaries from the date hereof until the date of Closing in the Purchasers’ sole and absolute judgment.
	8.10.	No Judgment or Order. There shall not be on the Closing, any judgment or order of a court of competent jurisdiction or any ruling, regulation or order of any agency applicable to Nexus which would prohibit or have the effect of preventing consummation of the sale of the Shares, the Warrant or the Ordinary Shares issuable upon the execution of the Warrant.
	8.11.	Officer’s Certificate. On or prior to the Closing, a certificate from the chief executive officer of Nexus, certifying that the conditions for Closing specified in this Agreement have been fulfilled, and certifying as to the matters set forth in section 3 and in the form attached hereto as  Exhibit 2.2(vi), shall have been delivered to the Purchaser.
	8.12.	AMS Proxy. On or prior to the Closing, Nexus shall deliver to the Lead Purchaser a proxy in the form attached hereto as Exhibit 2.2(x) executed by AMS.
	8.13.	Arrangement with Bank Hapoalim. On or prior to the Closing, Nexus shall have reached satisfactory agreements with Bank in the form attached hereto as Exhibit 2.2(xi).
	8.14.	Receipt of Payment from Acelera Puerto Rico. On or prior to the Closing, Nexus shall have received the down payment pursuant to Section 3.3.1 of the License Operation and Supply Agreement between Nexus and Acelera Puerto Rico, dated February 21, 2003.
9.	Miscellaneous.
	9.1.	Entire Agreement.  This Agreement constitutes the sole understanding of the parties with respect to the subject matter hereof and it supersedes any previous agreement among the parties with respect to such subject matter, including but not limited, to the Term Sheet for a Proposed Investment in Nexus Telocation Systems Ltd., dated December 25, 2002.  No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by Nexus and a majority in interest of the Purchasers.

- - 24 - -

9.2.	Successors and Assigns.  The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors of the parties hereto; provided, however, that this Agreement may not be assigned by any party without the prior written consent of the other party hereto, except for assignments by the Purchasers to any corporate entity which controls, is controlled by, or is under common control with such Purchaser.
9.3.	Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument.
9.4.	Headings.  The headings of the Sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof.
9.5.	No Waiver.  No action taken pursuant to this Agreement, including any investigation by or on behalf of any party hereto, will be deemed to constitute a waiver by the party taking any action of compliance with any representation, warranty or agreement contained herein.  The waiver by any party hereto of any condition or of a breach of any other provision of this Agreement will not operate or be construed as a waiver of any other condition or subsequent breach.  The waiver by any party of any of the conditions precedent to its obligations under the Agreement will not preclude it from seeking redress for breach of this Agreement other than with respect to the condition so waived.
9.6.	No Broker. Each of the parties represents, as to itself, its subsidiaries and its affiliates, that no agent, broker, investment banker or other firm or person, is or shall be entitled to any broker’s or finder’s fee or any other commission or similar fee in connection with this Agreement.
9.7.	Expenses.  Subject to the consummation of the Closing, Nexus shall pay at the Closing reasonable legal and other fees and costs incurred by the Purchasers, in connection with the investment.
9.8.	Notices.  Any notice, request, instruction or other document (each, a “notice”) to be given hereunder by any party hereto to any other party hereto shall be in writing and delivered personally, faxed or sent by registered or certified mail, postage prepaid,
	If to Nexus to: Nexus Telocation Systems Ltd. 1 Korazin Street Givatyim, Israel Fax number: 972-3-5719698
	With a copy to: Yigal Arnon & Co., 1 Azrieli Center, Tel Aviv Fax number: 972-3-6087713 Attn. Orly Tsioni, Adv. If to the Purchasers, as set forth in Exhibit A attached hereto.

- - 25 - -

9.9.	Taxes. Nexus shall pay all stamp tax or other taxes or duties which may be due in connection with the execution of any of this Agreement and the issuance of the Shares or the Ordinary Shares exercisable under the Warrants.
9.10.	Remedies; Severability. All remedies, either under this Agreement or by law or otherwise afforded to any of the parties, shall be cumulative and not alternative. If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable under applicable law, then such provision shall be excluded from this Agreement and the remainder of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms; provided, however, that in such event this Agreement shall be interpreted so as to give effect, to the greatest extent consistent with and permitted by applicable law, to the meaning and intention of the excluded provision as determined by such court of competent jurisdiction.
9.11.	Governing Law. The Laws of the State of Israel shall govern the validity, performance and enforcement of this Agreement. The parties hereto irrevocably submit to the exclusive jurisdiction of the Courts of Tel-Aviv in respect of any dispute or matter arising out of or connected with this Agreement.

WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed on its behalf as of the date first above written.

NEXUS TELOCATION SYSTEMS LTD.	DBSI INVESTMENTS LTD.
By:	By:
Title:	Title:
Name:	Name:
POLAR COMMUNICATIONS LTD.	KOONRAS TECHNOLOGIES LTD.
By:	By:
Title:	Title:
Name:	Name:
SHREM, FUDIM, KELNER & CO. LTD.	BPW ISRAEL VENTURES LLC
By:	By:
Title:	Title:
Name:	Name:

- - 26 - -

EMERGING MARKETS VENTURES I LP	JACKTAR LIMITED
By:	By:
Title:	Title:
Name:	Name:
ZIV GANI

- - 27 - -

EX-99

Consent of Independent Public Accountants

               We hereby consent to the incorporation by reference in the registration statements of Nexus Telocation Systems Ltd., on Form F-3 and on Form S-8, and each prospectus constituting a part thereof, of our report dated April 30, 2003, relating to the consolidated financial statements included in the Annual Report on Form 20-F for the year ended December 31, 2002.

	KOST FORER & GABBAY
	A Member of Ernst & Young Global
Tel Aviv, Israel
June 22, 2003

EX-99

EXHIBIT 12.1

CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

               In connection with the Annual Report of Nexus Telocation Systems Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Arik Avni, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1.	the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ ARIK AVNI

Arik Avni

Chief Executive Officer

June 24, 2003

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EXHIBIT 12.2

CERTIFICATION PURSUANT TO
18 U.S.C SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

               In connection with the Annual Report of Nexus Telocation Systems Ltd. (the “Company”) on Form 20-F for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronen Stein, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1.	the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
2.	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ RONEN STEIN

Ronen Stein

Chief Financial Officer

June 24, 2003

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.