-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cv2LK7WZbRMkL0fcpHOVfBoAl3Hv4/6Du+xbaplk2ksYsVgrqKL6sLarQ5srEms1 dwvt0Llfd2otohB0uQEiPw== 0000912057-00-021714.txt : 20000505 0000912057-00-021714.hdr.sgml : 20000505 ACCESSION NUMBER: 0000912057-00-021714 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000504 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUR MACROPRINTERS LTD CENTRAL INDEX KEY: 0000946394 STANDARD INDUSTRIAL CLASSIFICATION: PRINTING TRADES MACHINERY & EQUIPMENT [3555] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F SEC ACT: SEC FILE NUMBER: 000-26498 FILM NUMBER: 619107 BUSINESS ADDRESS: STREET 1: 5 DAVID NAVON STREET STREET 2: MOSHAV MAGSHIMIM CITY: PETAH-TIKVA ISRAEL STATE: L3 BUSINESS PHONE: 01197239087676 MAIL ADDRESS: STREET 1: P O BOX 8440 STREET 2: MOSHAV MAGSHIMIM CITY: ISRAEL STATE: L3 FORMER COMPANY: FORMER CONFORMED NAME: NUR ADVANCED TECHNOLOGIES LTD DATE OF NAME CHANGE: 19950607 20-F 1 FORM 20- F UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F (Mark One) [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12 (b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____ COMMISSION FILE NUMBER 0-26498 NUR MACROPRINTERS LTD. ------------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ISRAEL ------------------------------ (Jurisdiction of incorporation or organization) 5 David Navon Street Moshav Magshimim 49001, Israel ------------------------------ (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: ordinary shares, NIS 1.0 par value ----------------- Title of Class Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: ordinary shares, NIS 1.0 par value ----------------- Title of Class Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of December 31, 1999: ordinary shares, NIS 1.0 par value, 11,774,573 shares ------------------------------------ Title of Class Number of Shares Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- -- Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 Item 18 X -- -- 2 IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT ON FORM 20-F CONTAINS FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH DIFFERENCE INCLUDE BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "ITEM 1: DESCRIPTION OF BUSINESS--RISK FACTORS" AND "ITEM 9: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT'S ANALYSIS AS OF THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES THAT ARISE AFTER THE DATE HEREOF. IN ADDITION TO THE DISCLOSURE CONTAINED HEREIN, READERS SHOULD CAREFULLY REVIEW ANY disclosure OF RISKS AND UNCERTAINTIES CONTAINED IN OTHER DOCUMENTS THAT THE COMPANY FILES FROM TIME TO TIME WITH THE SECURITIES AND EXCHANGE COMMISSION. PART I ITEM 1: DESCRIPTION OF BUSINESS GENERAL NUR Macroprinters Ltd. (the "Company") is a world leader in the development, manufacturing, marketing and servicing of wide format and super wide format inkjet printing systems. The Company's printers are used for on-demand, short-run, wide format (up to 1.8 meters (6 feet), "WF") and superwide format (over 1.8 meters, "SWF") printing. The Company also supplies inks and print substrates essential to the operation of the Company's printers. The Company's main product line is the NUR Blueboard-TM- family of SWF printers. The NUR Blueboard-TM- printer, a second generation of super wide format printers, was introduced by the Company in early 1997. The Blueboard printer can print on substrates of variable widths from 0.9 to 5.0 meters (approximately 3 to 16.4 feet). The Blueboard printer is based on continuous inkjet digital printing technology and is designed for high throughput, high print quality, reliability and ease of use. In April 1998, the Company introduced a faster version of the Blueboard printer, the Blueboard 2-TM-, in response to demand from its customers for increased productivity. In February 1999, the Company introduced the Blueboard HiQ-TM-, which produces higher quality prints with higher resolution than the Blueboard and the Blueboard 2 printers. Before the introduction of the NUR Blueboard-TM- printer, the Company's principal products were its first generation WF, Outboard and SWF Wideboard printers. The Outboard printer, which is capable of printing in widths of up to 1.6 meters (approximately 5 feet), was manufactured until the fourth quarter of 1995. In the fourth quarter of 1995, the Company introduced the Wideboard printer, which is capable of printing on substrates of variable widths of up to 5 meters (16.4 feet). The NUR Outboard and Wideboard printers both use continuous inkjet technology. In February 2000, the Company commercially released the NUR Fresco, a new printing system, targeted at the WF screen printing environment. The NUR Fresco is the first of the Company's printers to use drop-on-demand technology ("D-O-D") involving the intermittent firing of ink drops when needed on the substrate while the printing head travels across the substrate. The Outboard printer, Wideboard printer, the NUR Blueboard printers, and the NUR Fresco are referred to collectively herein as the "Company's Printers". The Company also sells specialized inks and substrates for use with the Company's Printers. The inks sold by the Company to its customers for use with the NUR Blueboard and the NUR Fresco printers are resistant to water and ultraviolet rays and well suited for indoor and outdoor use. The substrates the Company sells are also suitable for indoor and outdoor use and are made of vinyl, PVC, paper and mesh. 3 The Company sells its printers and related products primarily to commercial printers, design and service firms, screen printers, outdoor media companies and trade shops. The products are used to print large images such as billboards, posters and banners; point of purchase, exhibition and trade show displays; as well as decorations and backdrops for construction scaffolding covers, showrooms, television and film studios, museums and exhibits. The Company's Printers are installed in over 200 sites throughout Europe, North and South America, Africa and Asia. The Company was incorporated as an Israeli corporation on July 29, 1987. The Company's Ordinary Shares have been traded on the Nasdaq National Market since October 1995 and are currently traded under the symbol NURM. INDUSTRY BACKGROUND The market for printed applications requiring WF and SWF printing has expanded over the last few years. WF and SWF printing applications include billboards, posters, and banners; special event and trade show displays; point of purchase displays; fleet graphics; decorations and backdrops. For example, the retail, automotive, restaurant, travel, and gasoline industries use outdoor advertising to promote their products in locations including roadside billboards and posters displayed on streets and buildings, as well as the outside of buses, vans, trucks, and trains, so-called vehicular graphics. WF and SWF prints can also be found in theaters as stage decorations, in museums and exhibitions as backdrops or displays, and on construction sites as building site coverings. Prior to the introduction of digital printing systems, WF and SWF short-run prints were produced either by hand painting, which is relatively slow and expensive, and produces lesser quality images, or by screen or offset printing, both of which are relatively expensive and time consuming processes. With the cost of digital printing expected to decrease and the ability of digital technology expected to produce shorter runs more economically, the Company believes that the use of WF and SWF prints, such as those produced by the Company's Printers, should grow, and that the portion of the market serviced by digital printing should increase. The ability to produce WF and SWF images digitally has also opened new media opportunities for advertisers, such as mural printing, carpet printing, new forms of fleet graphics printing. The growth in demand for WF and SWF digital printers, is fueled by both the replacement of conventional print methods and the development of new printing applications. TRADITIONAL WF AND SWF PRINTING METHODS Conventional methods of WF and SWF printing have included hand painting, screen printing, and offset printing. Generally, producing WF and SWF color prints by traditional methods in relatively short runs from a few copies to a few hundred copies, depending on the application, has either been relatively slow and expensive or of limited quality. Because of the inherent limitations of the traditional WF and SWF printing methods, quality WF and SWF prints produced by these methods are generally limited to long runs of identical prints, designed and prepared well in advance or, in the case of hand painting, to single print applications. As a result, traditional methods of producing WF and SWF prints have not provided timely and economic solutions for the needs of the short run printing market. HAND PAINTING. Hand painting involves either the projection of an image onto a substrate, which is then drawn onto the substrate and subsequently painted by hand, or the spraying of paint onto material covered by a template that has been cut to the desired shape. The process of hand painting is an alternative mainly in developing countries where labor costs are significantly lower and where the significantly lower image quality is tolerated by the local market SCREEN PRINTING. The screen printing process is distinguished by its ability to print finely detailed images on practically any surface, including paper, plastics, metals, and three-dimensional surfaces. However, the process requires significant set-up time and materials cost before the image can be sent to press. This cost constrains the minimum number of copies the screen printer can produce economically. As screen-printing is a highly labor-intensive process, it is best suited for run lengths between 50 to 400 4 copies. Hence, this market is a clear target in which the Company believes its digital printers can be highly competitive. OFFSET PRINTING. Offset color printing generally produces very high quality images compared to hand painting or screen-printing. However, because of the complex steps involved in offset color printing, each printing job, whether small or large, involves substantial setup time and costs. In addition, much like hand painting and screen-printing, alterations and customizations are not economically feasible unless the entire offset color printing process is repeated. Another drawback is that the variety of substrate materials and widths suitable for use with offset printing machinery is limited. In general, offset color printing is best suited for long print runs. WF AND SWF DIGITAL PRINTING The introduction of digital printing is aiding in the transformation of the WF and SWF printing industry by lowering setup costs, shortening turnaround time, and reducing labor requirements. The Company believes that the availability of WF and SWF digital printing should lead to an increase in demand for limited runs for customized and localized advertising campaigns. In addition, the Company believes that single use applications, such as the use of banners, displays, and backdrops for trade shows, theme parks, entertainment, and special events, should become more popular. The Company believes that the market for WF and SWF printing should increase as current applications gain market acceptance and as new applications are developed. Digital printing involves the production of hard-copy images and text from digital data that is either generated on a computer at the printing site or originated by a customer on the customer's computer system. The digital data is then transferred directly from an electronic pre-press or desktop publishing system to the digital printer. There are currently several digital printing technologies available, including electrostatic, airbrush, D-O-D, thermal transfer, and continuous inkjet printing. ELECTROSTATIC PRINTING. Electrostatic printing is a non-impact printing technique that employs an array of metal styli, selectively pulsed to a high potential to generate a charged latent image on dielectric-coated paper, which is then toned to develop the latent image into a visible image. The achievable printing resolution is up to 400 dots per square inch ("DPI"). The main drawback of the technology is the need for special and expensive substrates and toners. This requirement inflates the cost of consumables considerably. THERMAL TRANSFER PRINTING. Thermal transfer printing is a contact printing technology that employs arrays of heated needles and pressure to melt and transfer wax based inks from a carrier roll onto a restricted variety of substrates. Like electrostatic printing, thermal transfer printing requires relatively expensive consumables. AIRBRUSH PRINTING. Airbrush printing is accomplished by forcing a low viscosity colored fluid through small aperture nozzles, thus creating a spray jet. Computer driven modulation of the spray jets deposits an image-wise colored layer deposited onto the substrate. The strongest feature of airbrush technology is the printer's ability to cover large areas with uniform color. One manufacturer of airbrush printers produces a printer that can also print on both sides of a poster at the same time, which is important for signs that are rear-illuminated. PIEZO CONTINUOUS INKJET PRINTING ("CIJ"). CIJ technology involves the continuous flow of electrically conductive ink within a closed loop that is deflected to a specific location on a sheet of paper or other medium. The ink is separated into uniform micro-drops and the micro-drops are electronically directed to be printed onto a selected area of the medium. CIJ technology allows for high speed printing and produces images with good resolutions sufficient for viewing from distances of beyond five feet. CIJ printers also produce multiple copies with consistent color quality, unlike airbrush printers. The cost of equipment using CIJ technology is relatively high in comparison to printers using electrostatic 5 technology. However, the cost of the output produced with CIJ printers is lower than that of electrostatic printers. Although the printer and printing costs of CIJ and airbrush technology are comparable CIJ printers produce higher quality prints at higher speeds and with more consistent color. The Company's Blueboard, Outboard and Wideboard printers all use piezo CIJ technology. PIEZO D-O-D INKJET PRINTING. D-O-D technology involves the intermittent firing of ink drops when needed on the substrate. It provides high resolution and enables use of a variety of inks, for home, office and industrial use. In September 1998, the Company acquired from Meital Technologies Ltd. ("Meital") all rights (including all related assets) to Meital's piezo drop-on-demand inkjet technologies for application in WF digital printers for approximately $3.0 million. To address the needs of the WF market for higher resolution images for use with shorter viewing distances, the Company utilizes D-O-D technology in its NUR Fresco printer. While D-O-D is still a new and evolving technology CIJ is a well-established and therefore reliable technology. D-O-D technology was primarily developed for office use and is characterized by a relatively higher resolution and a selected range of substrates while CIJ technology was developed mainly for use in industrial applications and therefore, shows a more uniform and stable color output, including the ability to print on a wide selection of substrates. The Company believes that its NUR Blueboard printers are currently the only commercially available SWF digital printers using piezo continuous inkjet technology. Although not the only D-O-D printer available for the WF market, the Company believes that the NUR Fresco's productivity makes it particularly attractive to screen printers. The Company believes that the Company's Printers have been designed and engineered to fit the overall needs of their respective WF and SWF printing markets. The Company's strategy is to: - strengthen its position as a world leader in the SWF printing market by supplying the most productive and cost-effective SWF digital printers; - replace a significant portion of existing WF screen printers with its digital inkjet printers; - be its customers' vendor of choice for all of their ink and substrate needs; - enable its customers to develop new ways to profit from the Company's printing systems; and - provide its customers with highly responsive and capable support, service and supplies. PRODUCTS The Company's revenues are derived primarily from the sale and service of the Company's Printers and the sale of consumables used with the Company's Printers. The consumables consist primarily of ink and substrates. See "Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations--Geographic Breakdown of Revenues" for more information on the breakdown of revenues by category of activity and into geographic markets. PRINTERS The Outboard printer, which was introduced in 1992, was the Company's first product, and, until the end of 1995, its principal product. The Outboard printer is capable of producing WF prints in widths of up to 1.6 meters. In the fourth quarter of 1995, the Company introduced the Wideboard printer, which was the Company's first generation SWF printer and its principal product in 1996. The Wideboard printer is capable of producing prints of widths of 5 meters. The Company has discontinued the manufacture of the Outboard printer and of the Wideboard printer. 6 Since the beginning of 1997, the Company has been marketing and selling the NUR Blueboard printer, a second-generation SWF printer that is also capable of producing prints of up to 5 meters in width with practically no limit on the length of the print. The NUR Blueboard is designed for high throughput, high print quality, reliability, and ease of use. When wider widths of prints are required, the NUR Blueboard printer, as is the case with the other Company's Printers, creates a print layout in sections that, when seamed and placed together, create a continuous image due to the NUR Blueboard printer's high level of color consistency and accuracy. In April 1998, the Company introduced a faster version of the NUR Blueboard printer, the NUR Blueboard 2 printer, in response to demand in the SWF printing industry for increased productivity. In February 1999, the Company introduced the NUR Blueboard HiQ, part of the NUR Blueboard family of products, with higher print quality and higher resolution than the market leading NUR Blueboard printers. The NUR Blueboard HiQ is available both as an upgrade to existing NUR Blueboard printers and as a new product delivered from the manufacturer. The NUR Blueboard printers are all based on piezo continuous inkjet technology, which is particular suitable for the superwide format market due to its outdoor durable inks, color consistency, high reliability and adaptability for use with a variety of substrate materials including vinyl, carpet, canvas, tarpaulin and mesh. The NUR Blueboard printers are currently the Company's main hardware products. The NUR Blueboard printers accept a wide variety of rolled substrates, differing in types and sizes, with a new design feeding mechanism that allows for ease of loading and unloading of substrate rolls weighing 330 lbs. or more. The NUR Blueboard printers are unique in that they are able to print at their respective top speeds (up to 320 sq. ft./hr. for the NUR Blueboard and up to 650 sq. ft./hr for the NUR Blueboard 2 and NUR Blueboard HiQ) while printing at their respective highest visual resolutions (70 DPI for the NUR Blueboard and NUR Blueboard 2 and 150 DPI for the NUR Blueboard HiQ). The NUR Blueboard printers' software accepts many popular types of image formats (such as TIFF, CT, JPEG, BMP, and PostScript) and images with various resolutions, and converts them automatically for printing. In addition, the NUR Blueboard printers' software can be connected to any communication configuration supported by the operating system, which enables smooth integration of the printers in the pre-press environment for higher productivity. The NUR Blueboard printers' operating software is based on Microsoft Corporation's Windows NT multitasking operating system which enables printing while preparing the next job for print. The software has sophisticated color correction tables that enable the printers to match color output according to substrate characteristics. The NUR Blueboard printers are marketed primarily to commercial printers, design and service firms, screen printers, outdoor media companies and trade shops for shorter run, WF and SWF printing. The Company's NUR Blueboard printers reproduce images with visual resolutions of 70-150 DPI, which allows for superior viewing from distances of 5-10 feet or more, depending on the image file resolution. The NUR Blueboard printers are capable of producing millions of distinctive colors. Thanks to the constant ink monitoring and control built into its continuous inkjet printing technology, the NUR Blueboard printers achieve a high level of color consistency for copies printed at different times and under different environmental conditions in the shop. Generally, depending upon the required print resolution, the Outboard printer operates at speeds of between 200 to 600 sq. ft./hr; the Wideboard printer operates at speeds of between 100 to 300 sq. ft./hr; the NUR Blueboard printer operates at speeds of up to 320 sq. ft./hr; and the NUR Blueboard 2 and NUR Blueboard HiQ operate at up to 650 sq. ft./hr. The Company's NUR Blueboard printers are digital roll-fed presses that accept a variety of substrates. They print directly from digital data, using no printing plates. The Company's Printers can be operated in a standalone mode or in conjunction with pre-press and desktop publishing systems. When configured with a pre-press system, the pre-press workstation prepares the digital file containing the specifications for the output to be produced. The Company's NUR Fresco printer, commercially released in February 2000, was first introduced in February 1999. In August 1999, the NUR Fresco printer started an extensive Beta testing program, which included installation in beta sites throughout the world and testing the machine in real time environment. 7 The NUR Fresco is a digital production press specifically aimed at the WF market. Offering throughput of up to 900 sq.ft/hr, the Company believes that the NUR Fresco offers a digital alternative to screen printing for short to medium length prints, eliminating the high set up cost associated with films and screen preparation costs which are the basis of screen printing. With emphasis on ease of use and operational flexibility, the NUR Fresco is designed to fit any workflow, whether of a digital printing or of screen printing. NUR Fresco produces full color images up to six feet wide with virtually no length limitations on a wide variety of substrates at a resolution of up to 360 DPI. The NUR Fresco is suitable for a wide range of applications such as point of purchase displays, indoor and outdoor banners, bus shelters, fleet graphics displays, shopping mall displays and more. Operating both in roll to roll and roll to sheet modes, the NUR Fresco offers operational flexibility to choose the handling method suitable for each job. The NUR Fresco's small foot print is made possible due to a built-in drying system that produces a fully dry and ready to use print, in any print speed. The built-in drying system is based on state-of-the-art control mechanism. NUR Fresco accepts most popular graphics file format, offering full integration to the already existing processes of the printing business. The NUR Fresco is designed for ease of use and can be run by one operator. The Fresco media program is developed by NUR in tandem with leading substrate manufacturers in the market to offer NUR Fresco users variety of media choice suitable for all types of applications range and price range. By developing this open media system NUR Fresco offers low operating costs without binding the user to a specific provider of expensive consumables. The NUR Fresco complements the NUR Blueboard printers, by expanding the Company's Printers coverage into a more complete and full range of indoor and outdoor WF and SWF application graphics. The Company's Printers require little operator supervision, enabling one operator to run several machines at once. While an operator must be specifically trained in the operation of a printer, no special color mixing skills are required unlike conventional methods such as offset printing. The Company's Printers can significantly reduce the setup costs associated with each print job, the skill level of the personnel required, and the number of skilled personnel required as compared to traditional methods of WF and SWF printing. These advantages make WF and SWF short-run color printing significantly more economical than conventional printing methods. Additionally, the relatively quick turnaround for the printed product enables the Company's Printers to produce more output in a given period, thereby lowering the costs of labor per print. Unlike hand painting, screen or offset printing, the layout can be viewed through the pre-press workstation prior to printing, permitting last minute fine-tuning. By running a single copy of the print, corrections of text, enhancements of images, and additions of color can all be accomplished with minimal time, effort, and cost. Additionally, since the format can readily be changed, the Company's Printers allow the end-user to make each print in the run different, with little time, effort, or additional cost. For example, if so desired, different languages, graphics, and text can be added to each print in a run. During the years ended December 31, 1997, 1998 and 1999, sales of the Company's Printers accounted for approximately 55%, 52% and 55%, respectively, of the Company's total consolidated sales. Sales of spare parts used in the Company's Printers accounted for approximately 6%, 4.6% and 2.4% of total sales in the years ended December 31, 1997, 1998 and 1999, respectively. Excluding M. NUR Marketing & Communication GmbH's ("NUR Germany") in the years ended December 31, 1997, 1998 and 1999, sales of the Company's Printers accounted 8 for approximately 64%, 59.7% and 57.5%, respectively, of the Company's total sales. Sales of spare parts used in the Company's Printers accounted for approximately 7%, 5.4% and 2.5% of total sales in the years ended December 31, 1997, 1998 and 1999, respectively. Currently, the retail prices of the Company's Printers generally range from $375,000 to $550,000 per machine. CONSUMABLES The Company sells consumables (inks and printing substrates) primarily to the users of the Company's Printers and substrates to users of other WF and SWF printers. INKS The NUR Blueboard printers use specialized solvent-based pigmented ink designed for the needs of the SWF market. The ink is resistant to water and ultraviolet rays, making it fairly durable and thus well suited for outdoor conditions. The Company's Printers, through the utilization of the ink, can print on almost an unlimited variety of substrates, including numerous types of paper, vinyl, cloth, textiles, mesh, and metals. The ink enables the output of the Company's Printers to be used both for indoor and outdoor advertising. During the years ended December 31, 1997, 1998 and 1999, sales of the ink accounted for approximately 21%, 23.6% and 23.1%, respectively, of the Company's total sales. Excluding NUR Germany's results from the years ended December 31, 1997, 1998 and 1999, sales of the ink accounted for approximately 24.4%, 27% and 24.1%, respectively, of the Company's total sales This ink used by the Blueboard, Outboard and Wideboard printers, was developed with the Company's participation by Imaje S.A. ("Imaje"), a French ink manufacturer, specifically for use in the Company's Printers. The Company has an exclusive distribution and manufacturing agreement with Imaje for the use of the ink in the WF and SWF printers. The Company has an exclusive distribution agreement for the ink with Imaje. The agreement between the Company and Imaje calls for mutual exclusivity to be kept for as long as both parties abide by the agreement. The NUR Fresco uses specialized solvent-based pigmented ink designed for the needs of the WF market and suited for D-O-D technology printers. It also is highly resistant to water and UV and imparts more vibrant colors in the images printed using the NUR Fresco. As of February 2000, inks for the NUR Fresco printer are manufactured by Stillachem S.A., a 50% owned subsidiary of the Company ("Stillachem") and are sold to the customers by the Company's sale, marketing and service subsidiaries. Stillachem focuses on the development and manufacture of specialized inks for D-O-D digital printing systems and inks for other digital printers, including clear-coat varnishes for WF and SWF printers. In August 1999, shortly after its incorporation, Stillachem acquired from Techno-Ink Manufacturing Pty. Ltd., a South African based company involved in the manufacture of digital production inks, certain know-how and equipment required for the manufacture of digital inks and ink related products. SUBSTRATES As of June 1998, the Company also began supplying, through its wholly owned subsidiary in Belgium, NUR Media Solutions S.A. ("NUR Media Solutions"), specialized substrates designed to work with the Company's Printers and its ink. The Company sells substrates under the NUR brand name that are manufactured by several different suppliers for the Company. The substrates are made of vinyl, PVC, paper, and mesh and are suited for indoor and outdoor use. The substrates are distributed worldwide by the Company's sales and service organizations. All NUR-branded materials are manufactured exclusively for NUR Media Solutions. 9 NUR Media Solutions, with other leading manufacturers, introduced the Fresco media program, which offers users of the NUR Fresco specially endorsed substrates. These are tested to work with the NUR Fresco and the NUR Fresco ink for a total printing solution that provides a high quality performance, reliability and durability. SALES AND MARKETING The Company distributes and sells its products through its wholly-owned subsidiaries, NUR Europe S.A. ("NUR Europe"), NUR America, Inc. ("NUR America"), NUR Asia Pacific (Hong Kong) Ltd. ("NUR Asia Pacific"), NUR Macroprinters (Shanghai) Ltd. ("NUR Shanghai") and through its NUR Middle East and Africa division ("NUR Middle East & Africa"). Until the end of 1996, most worldwide sales of the Company's Printers had been made through Scitex Corporation Ltd. ("Scitex"). Since the beginning of 1997, the Company moved to direct distribution of its printers starting from the Americas and Europe. As of February 1999, the Company established two additional sales organizations, NUR Asia Pacific and NUR Middle East & Africa, replacing Scitex's role as distributor of the Company's products in the Far East, the Middle East and Africa. The Company's marketing activities include participating in relevant tradeshows worldwide, advertising in trade publications, marketing directly to a target base, as well as publishing its own newsletters, participating in services and industry forums and maintaining an internet site. NUR Media Solutions' objective is to develop and market a wide range of advanced consumables for the Company's WF and SWF printers. Included in such consumables are the Company's specialized substrates, which are designed to work with the Company's existing range of printers and inks and will be distributed worldwide by the Company's sales and service organizations. The Israeli Government, through the Fund for the Encouragement of Marketing Activities of the Ministry of Industry and Commerce (the "Marketing Fund"), awards participation grants for marketing expenses incurred overseas. In 1997, 1998, and 1999, the Company received $0.2 million, $0.11 million and $0.13 million, respectively, for the promotion of the Company's exportation of its printers. The Company is obligated to pay a royalty of 3% of the export added value to the Marketing Fund until 100% of the grants have been repaid. The value of the grants received (including grants received in previous years) are linked to the U.S. dollar. As of December 31, 1999, the Company had made royalty payments in respect of such grants to the Marketing Fund totaling approximately $0.08 million. In September 1999, the Company sold its 84% interest in M.NUR Marketing & Communications GmbH, the Company's German subsidiary, which engaged in the printing of SWF digital graphics. The capital gain from this sale amounted to $132,000. PRODUCTION AND SOURCES OF SUPPLY Until September 1999, the Company manufactured and assembled the NUR Blueboard printers, through a subcontractor. As of October 1999, the Company manufactures and assembles all of the NUR printers, through NUR Pro Engineering Ltd., a 50% owned subsidiary ("NPE"). Full system integration and acceptance and quality control testing of the printers, are conducted by the Company at a NPE facility located near the Company's operations in Israel. Product quality control tests and inspections are performed at various steps throughout the manufacturing process, and each product is subjected to a final test prior to delivery. The Company believes that, to meet anticipated increases in sales, it can expand NPE's production capabilities or engage sub-contractors to carry certain of the manufacturing or the assembly of its printers The Company supplies NPE with the inkjet heads used in the NUR Blueboard printers which the Company acquires from Imaje, the sole manufacturer and supplier of these components. The Company believes that it will be able to obtain and/or manufacture inks for the NUR Blueboard Outboard and Wideboard printers. 10 NPE employs unaffiliated subcontractors to manufacture certain components for the Company's Printers. Such subcontractors have, in the past, been late in delivering components. The Company has, however, been able to obtain adequate supplies of the components and raw materials necessary to produce its printers and has not had any serious problems with its subcontractors. As the Company's business grows, its will need to purchase greater quantities of components on a timely basis; any delay in supply could ultimately hurt its sales. The NUR Fresco will also be assembled by NPE. Most of the components are available from several sources, however, the D-O-D inkjet print heads used in the NUR Fresco, are currently purchased from Modular Ink Technology ("MIT"), a Swedish company. The Company has contracted with MIT to ensure the supply of print heads. SERVICE AND SUPPORT Installation, post sale support and warranty services of the Company's products, are provided by NUR America, NUR Europe, NUR Asia Pacific and NUR Middle East Africa. The Company's warranty to its direct customers and the Company's distributors in most cases covers defects in the Company's Printers for a period of six months after installation. In most cases the Company has a parallel warranty from NPE or from its suppliers with respect to most of the components covered by the Company's warranty. The Company is also committed to maintaining sufficient spare parts and materials necessary for the operation of the Company's Printers for a period of five years after the manufacturing date of the last NUR printer. RESEARCH AND DEVELOPMENT The Company's research and development efforts, currently engaging approximately 55 employees, are focused on developing new products and technologies; enhancing the quality and performance relative to price of its existing products; reducing manufacturing costs; upgrading and expanding its product line through the development of additional features; and improving functionality in response to market demand. There are two research and development facilities, the main facility at the Company's headquarters in Israel and another smaller facility in Belgium. Total research and development expenses, before royalty bearing grants, were approximately $1.73 million, $5.03 million and $5.53 million in the years ended December 31, 1997, 1998 and 1999, respectively. In the year ended December 31, 1998, $1.95 million of these expenses were related to the acquisition of technology from Meital resulting in a one-time write-off assigned to research and development. Research and development expenditures are comprised principally of salaries for employees, the hiring of sub-contractors, capital investment in infrastructure for software and electronic designs, and prototype material costs. Initially, the Company relied on outside research and development. The Company began its own research and development operations in early 1994. NUR Europe received a grant from local authorities in Belgium for reimbursement of up to 70% of its total research and development investment, which it carries out in Belgium, up to approximately $1 million. If no revenues are derived from the technologies and NUR Europe develops no products as a result thereof, then no repayment of the grant is required. Should revenues be recognized from the research and development efforts, a progressive five-year repayment program would be implemented. NUR Media Solutions has established a research and development center in Belgium dedicated to the research and development of print substrates and inks for use with the Company's Printers. In September 1998, the Company purchased certain piezo D-O-D technology from Meital. The Company purchased Meital's technology for an aggregate amount of $3.0 million, of which payment of $0.85 million was conditional upon the success of the technology, and $0.9 million was to be paid in future installments. The Meital acquisition resulted in the recognition by the Company of a one-time 11 charge involving a write-off assigned to research and development of $1.95 million in the third quarter of 1998. As part of the purchase price, the Company has future royalty obligations to Meital, during the next two years, of up to $1.3 million. During 1999, the Company paid royalties to Meital in the amount of $0.45 million. If the Company does not meet its obligation to pay minimum royalty payments, Meital will have the option to buy the technology back for approximately the royalties paid by the Company to date. In the past, the Company has received grants from the Government of Israel, through the Office of the Chief Scientist (the "OCS"), for the development of its systems and products, including the Outboard printer. The Company received approximately, $0.37 million, $0.04 million, $0.82 million, and $0.74 million in research and development grants from the OCS in the years ended December 31, 1996, 1997, 1998, and 1999, respectively. The OCS awards grants of up to 50% (and in certain circumstances up to 66%) of a project's approved expenditures in return for royalties. Under the terms of the Company's funding from the OCS, royalties are payable generally at a rate of 2% to 3% on sales of products developed from the funded project and ending when 100% to 150% of the dollar value of the grant is repaid. No payments of royalties for such grant were made to OCS in the years ended December 31, 1996, through 1999. As of December 31, 1999, the Company had a contingent liability to pay OCS $1.1 million in future royalty payments. The Company expects to make royalty payments to the OCS on sales of the NUR Fresco printers. The terms of the OCS grants prohibit the manufacture of products developed with government grants to be performed outside of Israel or the transfer out of Israel of the technology developed pursuant to these grants without the prior consent of the OCS. These restrictions do not bar exports from Israel of products developed with such technologies. In addition, the know-how from the research and development that is used to produce the product may not be transferred to third parties or out of Israel without the approval of the OCS. COMPETITION The principal competitive factors affecting the Company's sales of its products are their performance relative to price, productivity and throughput, product features and technology, quality, reliability, cost of operation and consumables, the quality and costs of training, support and service as well as the flexibility of adapting to customers' applications of the products. Other competitive factors include the ability to provide access to product financing, the Company's reputation and customer confidence in the Company to continually develop new products and product accessories that will help them maintain and grow their business. The Company's main competitors in the SWF arena are Vutek, Signtech and Scitex. All three companies have introduced products that directly compete with the NUR Blueboard printers. In the WF market, the competitors are Scitex, through its subsidiary, Scitex Wide Format Printing Ltd., formerly Idanit Technologies Ltd., 3M Image Graphics, Vutek and Raster Graphics Inc. These companies have introduced products that compete with the NUR Fresco printer. The printing industry is large, and many of the Company's competitors possess greater management, financial, technical, manufacturing, marketing, sales, distribution, and other resources than those of the Company. As a result, there can be no assurance that competitors will not develop and market products utilizing new technology that are competitive in price and performance with the Company's Printers, and there can be no assurance that the Company can compete effectively with such products. TRADE SECRETS, PATENTS AND PROPRIETARY RIGHTS The Company currently relies on a combination of trade secrets, licenses, and patents, together with non-disclosure and confidentiality agreements, to establish and protect its proprietary rights in its products. No assurance can be given that the Company's existing patents or any future patents by the Company will not be challenged, invalidated, or circumvented, or that the Company's competitors will not independently develop or patent technologies that are substantially equivalent or superior to the Company's technology. There can be no assurance that further patent protection will be obtained in Israel, the United States, or elsewhere, for existing or new products or applications, or that such further protection, if obtained, will be effective. In some countries, meaningful patent protection is not available. 12 The Company is not aware of any material claim that its products infringe upon the proprietary rights of third parties. However, there can be no assurance that third parties will not assert infringement claims against the Company in the future, and the cost of responding to such assertions, regardless of their validity, could be significant. In addition, such claims may be found to be valid and could result in awards against the Company, which could have a material effect on the Company's business. As a result, the cost to the Company of protecting its patent rights could be substantial. The Company believes that its success is less dependent upon the legal protection afforded by patent and other proprietary rights than on the knowledge, ability, experience, and technological expertise of its employees and its key suppliers. It is the Company's policy to have employees sign confidentiality agreements, to have selected parties, including key suppliers, sub-contractors, and distributors, sign non-competition agreements, and to have third parties sign non-disclosure agreements. Although the Company takes precautionary measures to maintain its trade secrets, no assurance can be given that others will not acquire equivalent trade secrets or otherwise gain access to or disclose the Company's proprietary technology, or that the Company can meaningfully protect its rights to such proprietary technology not subject to patent protection. EMPLOYEES AND LABOR RELATIONS As of March 31, 2000, the Company employed approximately 200 persons worldwide, about 23% of which in research and development. 95 of these employees are employed by the Company in Israel and the remainder are employed by the Company's subsidiaries worldwide. All of the Company's employees who have access to confidential information are required to sign a non-disclosure agreement covering all Company confidential information that they might possess or to which they might have access. The Company believes its labor relations are satisfactory and has never experienced a strike or work stoppage. The Company believes its future success will depend, in part, on its ability to continue to attract, retain, motivate, and develop highly qualified technical, marketing and sales, and management personnel. Israeli law generally requires severance pay equal to one month's salary for each year of employment upon the termination of employment. The Company's liability for future severance pay obligations is fully provided for by payments equal to 8.33% of an employee's salary each month made to various managers' insurance policies and by accrual. The employees of the Company are usually provided with an additional contribution towards their retirement that amounts to 10% of wages, of which the employee and the employer each contributes half. Furthermore, Israeli employees and employers are required to pay predetermined sums to the National Insurance Institute, which is similar to the United States Social Security Administration, and additional sums towards compulsory health insurance. INSURANCE The Company believes that the insurance coverage for its business is in accordance with industry standards and is adequate and appropriate in light of the Company's businesses and the risks to which they are subject. RISK FACTORS INVESTING IN OUR SHARES IS VERY RISKY. YOU SHOULD BE ABLE TO BEAR A COMPLETE LOSS OF YOUR INVESTMENT. TO UNDERSTAND THE LEVEL OF RISK, YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION FOUND IN THIS FORM. WE NEED ADDITIONAL FINANCING. We believe that our revenues from operations together with our capital resources and credit facilities will be sufficient to fund our current activities at their present rate without our planned expansion through July 2001. If we want to proceed with the planned 13 WE NEED TO RAISE MORE expansion of our operations, we will MONEY TO SUCCESSFULLY RUN require additional funds, to be OUR BUSINESS. raised through public or private financing of debt or equity, to ensure our ability to maintain our operations after December 2000. If we are unable to raise such funds, we will have to reduce or eliminate certain planned expenditures for research and development, production, or marketing of our products, any one of which could have a negative impact on our financial results. In this regard, how much money we will need depends on numerous factors, including the success of our marketing and customer service efforts, our research and development activities and the demand for our products and services. We cannot guarantee that additional financing will be available or that, if available, it will be obtained on terms we find favorable. We currently have no commitments for additional financing. WE DEPEND ON A FEW KEY We are highly dependent upon the sale PRODUCTS IN A BUSINESS of our principal products, the NUR SUBJECT TO RAPID Blueboard printers and the NUR Fresco TECHNOLOGICAL CHANGE. printer. Rapid changes in technology, customer preferences and evolving industry standards increasingly characterize the market for our printers. As a result of these factors, our growth and future financial performance will depend upon our ability to develop and market new products and keep pace with the latest technological advances in the industry. We must also improve our existing products to accommodate technological advances and customer preferences. During 1998 and 1999, we invested approximately OUR SUCCESS DEPENDS ON THE $5.03 million and $5.53 million RESEARCH AND DEVELOPMENT OF respectively, in research and NEW PRODUCTS. development projects of which, in 1998, $1.95 million was related to the acquisition of technology that caused a one-time write-off assigned to research and development. Our business could seriously suffer if we fail to anticipate or respond adequately to changes in technology and customer preferences, or if our products are delayed in their development or introduction. Other events beyond our control could also hurt our business. For example, one of our competitors could develop and market a printer that customers prefer over our printers. We cannot make assurances that we will successfully develop any new products. Finally, we cannot predict how the introduction of new products by our competitors will affect sales of our existing products. OUR NEW PRODUCT, THE NUR We started selling the NUR Fresco in FRESCO, HAS NOT BEEN February 2000. Much of our success WIDELY ACCEPTED IN ITS with the NUR Fresco depends upon our INTENDED MARKET. ability to sell this digital printing system as a replacement for traditional screen printers in the wide format market for short and medium-run jobs. This market is currently dominated by screen printers. We may not be successful in our efforts. OVER THE NEXT TWO YEARS WE In September 1998 we acquired all WILL MAKE SIGNIFICANT rights to a certain drop-on-demand ROYALTY PAYMENTS. inkjet technology suitable for large format digital printers. Until September 2001 we must pay royalty payments to the seller of up to $1.3 million. If we do not make certain minimum royalty payments, the seller of the technology will have the option to buy-back the technology. OUR SUCCESS DEPENDS ON OUR We currently purchase all of the ink and inkjets used in our NUR 14 SUPPLIERS AND SUBCONTRACTORS. Blueboard printers from one supplier, Imaje, a French manufacturer of ink-related products, and purchase all of our inkjet printheads used in the NUR Fresco from another supplier. We have been able to obtain adequate supplies of ink and inkjets in the past, although Imaje has occasionally delivered the supplies late. If these sole suppliers experience any problem that results in production delays, our sales to new customers and IMAJE IS OUR ONLY SUPPLIER OF existing customers that rely on our INK AND INKJETS FOR THE NUR ink and/or inkjet components to BLUEBOARD PRINTERS. operate their printers could be hurt. Because the success of our business depends on the sale of our printers, such a supply problem could have a severe effect on our financial results. Also, if Imaje reduces or changes the credit or payment terms it extends to us, our business could be hurt. WE RELY ON A LIMITED NUMBER OF We employ a limited number of SUBCONTRACTORS. unaffiliated subcontractors to manufacture components for our printers. The assembly of our NUR Blueboard printers is currently conducted by NPE, a 50% owned subsidiary. Our subcontractors have, in the past, been late in delivering components. We have, however, been able to obtain adequate supplies of the components and raw materials necessary to produce our printers and we have not had any serious problems with our subcontractors. Because we rely on subcontractors, we cannot be sure that we will be able to maintain an adequate supply of components. Moreover, we cannot be sure that any of the components we purchase will satisfy our quality standards and be delivered on time. Our business could suffer if we fail to maintain our relationships with our subcontractors or fail to develop alternative sources for our printer components. Also, as our business grows, we will need to purchase greater quantities of components on a timely basis, and any delay in supply could hurt our sales. We cannot guarantee that we will develop alternative sources of production for our products. OUR BUSINESS IS EXTREMELY The printing equipment industry is COMPETITIVE. extremely competitive and many of our competitors have greater management, financial, technical, manufacturing, marketing, sales, distribution and other resources than we do. Our ability to compete depends on factors both within and outside of our control, including the performance and acceptance of our current printers and any products we develop in the future. We compete against several companies that market digital WE HAVE NUMEROUS printing systems based on COMPETITORS IN THE MARKET electrostatic, drop-on-demand inkjet, FOR OUR PRINTERS. airbrush and other technologies. We also face competition from existing conventional wide-format and super-wide format printing methods, including hand painting, screen printing and offset printing. Our competitors could develop new products, with existing or new technology, that could be competitive in price and performance with our printers. We can not assure you that we can compete effectively with any such products. WE ALSO FACE COMPETITION We also compete with independent IN THE MARKET FOR PRINTING manufacturers in the market for SUPPLIES. printer supplies, in particular, the inks we supply. In 1998 and 1999, ink sales accounted for 23.6% and 23.1% of our total sales, respectively. We cannot guarantee that we will be able to remain the exclusive or even principal ink manufacturer for our printers. We recently entered the substrate business, which is also highly 15 competitive and characterized by a large number of suppliers worldwide. We are developing substrates through subcontractors that have a high added value when used with our printers. We believe we are well positioned, both in our technical knowledge and in the minds of our customers, to succeed in selling high value-added substrates to our customers. We can not assure you that we will be able to compete effectively or achieve significant revenues in the substrate business. WE DEPEND ON OUR KEY EMPLOYEES. Our success depends to a significant extent upon the contributions of key personnel and our senior executives. Our business could seriously suffer if one or more of our key personnel or senior executives were to leave our Company. In addition, we do not have, and do not contemplate getting, "key-man" life insurance for any of our key employees. Our future success will also depend in part on our continuing ability to retain our key personnel and senior executives and to attract other highly qualified employees. We cannot assure our continued success in attracting or retaining highly qualified personnel. WE RELY ON TRADE SECRETS, PATENTS AND We rely on a combination of trade PROPRIETARY RIGHTS. secrets, licenses, patents and non-disclosure and confidentiality agreements to establish and protect our proprietary rights in our products. We cannot guarantee that our existing patents or any future patents will not be challenged, invalidated, or circumvented, or that our competitors will not independently develop or patent technologies that are substantially equivalent or superior to our technology. We cannot be sure that we will receive further patent protection in Israel, the United States, or elsewhere, for existing or new products or applications. Even if we do secure further patent protection, we cannot guarantee it will be effective. In some countries, meaningful patent protection is not available. We are not aware of any infringement claims against us involving our proprietary rights. Third parties may assert infringement claims against us in the future, and the cost of responding to such assertions, regardless of their validity, could be significant. In addition, such claims could be found to be valid and result in large judgments against us. Even if such claims are not valid, the cost could be substantial to protect our patent rights. IT IS DIFFICULT TO PROTECT OUR We believe that our success is less PROPRIETARY RIGHTS. dependent upon the legal protection afforded by patent and other proprietary rights than on the knowledge, ability, experience and technological expertise of our employees and our key suppliers. Our policy is to have employees sign confidentiality agreements, to have selected parties, including key suppliers, sub-contractors and distributors, sign non-competition agreements and to have third parties that we deal with sign non-disclosure agreements. Although we take precautionary measures to protect our trade secrets, we cannot guarantee that others will acquire equivalent trade secrets or steal our exclusive technology. Moreover, we may not be able to meaningfully protect our rights that are not protected by patents. 16 WE RELY ON INTERNATIONAL SALES. Our printers and supplies are sold worldwide, with revenues generated in various currencies. There are a number of risks inherent in international business activities, including unexpected changes in regulatory requirements, political instability, tariffs and other trade barriers, as well as the burdens of complying with different foreign laws. To date, fortunately, these risks have not materially affected our business or financial situation. We cannot predict, however, when exchange or price controls or other restrictions on the conversion of foreign currencies could impact our business. CURRENCY FLUCTUATIONS ARE Because we have revenues and expenses A RISK WE FACE ON A DAILY in various currencies, including the BASIS. U.S. dollar, the NIS and certain European currencies, our financial results are subject to the effects of fluctuations of foreign currency exchange rates. In the future, currency fluctuations could hurt our profitability. We do not hedge against fluctuations in currency exchange rates, but we may do so in the future. ENVIRONMENTAL CONCERNS. We mix the ink used in our NUR Blueboard printers with a methyl ethyl-ketone solvent. Methyl ethyl-ketone solvent is a hazardous substance and is subject to various government regulations relating to its transfer, handling, packaging, use, and disposal. We store the ink at warehouses in Europe, the United States and Israel, and a shipping company ships it at our direction. We face potential responsibility for problems that may arise when we ship the ink to customers. We believe that we are in material compliance with all applicable environmental laws and regulations. If we fail to comply with these laws or an accident involving our ink waste or methyl ethyl-ketone solvent occurs then our business and financial results could be adversely affected. WE RELY ON GOVERNMENT GRANTS, We have been favorably affected by TAX BENEFITS AND OTHER FUNDING certain Israeli and Belgian FROM THIRD PARTIES. Government programs incentives. Our operations could be and tax legislation principally related to research and development and adversely affected if these programs sales and marketing grants and capital investment or tax benefits are reduced or eliminated and not replaced with equivalent programs or benefits, or if our ability to participate in these programs were significantly reduced. We cannot assure you that such programs and tax legislation will continue in the future or that the available benefits will not be reduced or that we will continue to meet the conditions to benefit from such programs and legislation. WE RECEIVE TAX BENEFITS Pursuant to the Law of Encouragement FROM THE ISRAELI of Capital Investments, the Israeli GOVERNMENT. government has granted "Approved Enterprise" status to some of our production facilities. Consequently, these facilities are eligible for certain tax benefits for the first several years in which they generate taxable income. If we fail to obtain additional grants, or if our tax benefits are significantly reduced, our financial condition could suffer. WE MUST COMPLY WITH To receive grants and tax benefits, CONDITIONS TO RECEIVE we must comply with a number of conditions. If we fail to comply with these conditions, the grants 17 GRANTS AND TAX BENEFITS. and tax benefits that we receive could be partially or fully canceled and we would be forced to refund the amount of the canceled benefits received, adjusted for inflation and interest. We believe that we have operated and will continue to operate in compliance with the required conditions, although we cannot be sure. We further believe that the likelihood is remote that we will be required to refund grants or tax benefits that we receive from the Israeli government, the Marketing Fund, and under our "Approved Enterprise" status. WE HAVE CHANGED OUR LEADERSHIP In April 1997, when Moshe Nur AND HAVE LIMITED MANAGEMENT transferred control of NUR RESOURCES TO MANAGE FUTURE Macroprinters, we replaced most of GROWTH. the members of our board of directors. We also made several management changes at such time and changed our Chief Financial Officer. Our recent growth has placed, and will continue to place, a significant strain on our management team, facilities and other resources. In order to support our growth, our new leadership adopted financial controls and reporting systems and expanded our management, facilities, financial and other resources. To avoid any negative effects on our business, we must successfully implement financial controls, expand our manufacturing, sales, marketing and service organizations, and update our accounting, operational and management information systems. Failure to do so effectively could have a material adverse effect on our business and financial results. OUR OPERATING RESULTS TEND TO Our revenues may vary significantly FLUCTUATE. from quarter to quarter as a result of, among other factors, the timing of new product announcements and releases by our competitors and us. We do not typically have a material backlog of orders at the beginning of each quarter. We generally ship and record a significant portion of our revenues for orders placed within the same quarter, primarily in the last month of the quarter. We may not learn of shortfalls in sales until late in, or shortly after the end of, such fiscal period. As a result, our quarterly earnings may be subject to significant variations. IMPORTANT FACILITIES AND OPERATIONS ARE Our most important facilities and LOCATED IN ISRAEL. operations and many of our subcontractors are located entirely in the State of Israel. Political and military conditions in Israel directly affect operations. Since Israel was established in 1948, a state of hostility has existed, varying in degree and intensity, between Israel and certain Arab countries. Although Israel has entered into agreements with some of these countries, the Palestine Liberation Organization and the Palestinian Authority, and the feuding parties have signed various declarations in hopes of resolving some of the hostilities, we cannot predict the future of the volatile Middle East and of Israel in particular. To date, Israel has not entered into a peace treaty with Lebanon or Syria, with whom Israel shares its northern borders, or with certain other Arab countries with which a state of hostility exists. Any major hostilities involving Israel, the Palestinian Authority, or Arab countries in the Middle East could have a 18 serious negative impact on our business operations. SOME OF OUR OFFICERS AND Furthermore, all nonexempt male adult EMPLOYEES ARE ON MILITARY citizens of Israel, including some of RESERVE. our officers and employees, are obligated to perform military reserve duty and are subject to being called for active duty under emergency circumstances. While we have operated effectively under these conditions in the past, we cannot predict the full impact of such conditions on us in the future, particularly if emergency circumstances occur. WE ARE SENSITIVE TO ECONOMIC CONDITIONS Inflation in Israel and devaluation IN ISRAEL. of the NIS have an impact on our financial results. Although Israel has substantially reduced the rates of inflation and devaluation in recent years, they are still relatively high and we could experience losses due to inflation or devaluation. If inflation rates in Israel increase again and hurt Israel's economy as a whole, our operations and financial condition could be negatively impacted. WE DO NOT KNOW THE IMPACT Israeli law limits foreign currency OF RECENT POLICY CHANGES transactions and transactions between ON FOREIGN CURRENCY Israeli and non-Israeli residents. TRANSACTIONS. The Controller of Foreign Exchange at the Bank of Israel, through "general" and "special" permits, may regulate or waive these limitations. Until recently, transactions in foreign currency were strictly regulated. In May 1998, the Bank of Israel liberalized its foreign currency regulations by issuing a new "general permit" pursuant to which foreign currency transactions are generally permitted, although certain restrictions still apply. Restricted transactions include foreign currency transactions by institutional investors, including futures contracts by foreign residents for periods of more than one month, and investments outside of Israel by pension funds and insurers. Under the new general permit, all foreign currency transactions must be reported to the Bank of Israel. We cannot currently assess what impact, if any, this liberalization will have on us. We also cannot predict its impact on the value of the NIS compared to the dollar and the corresponding effect on our financial statements. SERVICE OF PROCESS AND We are organized under the laws of ENFORCEMENT OF JUDGMENTS. Israel and our headquarters are in Israel. Certain of our officers and directors reside outside of the United States. Therefore, you may not be able to enforce any judgment obtained in the U.S. against us or any of such persons. You may not be able to enforce civil actions under U.S. securities laws if you file a lawsuit in Israel. However, we have been advised by our Israeli counsel that subject to certain limitations, Israeli courts may enforce a final judgment of a U.S. court for liquidated amounts in civil matters after a hearing in Israel. If a foreign judgment is enforced by an Israeli court, it will be payable in Israeli currency. 19 ITEM 2: DESCRIPTION OF PROPERTY ISRAEL The Company's main facilities in Moshav Magshimim, Israel consists of approximately 13,000 square feet. The Company uses this facility as its headquarters and for research and development. Lease for the Magshimim property has been extended until December 1, 2000, when the Company plans to relocate its headquarters to a leased facility in a high-tech industrial zone in Lod, Israel. The Lod facility is approximately 14,765 square feet. The initial five-year lease of the Lod facility provides for monthly rent of $63,750. The lease agreement grants the Company an option to continue the lease term for two consecutive periods of 2.5 years. NPE leases approximately 6,292 square feet in Rosh Ha'ain, Israel, for the manufacture and assembly of the NUR Blueboard and the NUR Fresco. The Rosh Ha`ain lease expires in May 2001. UNITED STATES NUR America leases office space in Newton, Massachusetts consisting of 4,500 square feet for use as the subsidiary's headquarters, sales and marketing offices, and demonstration and service center. The Newton lease expires in October 2008. BELGIUM NUR Europe leases approximately 1,970 square feet of office space in Brussels, Belgium for use as the subsidiary's headquarters and sales office demonstration and service center. The Brussels lease expires in September 2011. NUR Europe plans to expand its headquarters space at the above address by additional 2,460 square feet. The lease for the additional space will expire in March 2012. NUR Media Solutions leases approximately 600 square feet office space in Louvain-la-Neuve, Belgium for use as office space. The Louvain-la-Neuve lease will expire in December 2002. Stillachem leases temporary office space in Belgium of approximately 853 square feet. The lease expires in November 2002. Stillachem intends to build new facilities specially suited for its operations. ASIA NUR Shanghai leases approximately 2,067 square feet of space for use as a warehouse and as a demonstration center in a free trade zone in Shanghai, China, and occupies office space in a separate location in Shanghai China. The leases will expire on April 2000 and December 2001 respectively. NUR Shanghai has the option to extend the warehouse lease for an extended period of 12 months. NUR Asia Pacific leases office space of approximately 32 square feet and warehouse space of approximately 32 square feet in Hong Kong. The leases are terminated upon written notice from NUR Asia Pacific. NUR Asia Pacific leases office space of approximately 170 square feet in Singapore. The lease will expire on November 2000. ITEM 3: LEGAL PROCEEDINGS In July 1999, the Company entered into a settlement agreement with Scitex Wide Format Printing Ltd. (formerly Idanit) and a former sales professional of Idanit currently employed with NUR America. Pursuant to the settlement agreement, all claims relating to the recruitment of the sales professional by NUR America, including claims brought in Israel and in Massachusetts, were settled and withdrawn with prejudice. 20 ITEM 4: CONTROL OF REGISTRANT The following table sets forth information regarding the beneficial ownership of the Company's Ordinary Shares as of April 5, 2000, by (i) each person known by the Company to be the beneficial owner of more than 10% of the outstanding Ordinary Shares and (ii) all of the Company's executive officers and directors as a group (10 persons). All of the information with respect to beneficial ownership of the Ordinary Shares is given to the best of the Company's knowledge and has been furnished in part by the respective directors, executive officers, or beneficial owners, as the case may be.
ORDINARY SHARES PERCENTAGE OF ORDINARY SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED(1) Dan Purjes (2) 4,536,263 35.8% All current executive officers and directors as a group (10 persons)(3) 5,692,225 43.8%
- ---------- (1) Based on a total of 12,003,073 Ordinary Shares outstanding (2) Dan Purjes is Chairman of the Company (3) Includes the holdings of Dan Purjes ITEM 5: NATURE OF THE TRADING MARKET The Company's Ordinary Shares are quoted on the Nasdaq National Market under the symbol NURM. There is no non-United States trading market for the shares. As of April 5, 2000, there were 103 record holders of Ordinary Shares, of which 81 represented United States record holders holding approximately 85.4% the outstanding Ordinary Shares of the Company. The prices set forth below are high and low closing bid prices for the Ordinary Shares of the Company as reported by Nasdaq National Market. Such quotations reflect inter-dealer prices, without retail markup, markdown, or commission and may not necessarily represent actual transactions. 21
QUARTER HIGH LOW ------- ---- --- 1998 First quarter 3 1/8 1 11/16 Second quarter 4 1/2 2 1/4 Third quarter 3 1/8 1 15/16 Fourth quarter 3 3/8 1 3/4 1999 First quarter 3 5/16 2 1/2 Second quarter 3 23/32 2 7/8 Third quarter 5 1/2 9 Fourth quarter 7 5/16 12 15/16 2000 First quarter 18 15/16 10 5/8 Second quarter (through 15 7/8 12 1/8 May 2, 2000)
The Company does not anticipate that it will pay any cash dividend on its Ordinary Shares in the foreseeable future. Dividends, if any, will be paid in NIS. Dividends paid to shareholders outside Israel will be converted to U.S. dollars, on the basis of the exchange rate prevailing at the date of payment. The Company has determined that it will not distribute dividends out of tax-exempt profits. ITEM 6: EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS Non-residents of Israel will be able to receive dividends, if declared, and any amounts payable upon the dissolution, liquidation or winding-up of the affairs of the Company. Any such payments will be paid in freely repatriable non-Israeli currencies (including U.S. dollars). Such payments, if made, shall be made pursuant to a general permit issued by the Controller under the Currency Control Law, 1978 (the "Currency Control Law"). In May 1998, a new "general permit" was issued, which removed most of the restrictions prohibited under the law, and thus enabled Israeli citizens to freely invest outside of Israel and freely convert Israeli currency into non-Israeli currencies. There are no limitations on the right of non-resident or foreign owners to hold or vote their Ordinary Shares of the Company that are imposed by the Company's Articles of Association or by Israeli law, other than certain limitations imposed by Israeli Law upon countries who are in a state-of-war with the State of Israel and upon individual or entities residing, incorporated or carrying out business in such countries. ITEM 7: TAXATION CAPITAL GAINS AND INCOME TAXES APPLICABLE TO NON-ISRAELI SHAREHOLDERS The following is a summary of the current tax laws of the State of Israel as they relate to the Company and its shareholders. This summary does not discuss all aspects of Israeli tax law that may be relevant to a particular investor in light of his personal investment circumstances or to certain types of investors subject to special treatment under Israeli law (for example, traders in securities, businesses in Israel or persons that own, directly or indirectly, 10% or more of the Company's outstanding voting stock). The following also includes a discussion of certain Israeli government programs benefiting 22 various Israeli businesses such as the Company. To the extent that the discussion is based on new legislation yet to be subject to judicial or administrative interpretation, there can be no assurance that the views expressed herein will accord with any such interpretation in the future. This discussion is not intended and should not be construed as legal or professional tax advice, and does not cover all possible tax considerations. GENERAL CORPORATE TAX STRUCTURE The Company is subject to corporate tax in Israel. Commencing in the tax year 1993 through and including 1996, the regular rate of corporate tax to which Israeli companies are subject decreased by 1% each year, i.e., from 39% in 1993 down to 36% in 1996 and thereafter. However, the effective rate payable by a company which derives income from an "Approved Enterprise" (as further discussed below) may be considerably less. See "--Law for the Encouragement of Capital Investments, 1959." TAXATION UNDER INFLATIONARY CONDITIONS The Income Tax Law (Adjustment for Inflation), 1985 (the "Adjustment for Inflation Law") attempts to overcome some of the problems experienced in a traditional tax system by an economy experiencing rapid inflation, which was the case in Israel at the time the Adjustment for Inflation Law was enacted. Generally, the Adjustment for Inflation Law was designed to neutralize for Israeli tax purposes the erosion of capital investments in businesses and to prevent unintended tax benefits resulting from the deduction of inflationary financing expenses. The Adjustment for Inflation Law applies a supplementary set of inflationary adjustments to taxable profit computed according to regular historical cost principles. The Adjustment for Inflation Law introduced a special tax adjustment for the preservation of equity based on changes in the Israeli CPI whereby certain corporate assets are classified broadly into fixed (inflation resistant) assets and non-fixed assets. Where shareholders' equity, as defined in the Adjustment for Inflation Law, exceeds the depreciated cost of fixed assets, a corporate tax deduction which takes into account the effect of inflationary change on such excess in allowed (up to a ceiling of 70% of taxable income for companies in any single tax year, with the unused portion permitted to be carried forward on a linked basis with no ceiling). If the depreciated cost of fixed assets exceeds shareholders' equity, then such excess multiplied by the annual rate of inflation is added to taxable income. In addition, subject to certain limitations, depreciation on fixed assets and losses carried forward are adjusted for inflation based on changes in the Israeli CPI. The net effect of the Adjustment for Inflation Law on the Company might be that the Company's taxable income, as determined for Israeli corporate tax purposes, will be different than the Company's U.S. dollar income, as reflected in its financial statements, due to the difference between the annual changes in the CPI and in the NIS exchange rate with respect to the U.S. Dollar, causing changes in the effective tax rate. LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969 The Company currently qualifies as an "Industrial Company" within the definition of the Law for the Encouragement of Industry (Taxes), 1969 (the "Industry Encouragement Law"). According to the Industry Encouragement Law, an "Industrial Company" is a company resident in Israel, at least 90% of the income of which in any tax year (exclusive of income from defense loans, capital gains, interest and dividends), is derived from an "Industrial Enterprise" owned by it. An "Industrial Enterprise" is defined by that law as an enterprise whose major activity in a given tax year is industrial production activity. Included among the tax benefits for an Industrial Company are deductions of 12.5% per annum of the purchase price of a good-faith acquisition of a patent or of know-how, an election under certain conditions to file a consolidated return and accelerated depreciation rates on equipment and buildings. 23 Eligibility for the benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority. No assurance can be given that the Company will continue to qualify as an "Industrial Company" or that the benefits described above will be available in the future. LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959 The Law for the Encouragement of Capital Investments, 1959, as amended (the "Investment Law"), provides that a capital investment in production facilities (or other eligible facilities) may, upon application to the Israel Investment Center, be designated as an Approved Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific program delineated both by its financial scope, including its capital sources, and its physical characteristics, I.E., 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 profits attributable to the specific Approved Enterprise. Taxable income of a company derived from an Approved Enterprise designated as such is subject to corporate tax at the rate of 25% or less based on the percentage of foreign ownership of the company (rather than the regular corporate tax rate of 36%) throughout the "Benefit Period"--a period of seven years commencing with the year in which the Approved Enterprise first generated taxable income (limited to the earlier of twelve years from the commencement of production or fourteen years from the date of approval) and, under certain circumstances, extending to a maximum of ten years therefrom. In the event a company operates under more than one approval or only part of its capital investments are approved (a "Mixed Enterprise"), its effective corporate tax rate is the result of a weighted combination of the various applicable rates. In addition, a company owning an Approved Enterprise approval may elect to forego certain government grants extended to its Approved Enterprise in exchange 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 corporate tax for a period of between two and ten years, depending on the geographic location of the Approved Enterprise within Israel, and such company will be eligible for the tax benefits under the Investment Law described above for the remainder of the Benefits Period. Part of the Company's production facilities have been granted the status of "Approved Enterprise" under the Investment Law, under two separate investment plans. The implementation of the investments under the first plan was finalized in 1993. The implementation of the second plan was finalized in 1999. According to the provisions of the Investment Law, the Company chose to enjoy "alternative benefits"--waiver of grants in return for tax exemption. Accordingly, the Company's income from the Approved Enterprise will be tax-exempt for a period of two and four years for the first and second plans, respectively, commencing with the year it first earns taxable income, and subject to corporate tax at the rate of 25% (or less based on the percentage of foreign ownership of the company), for additional periods of five and three years, for the first and second plans, respectively. The period of tax benefits, detailed above, is subject to limits of 12 years from the commencement of production, or 14 years from receiving the approval, whichever is earlier. Given the above mentioned conditions, the period of benefits for the first plan commenced in the year 1994 and will terminate in the year 2000, and the period of benefits for the second plan commenced in the year 1999 and will terminate in the year 2005. If dividends are distributed out of such tax-exempt profits, the Company will be liable for corporate tax at the rate, which would have been applied if it had not chosen the alternative tax benefits (currently 15% or 25% based on the percentage of foreign ownership of the company for an "Approved 24 Enterprise"). Therefore, income derived from the Company's "Approved Enterprise" status is not available for distribution to shareholders as a dividend. See Note 20(a) to the Company's Financial Statements. The dividend recipient is taxed at the reduced rate applicable to dividends from Approved Enterprises (15%), if the dividend is distributed during the tax exemption period or within a specified period thereafter, or for an unlimited period in the case of a "Foreign Investors' Company" - a company over 25% foreign-owned with an approved enterprise. This tax must be withheld by the company at source, regardless of whether the dividend is converted into foreign currency. See "--Capital Gains and Income Taxes Applicable to Non-Israeli Shareholders." Subject to certain provisions concerning income subject to the Alternative Package, all dividends are considered to be attributable to the entire enterprise, and the effective tax rate is the result of a weighted combination of the various applicable tax rates. 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. Grants and certain other incentives received by a company in accordance with the Investment Law remain subject to final ratification by the Israel Investment Center, such ratification being conditional upon fulfillment of all terms of the approved program. Failure to comply with all such terms may require the return of such grants and incentives (inclusive of interest as of the date of the grant). Receipt of grants and tax benefits from the OCS and the Marketing Fund and under the Company's existing "Approved Enterprise" status and any new programs, if and when approved, are or will be, as the case may be, subject to various conditions. The tax benefits derived from the Company's "Approved Enterprise" status are conditioned upon fulfillment of the conditions stipulated by the Investment Law, the regulations promulgated thereunder and the criteria set forth in the certificate of approval issued pursuant to the Investment Law. In the event of a failure by the Company to comply with these conditions and criteria, the grants and tax benefits could be canceled, in whole or in part, and the Company would be required to refund the amount of the canceled benefits, adjusted for inflation and interest. Management believes that the Company has operated and will continue to operate in compliance with all the "Approved Enterprise" conditions and criteria applicable to it from the OCS, the Marketing Fund and its "Approved Enterprise" status, although there can be no assurance of this, and that the likelihood is remote that it will be required to refund grants or tax benefits that it derives from the OCS, the Marketing Fund and under its "Approved Enterprise" status. There can be no assurance that the funding and tax benefits will continue. See "Item 1: Description of Business--Research and Development and --Risk Factors--We Rely Upon Government Grants, Tax Benefits, and Other Funding From Third Parties." CAPITAL GAINS AND INCOME TAXES APPLICABLE TO NON-ISRAELI SHAREHOLDERS Under existing regulations, any capital gain realized by a shareholder with respect to the Ordinary Shares acquired on or after the registration of such shares will be exempt from Israeli Capital Gains Tax if the Ordinary Shares are listed on an approved foreign securities market (which term includes the Nasdaq in the United States) and provided that the Company continues to qualify as an Industrial Company under Israeli law, and provided the shareholder does not hold such shares for business purposes. Upon a distribution of dividends other than bonus shares (stock dividends), income tax is generally withheld at source at the rate of 25% (or the lower rate payable with respect to Approved Enterprises, see "--Law for the Encouragement of Capital Investments, 1959"), unless a double taxation treaty is in effect between Israel and the shareholder's country of residence that provides for a lower tax rate in Israel on dividends. 25 A tax treaty between the United States and Israel (the "Treaty"), effective since January 1, 1995, provides for a maximum tax of 25% on dividends paid to a resident of the United States (as defined in the Treaty). Dividends distributed by an Israeli company and derived from the income of an approved enterprise are subject to a 15% dividend withholding tax. The Treaty further provides that a 12.5% Israeli dividend withholding tax would apply to dividends paid to a United States corporation owning 10% or more of an Israeli company's voting stock. The 12.5% rate applies only on dividends from a company that does not have an "Approved Enterprise" in the applicable period. A non-resident of Israel who has had dividend income derived or accrued in Israel from which tax was withheld at source is currently exempt from the duty to file an annual Israeli tax return with respect to such income, provided such income was not derived from a business carried on in Israel by such non-resident and that such non-resident does not derive other non-passive income from sources in Israel. Proposals are being formulated to expand the requirement to file annual Israeli tax returns. TAX BENEFITS FOR RESEARCH AND DEVELOPMENT Israeli tax law allows under certain conditions a tax deduction in the year incurred for expenditures (including non-depreciable capital expenditures) in scientific research and development projects, if the expenditures are approved by the relevant Israeli Government Ministry (determined by the field of research) and the research and development is for the promotion of the enterprise and is carried out by or on behalf of the company seeking such deduction. Expenditures not so approved are deductible over a three-year period. However, according to Israeli Supreme Court decisions, expenditures made out of the proceeds of government grants are not deductible, i.e., the Company will be able to deduct the unfunded portion of the research and development expenditures and not the gross amount. U.S. TAX CONSIDERATIONS REGARDING ORDINARY SHARES The following summary describes certain of the principal United States federal income tax consequences relating to an investment in Ordinary Shares as of the date hereof. The summary is based on the Internal Revenue Code of 1986 (the "Code"), and existing final, temporary and proposed Treasury Regulations, Revenue Rulings and judicial decisions, all of which are subject to prospective and retroactive changes. The Company will not seek a ruling from the Internal Revenue Service (the "IRS") with regard to the United States federal income tax treatment relating to an investment in Ordinary Shares and, therefore, there can be no assurance that the IRS will agree with the conclusions set forth below. The summary does not purport to address all federal income tax consequences that may be relevant to particular investors. For example, the summary applies only to holders who hold Ordinary Shares as a capital asset within the meaning of Section 1221 of the Code, and does not address the tax consequences that may be relevant to investors in special tax situations (including, for example, insurance companies, tax-exempt organizations, dealers in securities or currency, banks or other financial institutions, or investors that hold Ordinary Shares as part of a hedge, straddle or conversion transaction). Further, it does not address the alternative minimum tax consequences of an investment in Ordinary Shares or the indirect consequences to Holders of equity interests in investors in Ordinary Shares. ACCORDINGLY, PERSONS CONSIDERING THE PURCHASE OF ORDINARY SHARES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS. For purposes of this discussion, "Company" refers to NUR Macroprinters Ltd., and "U.S. Holder" means a holder of Ordinary Shares that is a citizen or resident of the United States, a partnership or corporation created or organized in the United States or any State thereof (including the District of Columbia), or an estate or trust the income of which is subject to United States federal income tax on a net income basis with respect to Ordinary Shares. The term "non-U.S. Holder" refers to any holder of Ordinary Shares other than a U.S. Holder. 26 TAXATION OF U.S. HOLDERS DISTRIBUTIONS ON ORDINARY SHARES. Distributions made by the Company with respect to Ordinary Shares generally will constitute dividends for federal income tax purposes and will be taxable to a U.S. Holder as ordinary income to the extent of the Company's undistributed current or accumulated earnings and profits (as determined for United States federal income tax purposes). Distributions in excess of the Company's current or accumulated earnings and profits will be treated first as a nontaxable return of capital reducing the U.S. Holder's tax basis in the Ordinary Shares, thus increasing the amount of any gain (or reducing the amount of any loss) which might be realized by such Holder upon the sale or exchange of such Ordinary Shares. Any such distributions in excess of the U.S. Holder's tax basis in the Ordinary Shares will be treated as capital gain to the U.S. Holder and will be either long term or short term capital gain depending upon the U.S. Holder's federal income tax holding period for the Ordinary Shares. Dividends paid by the Company generally will not be eligible for the dividends received deduction available to certain United States corporate shareholders under Code Sections 243 and 245. The amount of any cash distribution paid in a foreign currency will equal the U.S. dollar value of the distribution, calculated by reference to the exchange rate in effect at the time the dividends are received. A U.S. Holder should not recognize any foreign currency gain or loss if such foreign currency is converted into U.S. dollars on the day received. If a U.S. Holder does not convert the foreign currency into U.S. dollars on the date of receipt, however, such Holder may recognize gain or loss upon a subsequent sale or other disposition of the foreign currency (including an exchange of the foreign currency for U.S. dollars). Such gain or loss, if any, will be ordinary income or loss for United States federal income tax purposes. Subject to certain conditions and limitations, any Israeli withholding tax imposed upon distributions which constitute dividends under United States income tax law will be eligible for credit against a U.S. Holder's federal income tax liability. Alternatively, a U.S. Holder may claim a deduction for such amount, but only for a year in which a U.S. Holder elects to do so with respect to all foreign income taxes. The overall limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by the Company with respect to Ordinary Shares will generally constitute "passive income." SALE OR EXCHANGE OF ORDINARY SHARES. A. U.S. Holder of Ordinary Shares generally will recognize capital gain or loss upon the sale or exchange of the Ordinary Shares measured by the difference between the amount realized and the U.S. Holder's tax basis in the Ordinary Shares. Gain or loss will be computed separately for each block of shares sold (shares acquired separately at different times and prices). The gain or loss on such disposition will be long-term capital gain or loss if the Ordinary Shares had been held for more than one year. The deductibility of capital losses is restricted and generally may only be used to reduce capital gains to the extent thereof. However, individual taxpayers generally may deduct annually $3,000 of capital losses in excess of their capital gains. PASSIVE FOREIGN INVESTMENT COMPANY. A foreign corporation generally will be treated as a "passive foreign investment company" ("PFIC") if, after applying certain "look-through" rules, either (i) 75% or more of its gross income is passive income or (ii) 50% or more of the average value of its assets is attributable to assets that produce or are held to produce passive income. Passive income for this purpose generally includes dividends, interest, rents, royalties and gains from securities and commodities transactions. The look-through rules require a foreign corporation that owns at least 25%, by value, of an operating subsidiary to treat that proportion of the subsidiaries assets and income as held or received directly by the foreign parent. The Company does not believe that it is currently a PFIC nor does it anticipate that it will be a PFIC in the future because it expects that less than 75% of its annual gross income will be passive income and less than 50% of its assets will be passive assets, based on the look-through rules, the current income and assets of the Company and its subsidiaries, and the manner in which the Company and its subsidiaries are anticipated to conduct their businesses in the future. However, there can be no assurance that the 27 Company is not or will not be treated as a PFIC in the future. If the Company were to be treated as a PFIC, all U.S. Holders may be required, in certain circumstances, to pay an interest charge together with tax calculated at maximum rates on certain "excess distributions," including any gain on the sale of Ordinary Shares. In order to avoid this tax consequence, a U.S. Holder (i) may be permitted to make a "qualified electing fund" election, in which case, in lieu of such treatment would be required to include in their taxable income certain undistributed amounts of the Company's income or (ii) may elect to mark-to-market the Ordinary Shares and recognize ordinary income (or possible ordinary loss) each year with respect to such investment and on the sale or other disposition of the Ordinary Shares. Neither the Company nor its advisors have the duty to or will undertake to inform U.S. Holders of changes in circumstances that would cause the Company to become a PFIC. U.S. Holders should consult their own tax advisors concerning the status of the Company as a PFIC at any point in time after the date of this Form. The Company does not currently intend to take the action necessary for a U.S. Holder to make a "qualified electing fund" election in the event the Company is determined to be a PFIC. FOREIGN PERSONAL HOLDING COMPANY. A foreign corporation may be classified as a foreign personal holding company (a "FPHC") for federal income tax purposes if both of the following tests are satisfied: (i) at any time during the taxable year five or fewer individuals who are United States citizens or residents own or are deemed to own (under certain attribution rules) more than 50% of its stock (vote or value) and (ii) at least 60% (50% for years subsequent to the year in which it becomes a FPHC) of its gross income (regardless of its source), as specifically adjusted, "is foreign personal holding company income," which includes dividends, interest, rents, royalties and gain from the sale of stock or securities. The Company does not believe that it is currently a FPHC nor does it anticipate that it will be a FPHC in the future; however, no assurance can be given that the Company is not or will not become a FPHC as a result of future changes of ownership or changes in the nature of the income of the Company. If the Company were to be classified as a FPHC, each U.S. Holder would be required to include in income as a taxable constructive dividend its pro rata share of the Company's undistributed foreign personal holding company income. CONTROLLED FOREIGN CORPORATION. If more than 50% of the Ordinary Shares (vote or value) of the Company is owned, directly or indirectly, by U.S. Holders, each of whom owns or is deemed to own under certain attribution rules 10% or more of the total combined voting power of all classes of stock of the Company ("10% Shareholder"), the Company could be treated as a "controlled foreign corporation" (a "CFC") under Subpart F of the Code. It is unclear how controlling blocks of stock will be valued for these purposes. Accordingly, the Company may be treated as a CFC for United States federal income tax purposes even though 10% Shareholders do not own more than 50% of the outstanding Ordinary Shares. The Company does not believe that it is currently a CFC; however, no assurance can be given that the Company will not become a CFC as a result of future changes in its ownership. If the Company were to be treated as a CFC, each 10% Shareholder would be required to include in its taxable income as a constructive dividend its pro rata share of certain undistributed income of the Company, and all or a portion of the gain from the sale or exchange of the Ordinary Shares may be treated under Section 1248 of the Code as dividend income. Neither the Company nor its advisors have the duty to or will undertake to inform U.S. Holders of changes in circumstances that would cause the Company to become a CFC. U.S. Holders should consult their own tax advisors concerning the status of the Company as a CFC. INFORMATION REPORTING. Any U.S. Holder who owns 10% or more (in voting power or value) of the Ordinary Shares of the Company may be required to file IRS Form 5471 with the IRS to report certain acquisitions or dispositions of Ordinary Shares. In addition, annual filings of IRS Form 5471 would be required (i) by any U.S. Holder of 10% or more (of the voting power in the case of a CFC, or value in the case of a FPHC) of the Ordinary Shares of the Company, and (ii) by any U.S. Holder owning more than 50%, in voting power or value, of the Ordinary Shares of the Company. In addition, for taxable years beginning after February 5, 1999, U.S. Holders are required to report certain acquisitions of Ordinary Shares from the Company to the IRS on IRS Form 926, and that nonreporting may subject the U.S. 28 Holder to substantial penalties. Potential investors of the Shares should consult with their own tax advisors regarding the necessity of filing information returns. TAXATION OF NON-U.S. HOLDERS DISTRIBUTIONS ON ORDINARY SHARES. Distributions made by the Company with respect to the Ordinary Shares to non-U.S. Holders who are not engaged in the conduct of a trade or business within the United States will be subject to United States federal income tax only if 25% or more of the gross income of the Company (from all sources for the three-year period ending with the close of the taxable year preceding the declaration of the distribution) was effectively connected with the conduct of a trade or business in the United States by the Company. The Company does not anticipate engaging in the conduct of a trade or business within the United States, except through its subsidiaries. However, if the 25% threshold for such period is exceeded, a portion of any distribution paid by the Company to a non-U.S. Holder could be subject to federal income tax withholding at the rate of 30%; the portion of the distribution that could be subject to withholding would correspond to the portion of the Company's gross income for the period that is effectively connected to its conduct of a trade or business within the United States. SALE OR EXCHANGE OF ORDINARY SHARES. A non-U.S. Holder will not be subject to United States federal income tax on any gain realized upon the sale or exchange of Ordinary Shares if such Holder has no connection with the United States other than holding the Ordinary Shares and in particular (i) such gain is not effectively connected with a trade or business in the United States of the non-U.S. Holder, (ii) in the case of a non-U.S. Holder who is an individual which has a "tax home" (as defined in Section 911(d)(3) of the Code) in the United States, such non-U.S. Holder is not present in the United States for 183 days or more in the taxable year of such disposition, and (iii) the Company is not and has not been at any time within 5 years preceding such disposition a "U.S. real property holding corporation" (a "USRPHC") for federal income tax purposes. The Company believes that it is not and does not currently intend to become a USRPHC, but no assurance can be given that the Company is not or will not become a USRPHC in the future. In general, if the Company is determined to be a USRPHC then non-U.S. Holders may be subject to United States federal income tax on the sale or exchange of the Ordinary Shares, and to withholding at a rate of 10% on any such disposition. However, a non-U.S. Holder will not be subject to these special rules even if the Company is determined to be a USRPHC provided that (i) such non-U.S. Holder did not at any time during the five years ending on the date of sale or disposition actually or constructively own more than 5% of the Ordinary Shares of the Company and (ii) the Ordinary Shares are then "regularly traded" on an established securities market in the United States. Since the Ordinary Shares are traded on the Nasdaq stock market and since it is regularly quoted by broker dealers, the Ordinary Shares should be considered to be "regularly traded" on an established securities market. However, it is possible to interpret the current Temporary Regulations as concluding that the Ordinary Shares will not be considered "regularly traded" at any time during which 50% or more thereof is owned by 100 or fewer persons, which will be the case as of the date of this Form. UNITED STATES BUSINESS. A non-U.S. Holder engaged in a trade or business in the United States whose income from the Ordinary Shares (including gain from the sale or exchange thereof) is effectively connected with the conduct of such trade or business will generally be subject to regular United States federal income tax on such income in the same manner as if it were a U.S. Holder. In addition, if such a Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year, subject to adjustments. BACKUP WITHHOLDING Distributions made by the Company with respect to the Ordinary Shares and the gross proceeds received from the disposition of the Ordinary Shares may be subject to certain information reporting to the IRS and to a 31% backup withholding tax. However, backup withholding generally will not apply to 29 payments made to certain exempt recipients (such as a corporation or financial institution) or to a Holder who furnishes a correct taxpayer identification number or provides a certificate of foreign status and provides certain other required information. If backup withholding applies, the amount withheld is not an additional tax, but is credited against such Holder's United States federal income tax liability. ITEM 8: SELECTED CONSOLIDATED FINANCIAL DATA STATEMENTS OF OPERATIONS (IN U.S. DOLLARS) (IN THOUSANDS, EXCEPT PER SHARE AND SHARE DATA)
1995 1996(1) 1997(1) 1998(1) 1999(2) ------- ------- ------- ------- ------- Revenues: Sales of printers and related products $13,824 $13,639 $18,874 $31,905 58,259 Sales of printed materials(3) -- 2,998 3,085 4,540 2,460 ------- ------- ------- ------- ------- 13,824 16,637 21,959 36,445 60,719 ------- ------- ------- ------- ------- Cost of revenues: Cost of sales of printers and related 9,374 11,528 9,627 16,368 30,440 products Cost of sales of printed materials -- 2,008 1,684 2,579 1,344 ------- ------- ------- ------- ------- 9,374 13,536 11,311 18,947 31,784 ------- ------- ------- ------- ------- Gross profit 4,450 3,101 10,648 17,498 28,935 ------- ------- ------- ------- ------- Research and development expenses 1,040 1,530 1,726 5,027 5,530 Less royalty-bearing grants 306 372 43 818 721 ------- ------- ------- ------- ------- Research and development expenses, net 734 1,158 1,683 4,209 4,809 ------- ------- ------- ------- ------- Selling and marketing expenses, net 1,039 4,823 4,620 5,829 9,485 General and administrative expenses 1,187 2,560 3,439 5,084 6,275 Write-off of debts from related parties -- 3,757 -- - -- ------- ------- ------- ------- ------- 2,226 11,140 8,059 10,913 15,760 ------- ------- ------- ------- ------- Operating income (loss) 1,490 (9,197) 906 2,376 8,366 Financial expenses, net 205 589 320 501 683 Gain (loss) on marketable securities 12 22 -- (92) 67 Other income (expenses), net 110 76 (8) (19) 176 ------- ------- ------- ------- -------
30
1995 1996(1) 1997(1) 1998(1) 1999(2) --------- --------- --------- ---------- ---------- Income (loss) before taxes on income 1,407 (9,688) 578 1,764 7,926 Taxes on income 221 400 67 264 798 --------- --------- --------- ---------- ---------- Income (loss) after taxes on income 1,186 (10,088) 511 1,500 7,128 Minority interest in earnings of subsidiary -- -- (26) 43 (28) Equity in losses of 50% owned joint venture(4) (1,125) -- -- -- 75 --------- --------- --------- ---------- ---------- Net income (loss) for the period $61 $(10,088) $485 $1,457 7,175 --------- --------- --------- ---------- ---------- Basic earnings (loss) per share $0.01 $(1.47) $0.07 $0.13 $0.64 --------- --------- --------- ---------- ---------- Diluted earnings (loss) per share $0.01 $(1.47) $0.07 $0.13 $0.56 --------- --------- --------- ---------- ---------- --------- --------- --------- ---------- ---------- Weighted average number of shares used in computing basic earnings (loss) per share 4,904,118 6,880,000 7,293,640 10,880,000 11,181,137 --------- --------- --------- ---------- ---------- --------- --------- --------- ---------- ---------- Weighted average number of shares used in computing diluted earnings (loss) per share 4,904,118 6,880,000 7,293,640 11,451,389 12,722,600 --------- --------- --------- ---------- ---------- --------- --------- --------- ---------- ----------
- ---------- (1) Represents financial information for the Company together with its subsidiaries NUR Media Solutions, NUR America, NUR Europe, and NUR Germany. (2) Represents financial information for the Company together with its subsidiaries NUR Media Solutions, NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific and NUR Germany (NUR Germany first 6 months). (3) Represents 84% of NUR Germany's income for the first 6 months of 1999, an operation that was sold during the third quarter of 1999. (4) Represents equity in Stillachem and NPE. BALANCE SHEET DATA (IN U.S. DOLLARS) (IN THOUSANDS)
1995 1996(1) 1997(1) 1998(1) 1999(2) ------- -------- -------- -------- -------- Working capital............ $10,597 $690 $ 4,674 $5,441 16,017 Total assets............... 16,759 12,161 13,783 21,995 39,648 Total liabilities.......... 4,945 10,325 7,998 14,565 21,785 Total shareholders' equity. $11,814 $1,836 $ 5,785 $7,430 17,863
31 - ---------- (1) Represents financial information for the Company together with its subsidiaries NUR Media Solutions, NUR America, NUR Europe, and NUR Germany. (2) Represents financial information for the Company together with its subsidiaries NUR Media Solutions, NUR America, NUR Europe, NUR Shanghai, NUR Asia Pacific and NUR Germany (NUR Germany first 6 months). ITEM 9: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is a world leader in the market for the sale of WF and SWF digital printing systems. The Company develops, manufactures, sells, and services digital, inkjet color printing systems for on demand, production, WF and SWF printing. The Company also supplies inks and substrates which are consumable products for the operation of the Company's Printers. The Company's total revenues grew from approximately $22 million in the year ended December 31, 1997, to approximately $36.4 million in the year ended December 31, 1998 and $60.7 million in the year ended December 31, 1999. Excluding NUR Germany's results, revenues in 1999 were $58.3 million compared to $31.9 million in 1998 and $18.9 million in 1997. The Company carries out its main research and development center for the printers at its facilities in Moshav Magshimim. The Company's main sales and service activities are carried out through its wholly owned subsidiaries, NUR Europe, located in Brussels, Belgium, NUR America, located in Newton, Massachusetts, in the United States, NUR Asia Pacific located in Shanghai, China, and through its NUR Middle East and Africa unit located in Belgium. The Company also wholly owns NUR Media Solutions, located in Brussels, Belgium, which develops advanced consumables for the Company's Printers. The Company owns 50% of Stillachem, located in Charleroi Belgium, which is a digital ink factory producing inks for the NUR Fresco printers, and 50% of NPE located at Rosh Ha'ain Israel which is its main subcontractor for the assembly of the Company's Printers. The Company, incorporated as an Israeli corporation on July 29, 1987, started operation in June 1991, and since October 1995, the Company's Ordinary Shares are traded on Nasdaq National Market. The Company is currently quoted on Nasdaq National Market under the symbol NURM. Revenues from the Company's Printers and related materials are derived from the sale of the Company's Printers, inks, substrates, spare parts, and related services. Revenues from printed materials were derived from NUR Germany's printing and advertising display services, a company that was sold during the third quarter of 1999. Cost of sales of printers and related materials include costs related to product shipments including materials, labor, overhead, and other direct or allocated costs involved in the manufacture, warehousing, delivery, support, and maintenance of products. Research and development expenses include mainly labor, materials consumed, expenses by sub-contractors, consultants, and others. Research and development expenses are carried to the statement of operations as incurred. Grants are netted from research and development costs on an accrual basis as the related expenses are incurred. The sales and marketing expenses include the costs associated with the staff of the sales and marketing force of the Company and its subsidiaries, advertising and promotion of existing and new products, trade shows, commissions, and other marketing activities. During 1999, the Company expended significant financial and management resources to expand its business and product offerings. The Company invested in strengthening the service and sales organizations in NUR Europe and NUR America, by hiring additional sales and service staff in both territories. The Company also invested in the creation and set-up of NUR Asia Pacific, NUR Shanghai and NUR Middle East and Africa, the Company's new sales and service organizations, replacing Scitex, its distributor in these territories until the end of 1998. The Company also invested in the continuation of the development of NUR Media 32 Solutions, a subsidiary dedicated to the development and marketing of consumables, mainly substrates, inks and clear coat varnishes for the use with the Company's products. The Company also established two new joint ventures, NPE, an assembly subcontractor for the Company's Printers located in Israel, and Stillachem, an ink factory for the NUR Fresco inks located in Belgium. CERTAIN ACCOUNTING POLICIES The main sources of revenues for the Company are sales of the Company's Printers and related consumable products. Sales are recognized upon shipment of the product to customers, when no significant vendor obligation remains and collection is deemed probable. The accompanying consolidated financial statements have been prepared in U.S. dollars. The U.S. dollar is the currency of the primary economic environment in which the operations of the Company and NUR America are conducted. The U.S. dollar is the functional and reporting currency of the Company. The majority of sales are made in U.S. dollars and the majority of purchases of materials and components are invoiced and paid in U.S. dollars. In addition, a substantial number of other expenses are incurred outside Israel in U.S. dollars or paid in U.S. dollars or in New Israeli Shekels ("NIS") linked to the exchange rate of the U.S. dollar. See note 2 to the Company's Financial Statements included as a part of this annual report for a discussion of the Company's accounting policy for determining rate of exchange and linkage based amounts. The Company's transactions and balances denominated in U.S. dollars are presented in their original amounts. Non-dollar transactions and balances have been remeasured into U.S. dollars in accordance with Statement 52 of the Financial Accounting Standards Board ("FASB"). All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses, as appropriate. The functional currencies of NUR Media Solutions and NUR Europe are their local currencies. The balance sheets of these subsidiaries are translated into U.S. dollars at the exchange rate prevailing on the date of the balance sheet. The statements of operations and cash flows are translated at weighted average exchange rates during each year presented. Translation adjustments are recorded in a separate component of shareholders' equity. The Company's consolidated financial statements have been prepared in accordance with generally accepted accounting principles in Israel. As applicable to the Company's financial statements, generally accepted accounting principles in the U.S. and Israel are identical in all material respects. The Company accounts for stock-based compensation in accordance with the requirements of Accounting Principles Board Opinion No. 25 ("APB 25") "Accounting for Stock Issued to Employees." Under APB 25, when the exercise price of the Company's employee options is less than the fair value of the underlying shares on the date of grant, compensation expense is recognized. In accounting for options granted to persons other than employees, the provisions of Financial Accounting Standards Board Statement No. 123, "Accounting for Stock Based Compensation" were applied. According to FASB 123, the fair value of these options was estimated at the grant date using Black-Scholes options pricing model. CURRENT AND FUTURE TRENDS PRINTERS SALES SWF: The Company has estimated based on its own market research that the SWF industry has grown at a rate of 15-20% annually for the last three years. Originally the SWF market was created for 33 print billboard. Currently the main drive for growth is coming from the introduction of new application such as mural coverings, truck side printing and exhibition graphics. The Company's growth during 1998 and 1999 has exceeded this growth rate, mainly as a result of the Company's increased market share in the SWF market and the introduction of new products. The Company believes it will maintain a similar level of revenues in the SWF market of its business during 2000. WF: In February 2000, the Company started to sell the first NUR Fresco printers to the WF professional market. The Company believes it will see most of its growth in 2000 coming from the introduction of this product to the WF professional print market. CONSUMABLES SALES During 1998 and 1999, the Company focused on its consumable recurring revenues strategy. During 1999 this part of the business has grown by 116% compared to 1998. The consumable business is made of two families of products, specialized inks and specialized substrates. The Company believes that during 2000 the growth rate in the sale of the consumables will be less than in 1999 and will only reflect the growth rate of the installed base of the Company's Printers. GROSS MARGINS The gross margins of the Company are expected to be at similar levels in 2000 as in 1999. Although there is a downward price pressure on the Company's existing products, there have been certain reductions in the manufacturing cost of these products. The Company anticipates a launch of its new products at gross margins similar to its existing products. INDUSTRY The out-of-home digital printing industry has undergone significant changes in the past few years, and additional change is anticipated in the future. The most noticeable change in the industry has been the adoption of inkjet technologies by all major competitors in the industry. The Company's major competitors have each introduced an inkjet-based printer to replace their existing airbrush printers. The new printers, introduced since the end of 1997, are based on the D-O-D technology. The Company believes it is the only manufacturer with printers that use CIJ and DOD printing technology. To date, the Company has been successful in maintaining and increasing its growth in revenues from the Company's Printers. With the cost of digital printing expected to decrease and the ability of digital technology expected to produce shorter runs more economically, the Company believes that the use of WF and SWF printing, such as that produced by the Company's Printers, should grow, and that the portion of the market serviced by digital printing should increase. The ability to produce WF and SWF images digitally has also opened new media opportunities for advertisers, such as mural printing, carpet printing, new forms of fleet graphics printing. The growth in demand for SWF digital printers is fueled both by the replacement of conventional print methods and the development of new printing applications. GEOGRAPHIC BREAKDOWN OF REVENUES The Company sells its products and services around the world. Revenues are generally recognized at the location of the sale of the product or service. The table below shows the breakdown of revenues (dollars in thousands) by categories of activities and into geographic markets in the years ended December 31, 1999, 1998 and 1997. The "Other" category, below, includes, among other things, revenues generated by the service of the Company's printers. With the sale of NUR Germany in the third quarter of 1999, the Company no longer derives significant revenues from the sale of printed materials. 34
YEAR ENDED PRINTERS INK SUBSTRATES PRINTED MATERIALS OTHERS TOTAL DECEMBER 31, 1999 (55.1%) (23.1%) (12.1%) (4%) (5.7%) (100%) REGION $ % $ % $ % $ % $ % $ % - ------------------------------------------------------------------------------------------------------------------------------------ Middle-East & 2,408 7.2% 1,428 10.2% 785 10.8% -- -- 330 9.5% 4,951 8.2% Africa............. 6,357 19% 2,792 19.9% 468 6.4% -- -- 378 10.9% 9,995 16.5% Asia............... 11,017 32.9% 3,533 25.1% 2,898 39.8% 2,460 100% 1,540 44.4% 21,448 35.3% Europe North & Latin America.......... 13,692 40.9% 6,291 44.8% 3,123 43% -- -- 1,219 35.2% 24,325 40% Total Revenues..... 33,474 100% 14,044 100% 7,274 100% 2,460 100% 3,467 100% 60,719 100% ------ ---- ------- ---- ----- ---- ------ ---- ------ ---- ------ ---- ------ ---- ------- ---- ----- ---- ------ ---- ------ ---- ------ ----
YEAR ENDED PRINTERS INK SUBSTRATES PRINTED MATERIALS OTHERS TOTAL DECEMBER 31, 1998 (52.3%) (23.6%) (2.4%) (12.5%) (9.2%) (100%) REGION $ % $ % $ % $ % $ % $ % - ----------------------------------------------------------------------------------------------------------------------------------- Middle-East & Africa............ 916 4.8% 858 9.9% 156 17.5% -- -- 308 9.2% 2,238 6.1% Asia.............. 1,762 9.2% 1,286 15.1% -- -- -- -- 278 8.3% 3,326 9.1% Europe 7,369 39% 2,388 28% 460 51.5% 4,540 100% 1,484 44.4% 16,241 44.6% North & Latin America........... 9,005 47% 4,087 47% 278 31% -- -- 1,270 38.1% 14,640 40.2% Total Revenues..... 19,052 100% 8,619 100% 894 100% 4,540 100% 3,340 100% 36,445 100% ------ ---- ------- ---- ----- ---- ------ ---- ------ ---- ------ ---- ------ ---- ------- ---- ----- ---- ------ ---- ------ ---- ------ ----
YEAR ENDED PRINTERS INK SUBSTRATES PRINTED MATERIALS OTHERS TOTAL DECEMBER 31, 1997 (55%) (21%) (0%) (14%) (10%) (100%) REGION $ % $ % $ % $ % $ % $ % - ----------------------------------------------------------------------------------------------------------------------------------- Middle-East & Africa............ 1,344 11% -- -- Asia.............. -- -- 1,122 25% -- -- 0 0% 583 26% 3,049 14% Europe............ 6,353 53% 1,549 34% -- -- 3,085 100% 862 38% 11,849 54%
35 North & Latin America......... 4,326 36% 1,900 42% -- -- 0 0% 835 37% 7,061 32% Total Revenues.... 12,023 100% 4,571 100% -- -- 3,085 100% 2,280 100% 21,959 100% ------ ---- ------- ---- ----- ---- ------ ---- ------ ---- ------ ---- ------ ---- ------- ---- ----- ---- ------ ---- ------ ---- ------ ----
36 RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain line items from the Company's statement of operations as a percentage of the Company's sales:
YEARS ENDED DECEMBER 31, ----------------------------------------------- 1995 1996(1) 1997(1) 1998(1) 1999(2) ----------------------------------------------- (IN PERCENTS) ----------------------------------------------- REVENUES ...................................... 100% 100% 100% 100% 100% Cost of sales of printers and related ....... 68 69 43.9 44.9 50.1 products Cost of sales of printed materials ......... -- 12 7.6 7.1 2.2 Gross profit ............................... 32 19 48.5 48 47.7 Research and development expenses .......... 8 9 7.8 13.8 9.1 Research and development expenses net ...... 5 7 7.7 11.5 7.9 Selling expenses, net ...................... 7 29 21 16 15.6 General and administrative expenses ........ 9 15 15.7 14 10.3 Write-off debts of related parties ......... -- 23 -- -- Operating income (loss) .................... 11 (55) 4.1 6.5 13.8 Financial expenses, net .................... 2 4 1.5 1.4 1 Gain (loss) on marketable securities ....... -- -- -- 0.2 -- Other income (expense) ..................... 1 -- -- 0.05 0.3 Taxes on income (tax benefit) .............. 2 2 0.3 0.7 1.3 Minority interest in earnings of subsidiary -- -- 0.1 0.1 0.05 Equity in loss of a 50% owned subsidiary ... (8) -- -- -- 0.1 Net income (loss) .......................... -- (61) 2.2 4 11.8
- ---------- (1) Represents the Company on a consolidated basis with its subsidiaries NUR Media Solutions, NUR America, NUR Europe and NUR Germany. (2) Represents the Company on a consolidated basis with its subsidiaries NUR Media Solutions, NUR America, NUR Europe, NUR Germany, NUR Shanghai and NUR Asia Pacific (NUR Germany first six months of 1999). YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998 REVENUES. Total revenues increased by 66.6%, to approximately $60.7 million in the year ended December 31, 1999 from approximately $36.44 million in the year ended December 31, 1998, mainly as a result of the introduction of the NUR Blueboard HiQ and market acceptance of the NUR Blueboard printers and as a result of the continued move to direct distribution by the Company of the Company's products in the Middle East, Africa and Asia. Growth was also fueled by the growth of sales of the ink as a result of the growth of the installed base of the Company's Printers and substrates a new business started in the third quarter of 1999. Excluding NUR Germany's results from the year ended December 31, 1998 (a company that was sold during the third quarter of 1999), revenues in 1999 were $58.26 million, an increase of 82.6% compared to $31.9 million in 1998. 37 EXPENSES. Research and development costs, net of the OCS grants, were approximately $4.8 million in the year ended December 31, 1999, compared to $4.2 million in the year ended December 31, 1998. The increase is mainly as a result of increased efforts in developing new products. The Company expects to continue to invest significant resources in its research and development programs for new products and enhancements of existing products. The Company expects that research and development expenses will continue to increase in absolute dollar terms as compared to previous years. Selling and marketing expenses were approximately $9.5 million in the year ended December 31, 1999 compared to approximately $6.1 million in the year ended December 31, 1998. The Company received $0.13 million in the year ended December 31, 1999 from the Marketing Fund for selling and marketing expenses as compared to $0.11 million in the year ended December 31, 1998. The Company will not be eligible for support from the Marketing Fund commencing in 2000 due to the Company reaching the maximum allowed export revenues. The majority of sales and marketing expenses are incurred by the distribution subsidiaries, NUR Europe, NUR America, NUR Shanghai and NUR Asia Pacific. General and administrative expenses were approximately $6.27 million in the year ended December 31, 1999, compared to approximately $4.8 million in the year ended December 31, 1998, representing an approximately 30.7% increase. This increase was due primarily to building of the financial and administrative infrastructures of the Company and the opening of the new subsidiaries in the Far East. Financial expenses, net increased to $0.61 million in the year ended December 31, 1999 from $0.50 million in the year ended December 31, 1998. GROSS PROFIT. Gross profit was approximately $28.9 million in the year ended December 31, 1999, an increase of 65.4% from $17.5 million in the year ended December 31, 1998. Gross profit as percentage of sales was 47.6% in the year ended December 31, 1999 compared to 48% in the year ended December 31, 1998. Excluding NUR Germany's results from the year ended December 31, 1998 gross profit increased to $27.82 million (47.75% as percentage of sales) from $15.54 million (48.7% as percentage of sales) in 1998, an increase of 79%. TAXES. Taxes on income were $0.798 million in the year ended December 31, 1999 as compared to $0.264 million in the year ended December 31, 1998. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997 REVENUES. Total revenues increased by 66%, to approximately $36.44 million in the year ended December 31, 1998 from approximately $21.96 million in the year ended December 31, 1997, mainly as a result of the introduction of the NUR Blueboard 2 and market acceptance of the NUR Blueboard printers and as a result of the continued move to direct distribution by the Company of the Company's products in Europe and the United States, the Company's two major markets. Growth was also fueled by the growth of sales of the ink as a result of the growth of the installed base of the Company's Printers. SALES. Sales of the Company's Printers and related products increased by 69% to approximately $31.9 million in the year ended December 31, 1998 from approximately $18.9 million in the year ended December 31, 1997. This increase was attributed primarily to the introduction and market acceptance of the NUR Blueboard and to increased revenues due to the move from sales through distributors to direct sales to end users through the Company's subsidiaries in Europe and the United States. EXPENSES. Research and development costs, net of the OCS grants, were approximately $4.2 million in the year ended December 31, 1998, compared to $1.68 million in the year ended December 31, 1997. The increase is mainly due to acquired in process research and development in the amount of $1.95 million and as a result of increased efforts in developing new products. The Company expects to continue 38 to invest significant resources in its research and development programs for new products and enhancements of existing products. The Company expects that research and development expenses will continue to increase in absolute dollar terms as compared to previous years. Selling and marketing expenses were approximately $6.1 million in the year ended December 31, 1998 compared to approximately $4.6 million in the year ended December 31, 1997. The Company received $0.11 million in the year ended December 31, 1998 from the Marketing Fund for selling and marketing expenses as compared to $0.2 million in the year ended December 31, 1997. The Company will not be eligible for support from the Marketing Fund commencing in 1999 due to the Company reaching the maximum allowed export revenues. The majority of sales and marketing expenses are incurred by the distribution subsidiaries, NUR Europe and NUR America. General and administrative expenses were approximately $4.8 million in the year ended December 31, 1998, compared to approximately $3.4 million in the year ended December 31, 1997, representing an approximately 50% increase. This increase was due primarily to legal and extra-ordinary audit costs resulting from the change in control and management of the Company, and to the re-building of the financial and administrative infrastructures of the Company. Financial expenses, net increased to $0.5 million in the year ended December 31, 1998 from $0.32 million in the year ended December 31, 1997. GROSS PROFIT. Gross profit was approximately $17.5 million in the year ended December 31, 1998, an increase of 65.1% from $10.6 million in the year ended December 31, 1997. Gross profit as percentage of sales was 48% in the year ended December 31, 1998 compared to 48.5% in the year ended December 31, 1997. TAXES. Taxes on income were $0.264 million in the year ended December 31, 1998 as compared to $0.067 million in the year ended December 31, 1997. LIQUIDITY AND CAPITAL RESOURCES Since the commencement of the Company's activities in the second half of 1991 through mid-1993, the Company financed its operations primarily through loans and injection of equity by shareholders. In October 1993, the Company raised, through a private placement, approximately $6 million (approximately $3 million in equity and $3 million in convertible debentures). Following the 1993 private placement, the Company financed its operations primarily through cash generated from operations. In the year ended December 31, 1995, the Company's major source of cash was the $6.86 million of net proceeds from the Company's initial public offering in October 1995. The Company incurred a loss of approximately $10.1 million in the year ended December 31, 1996. This loss was comprised of approximately $4.8 million in losses due to increased expenses associated with the setup of direct sales and marketing efforts by the Company in Europe and in the United States, and to the assumption of international support and service; approximately $1.2 million in research and development expenses; approximately $0.6 million in financing expenses; approximately $0.4 million in elimination of deferred taxes; and approximately $3.8 million in losses due to the write-off of debts to the Company associated with Moshe Nur and companies controlled by him. These debts resulted, in part, from ineffective controls that failed to prevent unauthorized transactions and failed to detect the misappropriation of funds. As a result, the Company's shareholders' equity was reduced to approximately $1.8 million as of December 31, 1996. In the year ended December 31, 1997, the Company's net income was $0.485 million. In 1997, additional capital was needed to fund accrued debts to suppliers during the year ended December 31, 1996 and the beginning of 1997, and to increase the Company's working capital and equity base. In the third and fourth quarters of 1997, the Company completed a private placement of $4.0 million of 39 Ordinary Shares, from which the Company received net proceeds of approximately $3.51 million (the "Private Placement"). In the year ended December 31, 1997, the Company's major source of cash was the $3.51 million of net proceeds from the Private Placement. In the year ended December 31, 1998, net cash provided by operating activities was approximately $2.9 million. Cash provided from financing activity was $1.7 million primarily from additional use of short-term credit line totaling $2.3 million. In the year ended December 31, 1999, net cash provided by operating activities was approximately $3.8 million. In September 1999, the Company raised $3.3 million through a private placement of 600,000 of its Ordinary Shares and warrants to purchase 150,000 of its Ordinary Shares, in the aggregate, to ISAL Amlat Investments (1993) Ltd. ("Isal") and Dovrat & Co Ltd. In February 2000, Isal and Dovrat exercised the warrants issued under the investment agreement at an exercise price of $8.00 per share resulting in the payment of an additional $1.2 million to the Company. The Company has future royalty obligations to Meital, which will not exceed $1.3 million, payable during the two years ending September 2001. Such commitment is part of the purchase price for technology acquired by the Company from Meital. As part of the Matan Settlement Agreement, the Company was obligated to pay a total of $880,000, plus interest and tax, assuming timely payments, to the Matan Parties. During 1999, the Company had already paid $293,000 to Matan. The remaining sum of $586,000 has been fully reserved and is payable by the Company to the Matan Parties in equal quarterly installments ending December 2001. OPERATING ACTIVITIES In the year ended December 31, 1997, the Company had net income of $0.485 million. Net cash used by operating activities was approximately $2.05 million. The main changes in the Company's working capital were (i) an increase of approximately $1.8 million in trade accounts receivable, (ii) a decrease of approximately $1.24 million in trade payables, and (iii) a decrease of approximately $1.3 million in customer advances. In the year ended December 31, 1998, the Company had net income of $1.457 million. Net cash provided by operating activities was approximately $2.9 million. The main changes in the Company's working capital were (i) an increase of approximately $3.03 million in trade accounts receivable, (ii) an increase of approximately $1.3 million in trade inventories, and (iii) an increase of approximately $4.1 million in trade payables. In the year ended December 31, 1999, the Company had net income of $7.2 million. Net cash provided by operating activities was approximately $3.8 million. The main changes in the Company's working capital were (i) an increase of approximately $3.6 million in trade accounts receivable, (ii) an increase of approximately $6.66 million in trade inventories, (iii) an increase of approximately $2.65 million in trade payables, and (iv) an increase of approximately $3.1 million in accrued expenses and other liabilities. INVESTING ACTIVITIES Net cash used in investing activities was approximately $1.61 million in the year ended December 31, 1997. The Company invested approximately $3.58 million in the year ended December 31, 1998, consisting of $2.54 million for equipment and $1.3 million for the acquisition of technology and 40 approximately $1.20 million in the year ended December 31, 1999, including $0.7 million provided by realization of investment in a subsidiary. FINANCING ACTIVITIES Net cash provided by financing activities in the year ended December 31, 1999 was approximately $4.45 million. The Company maintains long and short-term credit facilities in an aggregate amount of approximately $8.15 million at December 31, 1999. At December 31, 1999, the Company had approximately $2.775 million in long-term loans from banks and others, $0.832 million of which is payable within 12 months and $2.743 in short term loans. The Company's long term loans are linked to the U.S. dollar and the Belgian Franc bearing interest at a rate ranging between 4.32% and 7.5%. As of December 31, 1999, total current assets of the Company amounted to approximately $35.1 million, out of which $9.19 million was in cash, cash equivalents and marketable securities, compared with total current liabilities of approximately $19.1 million. The increase in current assets is attributable primarily to growth in inventories resulting from the growth in the Company's revenues and the build up for the NUR Fresco production. The increase of the current liabilities is attributable primarily to the increase of trade payables and short term loans. Net cash provided by financing activities in the years ended December 31, 1997, 1998, and 1999 was approximately $3.08, $ 1.7 and $4.45 million, respectively. The Company has granted several security interests in its assets to various banks and leasing companies to secure bank credit lines and lease facilities. IMPACT OF INFLATION, DEVALUATION AND FLUCTUATION OF CURRENCIES Most of the Company's sales are in U.S. dollars. In addition, a substantial number of other expenses are incurred outside Israel in U.S. dollars or paid in U.S. dollars or in NIS linked to the exchange rate of the U.S. dollar. Approximately 50% of these costs are denominated in U.S. dollars. Costs not effectively denominated in U.S. dollars are translated to U.S. dollars, when recorded, at prevailing exchange rates for the purposes of the Company's financial statements, and will increase if the rate of inflation in Israel exceeds the devaluation of the Israeli currency against the U.S. dollar or if the timing of such devaluations were to lag considerably behind inflation. Consequently, the Company is and will be affected by changes in the prevailing NIS/U.S. dollar exchange rate. The Company might also be affected by the U.S. dollar exchange rate to the major European currencies mainly the German Mark and the Belgian Franc. During 1992 and 1993, the value of the U.S. dollar increased relative to major currencies and the rate of inflation in Israel exceeded the rate in the United States. In 1995 and 1996, the value of the U.S. dollar decreased relative to major currencies, and the rate of inflation in Israel exceeded the rate in the United States. The annual rate of inflation in Israel in 1995 was 8.1%, which increased to 10.6% in 1996 and decreased to 7.0% in 1997 to 8.6% in 1998 and to 1.3% in the year ended December 31, 1999. The NIS was devalued against the U.S. dollar by approximately 3.9%, 3.7%, 8.8%, 17.6% in 1995, 1996, 1997, 1998 respectively and reevaluated against the U.S. dollar by approximately 0.16% in 1999. The Company cannot predict whether the rate of devaluation of the NIS against the U.S. dollar will continue to exceed the rate of inflation in the future and whether these conditions will have a material adverse effect on the Company. The representative dollar exchange rate for converting the NIS to dollars, as reported by the Bank of Israel, was NIS 4.153 for one dollar US on December 31, 1999 (NIS 4.16 on December 31, 1998, NIS 3.536 on December 31, 1997, NIS 3.251 on December 31, 1996 and NIS 3.135 on December 31, 1995). 41 The Company's transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances have been measured into U.S. dollars in accordance with Statement 52 of the FASB. All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses, as appropriate. The average exchange rates during the years ended December 31, 1995, 1996, 1997, 1998 and 1999 were NIS 3.011, 3.187, 3.449, 3.8 and 4.138 for one dollar US, respectively. The exchange rate as of March 31, 2000 was NIS 4.026 for one dollar. CURRENT AND FUTURE CAPITAL NEEDS The Company believes that its revenues from operations together with its existing capital resources and credit facilities will be sufficient to fund the Company's current activities at their present rate without the Company's planned expansion through July 2001. The Company will require additional funds, to be raised through public or private financing of debt or equity, in order to ensure its ability to proceed with the planned expansion of its operations after December 2000. If such funds are not raised, the Company may have to reduce or eliminate planned expenditures for research and development, production, or marketing of its products, any one of which could have an adverse effect on the Company's business. There can be no assurance that such additional financing will be available or that, if available, it will be obtained on terms favorable to the Company. The Company currently has no commitments for additional financing and is exploring the possibility of raising additional capital. In this regard, the Company's capital requirements and level of expenses depend upon numerous factors, including the scope and success of the Company's marketing and customer service efforts, and of its research and development activities, as well as the demand for the Company's products and services. Moreover, in the course of the bankruptcy proceedings of Moshe Nur and the companies controlled by him, the Company in the future may be exposed to claims arising from the actions of Moshe Nur despite the recent settlement of all material claims related to such persons and entities. Liabilities arising from any such claims may be material. ITEM 9A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not believe the disclosure otherwise required by Item 9A of Form 20-F to be material to the Company. ITEM 10: DIRECTORS AND OFFICERS OF REGISTRANT The executive officers and directors of the Company are as follows:
NAME AGE POSITION WITH THE COMPANY - ---- --- ------------------------- Dan Purjes(1) 50 Chairman of the Board of Directors Erez Shachar(2) 36 President, Chief Executive Officer and Director Yoram Ben-Porat(2) 45 Director and President of NUR Media Solutions Hilel E. Kremer 38 Chief Financial Officer Eyal I. Israeli 45 Vice President of Operations Efraim M. Weinreb 42 Vice President of Research and Development Ron Michael 32 Vice President of Marketing Robert L. Berenson(3) 60 Director Hugo R. Chaufan (1)(3) 56 Director Robert F. Hussey(1)(3) 51 Director
- --------- (1) Member of the Company's stock option and compensation committee (2) Member of the Company's Non-Employee Director Share Option Plan committee (3) Member of the Company's audit committee 42 DAN PURJES has served as the Chairman of the Board of the Company since April 1997. Mr. Purjes is Chairman and Chief Executive Officer of Josephthal, an investment banking and brokerage firm which is a member of the New York Stock Exchange. Prior to joining Josephthal in 1985, Mr. Purjes was a Vice President with a number of securities firms, including Bear Stearns & Co. and L.F. Rothschild Unterberg Towbin, in their corporate finance and brokerage sales divisions. He began his Wall Street career at Morgan Stanley & Co. in 1978 as a director of their computer systems department. Prior to that, Mr. Purjes was a manager at Citibank and at Philip Morris International in their computer systems areas. Mr. Purjes earned B.S. and M.S. degrees in Computer Science from the City College of New York School of Engineering. EREZ SHACHAR has served as the Company's President and Chief Executive Officer since July 1997 and as a Director of the Company since October 1997. Mr. Shachar has also served as a Director of NUR Europe and NUR America since October 1997, of NUR Media Solutions since January 1998, of NUR Asia Pacific since January 1999, and of NPE since September 1999. Mr. Shachar is also a Director of Eltek Ltd., a publicly held corporation. Prior to joining the Company, from 1989 to 1997, Mr. Shachar served in various research and development, marketing, sales, and senior management positions with Scitex Corporation. Mr. Shachar's last position with Scitex was Vice President of Sales and Marketing of Scitex Europe, and prior thereto Mr. Shachar held several positions in the marketing organization of Scitex Europe. Prior to joining Scitex Europe, Mr. Shachar was a software developer within the research and development group of Scitex. Mr. Shachar holds a B.Sc. in Mathematics and Computer Science from Tel Aviv University, and a M.B.A. degree from INSEAD, France. HILEL E. KREMER has served as the Chief Financial Officer and Secretary of the Company since December 1998. Mr. Kremer has also served as a Director of NUR Europe, NUR America and NUR Media Solutions since December 1998 and as a Director of NUR Asia Pacific and NPE since April and September 1999, respectively. Prior to joining the Company, from 1993 to 1998 Mr. Kremer served in various management positions with Scitex Corporation. Mr. Kremer's last position with Scitex was Vice President of Finance and Chief Financial Officer of Scitex Asia Pacific, and prior thereto Mr. Kremer held several positions in the finance organization of Scitex Europe. Prior to joining Scitex Europe, Mr. Kremer held various positions in the budgeting department of the Israeli Finance ministry. Mr. Kremer holds a B.A. in Economics from Hebrew University, Jerusalem, and an M.B.A. degree from INSEAD, France. YORAM BEN-PORAT has served as a Director of the Company since March 1991. Since October 1993, Mr. Ben-Port has served as Director and President of NUR Media Solutions. Since October 1993, Mr. Ben-Porat has served as the Chief Executive Officer and Deputy Chairman of the Board of Directors of NUR International. He was among the founders of the Company and between January and September 1993, he served as the Chief Executive Officer of the Company. From 1987 until December 1992, Mr. Ben-Porat served as Research and Development and Business Development Manager of NUR Outdoor and NUR Focus. Prior thereto, he was an independent consultant to metal finishing process companies in the high technology industry. Mr. Ben-Porat holds a degree in Economics and Marketing from the Tel Aviv College of Management and Administration. EYAL I. ISRAELI has served as the Vice President of Operations since May 1996. From January 1995 until he joined the Company, Mr. Israeli served as the Director of Customer Support for Indigo Electronic Printing Systems Ltd. From February 1993 to January 1995, Mr. Israeli served as the Manager of Corporate Customer Support for Orbotech Ltd. In addition, from January 1987 to February 1993, Mr. Israeli served as Vice President of Customer Support for Optrotech Inc., the U.S. subsidiary of Optrotech Ltd. Mr. Israeli holds a B.Sc. in Electronic Engineering from Ben-Gurion University, a M.Sc. in Electronic Systems from Tel Aviv University and a joint M.B.A. from Northwestern and Tel Aviv Universities. EFRAIM M. WEINREB has served as Vice President of Research and Development since July 1998. Prior to joining the Company, from January 1997 to July 1998, Mr. Weinreb served as Vice President of 43 Research and Development of AutoMedia, a start-up company that developed digital video solutions. From 1983 to 1996, Mr. Weinreb served in various research and development management positions with Scitex Corporation Ltd. Mr. Weinreb's last position with Scitex was research and development manager of Brisque Front-End. Mr. Weinreb holds a B.A. in Economics and Computer Science from Bar - Ilan University. RON MICHAEL has served as the company's Vice President of Marketing since June 1999. Prior to joining the Company, from 1997 to 1999, Mr. Michael served as Managing Director of Hygiene Products Ltd., a McCarthy Group company. Prior to that he held several positions within Strategic Business Development ("SBD"), a leading Israeli strategy consulting firm. The last position he held at SBD was Senior Project Manager, specializing in structural business moves. Prior to that, he founded and served as Managing Director of Esprit Promotion Systems Ltd., a company specializing in the development and sales of direct marketing data bases. Mr. Michael holds a B.A. in Business Administration from Tel-Aviv College of Administration, an LL.B. degree in Law from Tel-Aviv University and an MBA degree from INSEAD France. ROBERT L. BERENSON has served as a Director of the Company since July 1998. Mr. Berenson is President of Grey Advertising Inc., the second largest advertising agency in the United States and sixth largest in the world. He joined Grey in 1964 as an Assistant Account Executive, rose through the ranks to become the youngest Executive Vice President in the Company's history in 1977 and took his present position as President in 1989. Mr. Berenson is also a Director of the Better Business Bureau of New York, the Advertising Educational Foundation and the Federal Law Enforcement Foundation. He holds a B.S./B.A. degree in Journalism and Marketing from Syracuse University and an M.S. in Journalism from the Medill School at Northwestern University. HUGO R. CHAUFAN has served as a Director of the Company since September 1999. Dr. Chaufan is President of ISAL Amlat Investments (1993) Ltd., managing director and co-founder of Isal Investments Co. N.V., Isal Holland B.V. and Isal Nadlan (1994) Ltd. Dr. Chaufan is chairman of the board of directors of Project Glilot Ltd., Poster Media (Israel) Ltd., Ain Pei Arutzei pirsum Ltd., Shnapp Industries Ltd., Sivan Plastic Industries 1991 Ltd., Cargal Ltd. and Chemipal Ltd. Prior to becoming managing Director of Isal Amlat Investments Co. N.V. in 1987, Dr. Chaufan held the position of C.E.O. of Israel Chemical Industries Ltd., after holding senior management positions, including Deputy Director, at the Budget Department of the Finance Ministry. Dr. Chaufan holds a degree on Accountancy, Certified Accountancy and a Ph.D. in Economics. ROBERT F. HUSSEY has served as a Director of the Company since September 1997. Prior to joining the Company, from June 1991 to April 1997, Mr. Hussey served as the President and Chief Executive Officer of Metrovision of North America Inc. Prior thereto, from 1984 to 1991, Mr. Hussey served as the President, Chief Executive Officer and Director of POP Radio Corp., a company which he helped form. From 1979 to 1984, Mr. Hussey served as the Vice President/Management Supervisor for Grey Advertising, Inc. From 1977 to 1979, Mr. Hussey was the Director of Financial Advertising for E.F. Hutton. Prior thereto, from 1973 to 1977, Mr. Hussey served as a Senior Financial Analyst and Product Manager for American Home Products, Inc. Mr. Hussey is also a Director of Digital Data Networks Inc., a publicly held corporation. Mr. Hussey holds a B.S. in Finance from Georgetown University and a M.B.A. in International Finance from George Washington University. TERMS OF DIRECTORS The members of the Board are elected annually at the Company's general meeting and remain in office until the next annual general meeting of the Company, unless the director has previously resigned, vacated his office, or was removed in accordance with the Company's Articles of Association. In addition, the Board may elect additional members to the Board. 44 ALTERNATE DIRECTORS The Articles of Association provide that, subject to the Board's approval, a director may appoint, by written notice to the Company, any individual (whether or not such person is then a member of the Board) to serve as an alternate director. Any alternate director shall have all of the rights and obligations of the director appointing him or her, except the power to appoint an alternate (unless the instrument appointing him or her expressly provides otherwise). The alternate director may not act at any meeting at which the director appointing him or her is present. Such alternate may act as the alternate for several directors and have the corresponding number of votes. Unless the appointing director limits the time period or scope of any such appointment, such appointment is effective for all purposes and for an indefinite time, but will expire upon the expiration of the appointing director's term. There are currently no alternate directors. COMMITTEES OF THE BOARD OF DIRECTORS The Company's Articles of Association provide that the Board may delegate all of its powers to committees of the Board as it deems appropriate, subject to the provisions of the Israeli Companies Ordinance (New Version) 1983, as amended (the "Companies Ordinance"). As of February 2000, the new Israeli Companies Law, 1999 (the "Companies Law") came into effect, replacing most of the provisions of the Companies Ordinance (other than provisions relating to liens and liquidation of companies). The Companies Law will require the Company to introduce certain amendments to its Articles of Association (including the Company's requirement to have two Israeli "Outside Directors" meeting specific independence criteria, as elected members of its Board) and will bring into effect new procedures for the approval of certain transactions. APPROVAL OF CERTAIN TRANSACTIONS UNDER THE COMPANIES LAW; AUDIT COMMITTEE The Companies Law requires disclosure by an "Office Holder" or a "Controlling Shareholder" (both as defined below) to the Company in the event that an Office Holder or Controlling Shareholder has a direct or indirect personal interest in a transaction to which the Company intends to be a party, and codifies the duty of care and fiduciary duties which an Office Holder has to the Company. An "Office Holder" is defined in the Companies Law as a director, managing director, chief business manager, executive vice president, vice president, other manger directly subordinate to the managing director and any other person assuming the responsibilities of any of the foregoing positions without regard to such person's title, and a Controlling Shareholder is defined as a holder having the ability to control the affairs of the Company or the holder of at least 25% of the shares of the Company (if there is no other holder of at least 50% of the shares). The Companies Law requires that the Company appoint an audit committee of the Company's Board (the "Audit Committee") meeting certain criteria defined in the Companies Law and that certain transactions, actions, and arrangements must be approved by the Audit Committee. The Company is also required to maintain the Audit Committee as a result of the inclusion for quotation of the Ordinary Shares on the Nasdaq National Market. In certain circumstances, shareholder approval is also required. The Audit Committee must be comprised of members of the Board who are not employees of the Company, and the majority of members of the Audit Committee may not be holders, directly or indirectly through family members, of more than five percent of the Ordinary Shares. The Company has appointed an Audit Committee consisting of Robert L. Berenson, Hugo Chaufan, and Robert F. Hussey. Approval by the Audit Committee and the Board is required for (i) proposed transactions to which the Company intends to be a party in which an Office Holder or Controlling Shareholder has a direct or indirect personal interest, (ii) actions or arrangements which may otherwise be deemed to constitute a breach of fiduciary duty or of the duty of care of an Office Holder to the Company, (iii) arrangements with directors as to the terms of office or compensation, and (iv) indemnification of Office Holders. Arrangements with directors as to the terms of their service or compensation also require shareholder approval. All arrangements as to compensation of Office Holders 45 who are not directors require approval of the Board. In certain circumstances, the matters referred to in (i), (ii), and (iv) may also require shareholder approval. Office holders (including directors) who have a personal interest in a matter which is considered at a meeting of the Board or the Audit Committee may not be present at such meeting, may not participate in the discussion, and may not vote on any such matter, except that such Office Holders may consent in writing to resolutions adopted by the Board and/or the Audit Committee by unanimous consent. STOCK OPTION AND COMPENSATION COMMITTEE In March 1998, the Company established a committee to administer the Company's stock option plans, other than the 1998 Non-Employee Director Share Option Plan (the "Stock Option and Compensation Committee"). The Stock Option and Compensation Committee is charged with administering and overseeing the allocation and distribution of stock options under the approved stock option plans of the Company and the approval of the Company's executive officer's annual compensation. The Stock Option and Compensation Committee is presently comprised of three members: Dan Purjes, Hugo Chaufan and Robert F. Hussey. NON-EMPLOYEE DIRECTOR SHARE OPTION PLAN COMMITTEE In February 1999, the Company established a committee to administer the Company's 1998 Non-Employee Director Share Option Plan (the "NEDSOP Committee"). The NEDSOP Committee is charged with administering and overseeing the allocation and distribution of stock options under the 1998 Non-Employee Director Share Option Plan. The NEDSOP Committee is presently comprised of two members: Erez Shachar and Yoram Ben-Porat ITEM 11: COMPENSATION OF DIRECTORS AND OFFICERS In the year ended December 31, 1999 the aggregate compensation paid by the Company to the directors and executive officers of the Company (a total of 10 persons) amounted to approximately $1,041,000. The executive officers of the Company received part of the compensation set forth above under the Company's Management by Objectives Compensation Plan ("MBO"). The MBO sets annual individual goals to be achieved by the executive officers throughout the year. The percentage of individual achievement determines the percent of the MBO bonus paid to each executive officer. The MBO plan for the benefit of the Company's Chief Executive Officer is administered by the Stock Option and Compensation Committee. The MBO plan for the benefit of the other executive officers is administered by the Chief Executive Officer. The Company pays its Board members who are not employees of the Company remuneration for their services as directors. This remuneration includes an annual payment of $5,000 and an additional payment of approximately $250 per meeting. Each non-employee Board member also receives an annual grant of options to purchase 10,000 Ordinary Shares under the conditions set forth in the Company's 1998 Non-Employee Director Share Option Plan ITEM 12: OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES OUTSTANDING OPTIONS AND WARRANTS As of March 31, 2000, the Company had outstanding options, under the Company's stock option plans, to purchase a total of 1,985,399 of its Ordinary Shares. Of such options, 212,966 have been issued under the Flexible Stock Incentive Plan (the "1995 Plan"), 1,694,100 have been issued under the 1997 46 Stock Option Plan (the "1997 Plan"), and 78,333 have been issued under the 1998 Non-Employee Director Share Option Plan (the "1998 Plan"). The options granted under the 1995 Plan and the 1997 Plan are subject to various vesting requirements and have been issued at exercise prices ranging from $0.30 to $11.375 per share with various expiration dates. The options granted under the 1998 Plan have an exercise price of $2.75 per share, are not subject to vesting requirements and expire on October 26, 2008. See Note 19 to the Company's financial statements included as a part of this Form 20-F. The Company has also granted to Meital, in connection with a consulting arrangement, an option to acquire 100,000 Ordinary Shares at $1.00 per share in September 1998. As of March 31, 2000, the Company had outstanding warrants exercisable into a total of 595,000 Ordinary Shares. Of such warrants, (i) 155,000 were originally issued to Josephthal as representative of the underwriters in connection with the Company's initial public offering in October 1995 (the "IPO Warrants"), (ii) 400,000 were originally issued to Josephthal as placement agent in connection with the Company's private placement between September and December 1997 (the "Private Placement Warrants"), (iii) 25,000 were issued to Cruttenden Roth Incorporated in connection with its role as "qualified independent underwriter" in a registration of Ordinary Shares on behalf of certain selling security holders (the "QIU Warrants"), and (iv) 15,000 were issued to Zamir & Barak in partial consideration for legal services rendered on behalf of the Company (the "ZB Warrants"). The IPO Warrants are exercisable at $7.20 per share no later than October 2000. The Private Placement Warrants are exercisable at $1.00 per share no later than September and December 2002. The QIU Warrants are exercisable at $4.50 per share from February 2000 to February 2004. The ZB Warrants are exercisable at $2.25 per share from January 2000 to January 2004. Dan Purjes, the Chairman of the Company is also the Chairman of Josephthal. See "Item 13: Interest of Management in Certain Transactions." Of the options and warrants described above, directors and executive officers of the Company hold options and warrants to purchase an aggregate of 906,333 Ordinary Shares called for by such securities. 1995 STOCK OPTION PLAN In 1995, the Company adopted the 1995 Plan which provides for grants of stock options to employees of and consultants to the Company. Options to purchase an aggregate of 500,000 Ordinary Shares were originally available for grant under the 1995 Plan, as amended, including options for future services (such options, "Service Options"), options for performance (such options, "Performance Options"), and options to consultants for service or performance (such options, "Consultant Options"). The Company's 1995 Plan provides that it may be administered by the Board or by a committee appointed by the Board and is currently administered by the Stock Option and Compensation Committee. The Stock Option and Compensation Committee determines the employees and consultants who are granted options under the 1995 Plan, the timing of such grants, the terms thereof, and the number of shares to be covered thereby. Such committee also determines the exercise price for Ordinary Shares subject to the Performance and Consultants Options under the 1995 Plan and the exercise price for the Service Options, provided that in no case shall the exercise price of any Service Option be less than 80% of the fair market value of such Ordinary Shares at the date of grant (the "Date of Grant"). Service Options usually vest over a four-year period. One-third of the Service Options vest after the second annual anniversary of the Date of Grant with an additional one-third vesting on the third and fourth anniversary of the Date of Grant, respectively. Performance Options vest under the same terms as applicable to the Service Options. Consultants Options vest over a specified period of time based on past or future services rendered or performance targets to be achieved by the Company as determined by the Board. Notwithstanding the foregoing, the Consultants Options vest ten years following the Date of Grant. No option may be assigned or transferred except by will or the laws of descent and distribution. 47 Under the 1995 Plan for Israeli employees, options and Ordinary Shares issuable upon the exercise of options granted to Israeli employees of the Company can be held in a trust until the payment of all taxes due with respect to the grant and exercise (if any) of such options. 1997 STOCK OPTION PLAN In 1997, the Company adopted the 1997 Plan which provides for grants of stock options to employees of and consultants to the Company. Options to purchase an aggregate of 2,200,000 Ordinary Shares were originally available for grant under the 1997 Plan, as amended. The 1997 Plan provides that it is to be administered by the Board or by a committee appointed by the Board and is currently administered by the Stock Option and Compensation Committee. The Stock Option and Compensation Committee has broad discretion to determine the persons entitled to receive options under the 1997 Plan, the terms and conditions on which options are granted, and the number of Ordinary Shares subject thereto, up to the maximum aggregate amount permitted under the 1997 Plan. The Stock Option and Compensation Committee also has discretion to determine the purchase price to be paid upon the exercise of an option granted under the 1997 Plan. The exercise price of the option shares under the 1997 Plan is determined by the Stock Option and Compensation Committee; provided, however, that the exercise price of any option granted shall not be less than eighty percent (80%) of the Stock Value (as defined below) at the time of the issuance of such options (the "Date of Grant"). The "Stock Value" at any time is equal to the then current Fair Market Value (as defined below) of the Company's Ordinary Shares. For purposes of the 1997 Plan, the "Fair Market Value" means, as of any date, the last reported sale price, on such date, of the Ordinary Shares on such principal securities exchange of the most recent prior date on which a sale of the Ordinary Shares took place. The Stock Option and Compensation Committee determines the term of each option granted under the 1997 Plan; provided, however, that the term of an option shall not be for more than ten (10) years. Upon termination of employment, all unvested options lapse. Pursuant to the 1997 Plan options shall vest over a four-year period, provided that the Stock Option and Compensation Committee may determine different vesting schedules. Some of the Options granted are subject to a three-year vesting period, with one third of the options vesting after each year. The options granted are subject to restrictions on transfer, sale, or hypothecation. All options and Ordinary Shares issuable upon the exercise of options granted to Israeli employees of the Company are held in trust for a minimum of two years in accordance with Section 102 of the Israel Income Tax Ordinance. 1998 NON-EMPLOYEE DIRECTOR SHARE OPTION PLAN In 1998 the Company adopted the 1998 Plan to provide for grants of options to purchase Ordinary Shares to non-employee directors of the Company. The 1998 Plan is administered by the Non-Employee Share Option Plan Committee. An aggregate amount of not more than 250,000 Ordinary Shares is reserved for grants under the 1998 Plan. The 1998 Plan will expire on December 8, 2008 (10 years after adoption), unless earlier terminated by the Board. Under the 1998 Plan, each non-employee director that served on the 1998 "Grant Date," as defined below, automatically received an option to purchase 10,000 Ordinary Shares on such Grant Date and will receive an option to purchase an additional 10,000 Ordinary Shares on each subsequent Grant Date thereafter provided that he or she is a non-employee director on the Grant Date and has served as such for the entire period since the last Grant Date. The "Grant Date" means, with respect to 1998, October 26, 1998, and with respect to each subsequent year, August 1. Directors first elected or appointed after the 1998 Grant Date, will automatically receive on such director's first day as a director an option to purchase up to 10,000 Ordinary Shares prorated based on the number of full months of service 48 between the prior Grant Date and the next Grant Date. Each such non-employee director would also automatically receive, as of each subsequent Grant Date, an option to purchase 10,000 Ordinary Shares provided he or she is a non-employee director on the Grant Date and has served for the entire period since the last Grant Date. The exercise price of the option shares under the 1998 Plan is 100% of the Fair Market Value (as defined below) of such Ordinary Shares at the time of issuance of such options (the "Date of Grant"). The "Fair Market Value" means, as of any date, the average closing bid and sale prices of the Ordinary Shares for the date in question as furnished by the National Association of Securities Dealers, Inc. through Nasdaq or any similar organization if Nasdaq is no longer reporting such information, or such other market on which the Ordinary Shares are then traded, or if not then traded, as determined in good faith (using customary valuation methods) by resolution of the members of the Board of Directors of the Company, based on the best information available to it. The exercise price is required to be paid in cash. The term of each option granted under the 1998 Plan is ten (10) years from the applicable Date of Grant. All options granted vest immediately after issuance. The options granted would be subject to restrictions on transfer, sale or hypothecation. All options and Ordinary Shares issuable upon the exercise of options granted to the non-employee directors of the Company could be withheld until the payment of taxes due with respect to the grant and exercise (if any) of such options. ITEM 13: INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS Not applicable 49 PART II ITEM 14: DESCRIPTION OF SECURITIES TO BE REGISTERED Not applicable PART III ITEM 15: DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 16: CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES Not applicable PART IV ITEM 17: FINANCIAL STATEMENTS Not applicable ITEM 18: CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Financial Statements and related notes thereto included after the signature page hereto pursuant to Item 19: "Consolidated Financial Statements and Exhibits" are incorporated herein by reference. 50 ITEM 19: CONSOLIDATED FINANCIAL STATEMENTS AND EXHIBITS A. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS The Consolidated Financial Statements and related notes thereto included after the signature page hereto are incorporated herein by reference. B. EXHIBITS
NUMBER DESCRIPTION 3.1 Memorandum of Association of the Registrant, in Hebrew with a translation to English1 3.2 Amended Articles of Association of the Registrant 2 3.3 Certificate of Name Change 3 4.1 Specimen Certificate for Ordinary Shares 1 4.2 Representative's Warrant Agreement dated October 12, 1995 1 4.3 Form of Representative's Warrant Certificate 1 4.4 Forms of Placement Agent's Warrant Agreement and Certificate 4 4.5 Forms of Qualified Independent Underwriter's Warrant Agreement and Certificate 4 4.6 Form of Warrant Agreement between the Registrant and Barak Zamir, Advocates 10.1 1995 Stock Option / Stock Purchase Plan 1 10.2 Amendment to the 1995 Stock Option / Stock Purchase Plan 4 10.3 1997 Stock Option Plan 5 10.4 1998 Non-Employee Director Share Option Plan 6 10.5 Lease Agreement between the Registrant and Mr. Moshe Nur dated October 4, 1993, as amended on May 29, 1995, in Hebrew with a translation to English 1 10.6 Lease Agreement for office space in Brussels, Belgium between Nivellease, S.A. and the Registrant dated November 25, 1996 4 10.7 Lease Agreement for office space in Newton Centre, Massachusetts between WHTR Real Estate Limited Partnership and the Registrant dated July 10, 1998 4 10.9 Distribution Agreement between Imaje S.A. and the Registrant dated June 26, 1995 1 10.10 Settlement Agreements relating to Moshe Nur and his affiliated companies 4 10.16 Bank Hapoalin revolving loan agreement 4, 7
51 10.17 Agreement between I.T.S. Machinery Development Ltd. and the Registrant dated February 10, 1997 4 10.18 Form of confidentiality agreement 4 10.19 Agreement dated September 13, 1998 between "Meital" Electronic Technology Ltd. and Markowitz Yaakov and the Registrant 4 21 List of Subsidiaries of the Registrant 23.1 Consent of Kost Forer & Gabbay (S-8) 23.2 Consent of Kost Forer & Gabbay (F-3) 23.3 Consent of Willy Knyrim (F-3) 23.4 Consent of Willy Knyrim (S-8) 27.1 Financial Data Schedule as of and for the year ended December 31, 1995 5 27.2 Financial Data Schedule as of and for the year ended December 31, 1996 6 27.3 Financial Data Schedule as of and for the year ended December 31, 1997 7 27.4 Financial Data Schedule as of and for the year ended December 31, 1998 8 27.5 Financial Data Schedule as of and for the year ended December 31, 1999
- ---------- 1/ Previously filed with the Company's Registration Statement (File No. 33-93160) on Form F-1 and incorporated by reference herein. 2/ Previously filed with the Company's Form F-3 (File No. 333-92493) and incorporated by reference herein. 3/ Previously filed with the Company's Form 6-K dated January 7, 1998 and incorporated by reference herein 4/ Previously filed with the Company's Form F-1 (File No. 333-66103) and incorporated by reference herein. 5/ Previously filed with the Company's Form 20-F for the year ended December 31, 1997 and incorporated by reference herein. 6/ Previously filed with the Company's Form 6-K dated November 13, 1998 and incorporated by reference herein. 7/ Filed in summary form. Original filed in paper format pursuant to Form SE. 8/ Previously filed with the Company's Form 20-F for the year ended December 31, 1998 and incorporated by reference herein. 52 Financial Statement Schedules Other than as set forth below, all schedules have been omitted as the required information is either not applicable or presented in the financial statements or notes thereto. 53 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Amendment to its Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. NUR MACROPRINTERS LTD. By: /s/ Erez Shachar ------------------------------------- Erez Shachar President and Chief Executive Officer Dated: May 4, 2000 54 REPORT OF INDEPENDENT AUDITORS TO THE SHAREHOLDERS OF M.NUR MARKETING & COMMUNICATION GmbH We have audited the accompanying balance sheets of M.Nur Marketing & Communication GmbH ("the Company") as of December 31, 1997 and 1998 and the related statements of operations, changes in shareholders equity and cash flows for each of the two years in the period ended December 31, 1998 and the company's statement of operations changes in shareholders equity and cash flows for the year ended December 1996. 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 generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance as to 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 the Company's 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 financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1997 and 1998 and the related results of their operations and cash flows for each of the two years in the period ended December 31, 1998, and the Company's results of operations and cash flows for the year ended December 31, 1996, in conformity with generally accepted accounting principles in Germany. As applicable to the Company's financial statements, generally accepted accounting principles in the United States and in Germany are identical in all material aspects. Kassel, Germany April 21, 1999 Yours truly, (Willy Knyrim Seal) WILLY KNYRIM Certified Public Accountants (Germany) NUR MACROPRINTERS LTD. CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 IN U. S. DOLLARS
INDEX PAGE -------------- REPORT OF INDEPENDENT AUDITORS F-2 CONSOLIDATED BALANCE SHEETS F-3 - F-4 CONSOLIDATED STATEMENTS OF INCOME F-5 STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS F-7 - F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-10 - F-38
- - - - - - - - - - - - [LOGO]ERNST & YOUNG |X| KOST FORER & GABBAY |X| Phone: 972-3-6232525 2 Kremenetski St. Fax: 972-3-5622555 Tel-Aviv 67899, Israel REPORT OF INDEPENDENT AUDITORS To the Shareholders of NUR MACROPRINTERS LTD. We have audited the accompanying consolidated balance sheets of Nur Macroprinters Ltd. ("the Company") and its subsidiaries as of December 31, 1998 and 1999 and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of a subsidiary, which statements reflect total assets constituting 4.2% of total consolidated assets as of December 31, 1998, and total revenues constituting 14% and 12% of the total consolidated revenues for the two years ended December 31, 1997 and 1998, respectively. These statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for this subsidiary, is based solely on the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 1998 and 1999 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles in the United States. Tel-Aviv, Israel KOST FORER & GABBAY February 16, 2000 A Member of Ernst & Young International F-2 NUR MACROPRINTERS LTD. CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
DECEMBER 31, ------------------------------------- 1998 1999 ------- ------- U.S. DOLLARS IN THOUSANDS ------------------------------------- ASSETS CURRENT ASSETS: Cash and cash equivalents (Note 3) 2,327 9,190 Marketable securities 63 -- Trade receivables (net of allowance for doubtful accounts: $ 644 thousand and $ 1,290 thousand as of December 31, 1998 and 1999, respectively) 9,091 11,647 Other accounts receivable and prepaid expenses (Note 4) 2,756 3,673 Inventories (Note 5) 3,699 10,689 ------ ------ TOTAL current assets 17,936 35,199 - ----- ------ ------ LONG-TERM INVESTMENTS: Investments in affiliates (Note 6) -- 623 Restricted long-term bank deposit 337 367 Deferred income taxes -- 125 Long-term prepaid expenses 59 -- Severance pay fund 369 514 ------ ------ TOTAL long-term investments 765 1,629 - ----- ------ ------ PROPERTY AND EQUIPMENT, NET (Note 7) 3,058 2,723 ------ ------ OTHER ASSETS, NET (Note 8) 236 97 ------ ------ TOTAL assets 21,995 39,648 - ----- ====== ======
The accompanying notes are an integral part of the consolidated financial statements. F-3 NUR MACROPRINTERS LTD. CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------
DECEMBER 31, -------------------------------------- 1998 1999 ------- ------- U.S. DOLLARS IN THOUSANDS -------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term bank credit and loans (Note 10) 2,972 2,743 Current maturities of long-term bank loans (Note 12) 224 832 Trade payables 6,104 8,243 Accrued expenses and other liabilities (Note 11) 2,926 5,573 Customer advances 269 1,791 ------- ------- TOTAL current liabilities 12,495 19,182 - ----- ------- ------- LONG-TERM LIABILITIES: Long-term loans, net (Note 12) 950 1,650 Long-term liability (Note 13) 587 293 Accrued severance pay 464 660 ------- ------- TOTAL long-term liabilities 2,001 2,603 - ----- ------- ------- MINORITY INTEREST 69 -- ------- ------- CONTINGENT LIABILITIES (NOTE 14) SHAREHOLDERS' EQUITY: Share capital (Note 17): Ordinary shares of NIS 1 par value: Authorized: 20,000,000 shares as of December 31, 1998 and 1999; Issued and outstanding: 10,880,000 and 11,774,573 shares as of December 31, 1998 and 1999, respectively 2,729 2,940 Additional paid-in capital 14,376 17,702 Accumulated comprehensive income (loss) 165 (114) Accumulated deficit (9,840) (2,665) ------- ------- TOTAL shareholders' equity 7,430 17,863 - ----- ------- ------- TOTAL liabilities and shareholders' equity 21,995 39,648 - ----- ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-4 NUR MACROPRINTERS LTD. CONSOLIDATED STATEMENTS OF INCOME - -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1998 1999 ------- ------- ------- U.S. DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS ---------------------------------------------------------- Revenues (Note 19a-c): Sales of printers and related products 18,874 31,905 58,259 Sales of printed materials 3,085 4,540 2,460 ------- ------- ------- 21,959 36,445 60,719 ------- ------- ------- Cost of revenues: Cost of sales of printers and related products 9,627 16,368 30,440 Cost of sales of printed materials 1,684 2,579 1,344 ------- ------- ------- 11,311 18,947 31,784 ------- ------- ------- Gross profit 10,648 17,498 28,935 ------- ------- ------- Research and development expenses 1,726 5,027 5,530 Less - grants and royalty-bearing grants 43 818 721 ------- ------- ------- Research and development expenses, net 1,683 4,209 4,809 ------- ------- ------- Selling and marketing expenses, net (Note 20a) 4,620 6,111 9,485 General and administrative expenses 3,439 4,802 6,275 ------- ------- ------- 8,059 10,913 15,760 ------- ------- ------- Operating income 906 2,376 8,366 Financial expenses, net (Note 20b) 320 501 683 Gain (loss) on marketable securities -- (91) 67 Other income (expenses), net (8) (20) 176 ------- ------- ------- 578 1,764 7,926 Taxes on income (Note 18d) 67 264 798 ------- ------- ------- Income after taxes on income 511 1,500 7,128 Equity in earnings of affiliates, net -- -- 75 Minority interest in earnings of subsidiary (26) (43) (28) ------- ------- ------- Net income 485 1,457 7,175 ======= ======= ======= Basic earnings per share (Note 17b) 0.07 0.13 0.64 ======= ======= ======= Diluted earnings per share (Note 17b) 0.07 0.13 0.56 ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-5 NUR MACROPRINTERS LTD. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------
ACCUMULATED NUMBER OF OTHER ORDINARY ADDITIONAL COMPREHENSIVE SHARES SHARE PAID-IN INCOME ACCUMULATED OUTSTANDING CAPITAL CAPITAL (LOSS) DEFICIT ----------- ---------- ---------- ------------- ----------- U.S. DOLLARS IN THOUSANDS ---------------------------------------------------------- Balance as of January 1, 1997 6,880,000 1,593 11,916 109 (11,782) Comprehensive income: Net income -- -- -- -- 485 Other comprehensive loss: Foreign currency translation adjustments -- -- -- (139) -- Comprehensive income -- -- -- -- -- Issuance of shares, net 4,000,000 1,136 2,376 -- -- Amortization of deferred stock compensation -- -- 91 -- -- ---------- ---------- ---------- ---------- ---------- Balance as of December 31, 1997 10,880,000 2,729 14,383 (30) (11,297) Comprehensive income: Net income -- -- -- -- 1,457 Other comprehensive income: Foreign currency translation adjustments -- -- -- 195 -- Comprehensive income -- -- -- -- -- Share capital issuance expenses -- -- (128) -- -- Amortization of deferred stock compensation -- -- 121 -- -- ---------- ---------- ---------- ---------- ---------- Balance as of December 31, 1998 10,880,000 2,729 14,376 165 (9,840) Comprehensive income: Net income -- -- -- -- 7,175 Other comprehensive loss: Foreign currency translation adjustments -- -- -- (279) -- Comprehensive income -- -- -- -- -- Issuance of shares, net 600,000 141 2,764 -- -- Exercise of options 294,573 70 395 -- -- Amortization of deferred stock compensation -- -- 167 -- -- ---------- ---------- ---------- ---------- ---------- Balance as of December 31, 1999 11,774,573 2,940 17,702 (114) (2,665) ========== ========== ========== ========== ==========
TOTAL COMPREHENSIVE SHAREHOLDERS' INCOME (LOSS) EQUITY ------------- ------------- ------------------------------ Balance as of January 1, 1997 1,836 Comprehensive income: Net income 485 485 Other comprehensive loss: Foreign currency translation adjustments (139) (139) ---------- Comprehensive income 346 -- ========== Issuance of shares, net 3,512 Amortization of deferred stock compensation 91 ---------- Balance as of December 31, 1997 5,785 Comprehensive income: Net income 1,457 1,457 Other comprehensive income: Foreign currency translation adjustments 195 195 ---------- Comprehensive income 1,652 -- ========== Share capital issuance expenses (128) Amortization of deferred stock compensation 121 ---------- Balance as of December 31, 1998 7,430 Comprehensive income: Net income 7,175 7,175 Other comprehensive loss: Foreign currency translation adjustments (279) (279) ---------- Comprehensive income 6,896 -- ========== Issuance of shares, net 2,905 Exercise of options 465 Amortization of deferred stock compensation 167 ---------- Balance as of December 31, 1999 17,863 ==========
The accompanying notes are an integral part of the consolidated financial statements. F-6 NUR MACROPRINTERS LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1998 1999 ------ ------ ------ U.S. DOLLARS IN THOUSANDS ---------------------------------------------------------- Cash flows from operating activities: Net income 485 1,457 7,175 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Minority interest in earnings of subsidiary 26 43 28 Depreciation and amortization 644 792 932 Loss (gain) from sale of property and equipment 8 20 (44) Gain from sale of a subsidiary -- -- (132) Loss (gain) on marketable securities -- 91 (67) Deferred income taxes, net 27 (34) (867) Amortization of deferred stock compensation 91 121 167 Accrued severance pay, net (18) (1) 51 Equity in earnings of affiliates, net -- -- (75) Write-off of technology assigned to research and development -- 1,950 -- Marketable securities, net -- (154) 130 Increase in trade receivables (1,783) (3,026) (3,645) Decrease (increase) in other accounts receivable and prepaid expenses 41 (953) (563) Decrease (increase) in inventories 317 (1,447) (6,664) Decrease in long-term prepaid expenses 231 78 59 Increase (decrease) in trade payables (1,248) 2,933 2,650 Increase in accrued expenses and other liabilities 502 463 3,093 Increase (decrease) in customer advances (1,328) 59 1,522 Increase in long term liability -- 504 -- ------ ------ ------ Net cash provided by (used in) operating activities (2,005) 2,896 3,750 ------ ------ ------
The accompanying notes are an integral part of the consolidated financial statements. F-7 NUR MACROPRINTERS LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1997 1998 1999 ------ ------ ------ U.S. DOLLARS IN THOUSANDS -------------------------------------------------------- Cash flows from investing activities: Restricted long term bank deposit Purchase of property and equipment (150) (187) (30) Proceeds from sale of property and equipment (1,479) (2,541) (1,498) Purchase of other assets 15 191 188 Investments in affiliates -- -- (11) Investment grants received -- -- (548) Acquisition of technology -- 266 -- Proceeds from sale of investment in a subsidiary net -- (1,307) -- of cash in the subsidiary at the time it ceased being consolidated (a) -- -- 702 ------ ------ ------ Net cash used in investing activities (1,614) (3,578) (1,197) ------ ------ ------ Cash flows from financing activities: Share capital issuance expenses Proceeds from issuance of shares, net -- (128) -- Proceeds from exercise of options 3,512 -- 2,905 Short-term bank credit and loans, net -- -- 465 Proceeds from principal of long-term loans (810) 2,320 (229) Repayment of principal of long-term loans 1,263 106 2,000 (886) (535) (692) ------ ------ ------ Net cash provided by financing activities 3,079 1,763 4,449 ------ ------ ------ Effect of exchange rate changes on cash and cash equivalents 36 12 (139) ------ ------ ------ Increase (decrease) in cash and cash equivalents (504) 1,093 6,863 Cash and cash equivalents at the beginning of the year 1,738 1,234 2,327 ------ ------ ------ Cash and cash equivalents at the end of the year 1,234 2,327 9,190 ====== ====== ======
The accompanying notes are an integral part of the consolidated financial statements. F-8 NUR MACROPRINTERS LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1997 1998 1999 --------------- --------------- --------------- U.S. DOLLARS IN THOUSANDS ------------------------------------------------------- (a) Proceeds from sale of investment in a subsidiary net of cash in the subsidiary at the time it ceased being consolidated: Working capital (excluding cash) -- -- 499 Fixed assets, net -- -- 168 Minority interest -- -- (97) Gain from realization of a subsidiary -- -- 132 ---------------- ---------------- ---------------- -- -- 702 ================ ================ ================ Supplemental disclosure of cash flows activities: Cash paid during the year for: Interest 367 174 333 ================ ================ ================ Income taxes 74 110 -- ================ ================ ================ Non-cash investing activities: Accrued expenses and other liabilities incurred upon the acquisition of technology -- 643 -- ================ ================ ================ Assignment from fixed assets to inventory -- -- 666 ================ ================ ================
The accompanying notes are an integral part of the consolidated financial statements. F-9 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1:- GENERAL a. Organization: 1. NUR Macroprinters Ltd. ("the Company") is an Israeli Corporation. The Company develops, manufactures sells and services digital printing systems for on-demand, short-run, wide format and super wide format printing as well as related consumable products. The Company maintains wholly-owned subsidiaries in Europe, United States and in Asia for sales support and marketing. The Company's products are sold by a network of dealers and distributors. The principal markets of the Company and its subsidiaries are located in Europe, America and Asia. 2. NUR Media Solutions S.A. ("Nur Media Solutions"): In April 1998, the Company renamed its previously wholly-owned subsidiary Nur International S.A. to Nur Media Solutions S.A., which is engaged in developing and marketing of consumables for the Company's printers as well as for printers of other manufacturers (see Note 16c). 3. NUR America Inc. ("Nur America"): In 1996, the Company established a wholly-owned subsidiary in the United States - Nur America, which is engaged in the marketing of the Company's products and related consumable products in South America and North America. 4. NUR Europe S.A. ("Nur Europe"): In 1996, the Company established a wholly-owned subsidiary in Belgium - Nur Europe which is engaged in the marketing of the Company's products and related consumable products in Europe. 5. M. NUR Marketing & Communication GmbH ("Nur Germany"): In December 1997, the Company purchased the shares of Nur Germany, a 84% owned subsidiary, that were held by Nur Media Solutions. Nur Germany is engaged in selling and marketing of consumable printed materials. During the third quarter of 1999 the Company sold its shares in Nur Germany and recorded $ 132 thousand as a capital gain. 6. NUR Asia Pacific Ltd. ("Nur Asia Pacific"): In January 1999, the Company established a wholly-owned subsidiary in Hong-Kong, Nur Asia Pacific, which is engaged in the marketing of the Company's products and related consumable products as well as support services for the Company's products in Asia. F-10 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 7. NUR Macroprinters (Shanghai) Co., Ltd. ("Nur Shanghai"): In May 1999, the Company established a wholly-owned subsidiary in the People's Republic of China ("China"), which is engaged in the marketing of the Company's products and related consumable products as well as support services for the Company's products in China. 8. Stillachem S.A. ("Stillachem"): In December 1999, the Company established Stillachem, a joint venture in which the Company owns 50.1%. Stillachems is engaged in development and manufacture of special inks for digital printing systems. 9. NUR Pro Engineering Ltd. In October 1999, the Company established a 50% owned affiliate, named Nur Pro Engineering, for the assembly of the Company's printers. b. Acquisition of technology: In December 1997, the Company signed an agreement with Meital Electronic Technologies Ltd. ("Meital"), which is engaged in research and development in fields related to the Company's activity. In accordance with the agreement, the Company provided loans to Meital in 1997 and 1998 totaling $ 50 thousand and $ 350 thousand, respectively. During 1997 and 1998, the Company recorded a provision in respect of the aforementioned amounts since Meital is in the development stage, and there was an uncertainty regarding its ability to repay the loans. In September 1998, the Company acquired from Meital all rights (including all related assets) to Meital's piezo DoD inkjet technologies for application in wide format digital printers for approximately $3.0 million, consisting of an up-front payment of $750 thousand, the assumption of certain liabilities including those that relate to the legal dispute between Idanit Technologies Ltd. ("Idanit") and Meital (see Note 13) and future royalties which are based on sales. The Meital acquisition resulted in a one-time charge to research and development in the amount of $1.95 million. The Company has future contingent royalty obligations, based on future sales until September 2001, of Meital's technology-based printers, which will not exceed $1.3 million. If certain minimum royalties are not paid, Meital has the option to buy back the technology in the amount of royalties paid by the Company. c. Concentration of risks that may have a significant impact on the Company: Suppliers: The Company purchases all of the ink and ink-jets used in its super wide format printers from one supplier. The Company's customers rely on the ink to operate their printers. F-11 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Because the Company's business depends on the ink for sale of its printers, a failure in supplying or a change in credit-terms could have a severe adverse effect on the Company's financial results. Subcontractors: The Company employs a limited number of unaffiliated subcontractors to manufacture components for its printers. The Company currently employs one 50% owned sub-contractor to assemble its printers. Because the Company relies on subcontractors, its business could suffer if the Company fails to maintain its relationships with its subcontractors or fails to develop alternative sources for its printer components. NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES The Company's consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States. a. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. b. Financial statements in U.S. dollars: The accompanying consolidated financial statements have been prepared in U.S. dollars. The U.S. dollar is the currency of the primary economic environment in which the operations of the Company, Nur America and affiliate are conducted. The majority of sales is made in U.S. dollars and the majority of purchases of materials and components is invoiced and paid in U.S. dollars. In addition, a substantial number of other expenses are incurred outside Israel in U.S. dollars or paid in U.S. dollars or in New Israeli Shekels ("NIS") linked to the exchange rate of the U.S. dollar. Accordingly, the Company has determined the U.S. dollar as the currency of its primary economic environment and thus its functional and reporting currency. The Company's transactions and balances denominated in U.S. dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured into U.S. dollars in accordance with Statement 52 of the Financial Accounting Standards Board ("FASB"). All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statement of operations as financial income or expenses, as appropriate. F-12 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The financial statements of certain subsidiaries and affilates, whose functional currency is not the U.S. dollar, have been translated into U.S. dollars, in accordance with FASB Statement No. 52, "Foreign Currency Translation". All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statement of operations amounts have been translated using the average exchange rate for the year. The resulting aggregate translation adjustments are reported as a component of accumulated other comprehensive income (loss) in shareholders' equity. c. Principles of consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries listed below. Intercompany transactions and balances, including profits from intercompany sales not yet realized outside the group, have been eliminated in consolidation. Subsidiaries included in consolidation:
DECEMBER 31, 1998 AND 1999 ------------------------------------------- SHARES CONFERRING ------------------------------------------- RIGHTS TO VOTING RIGHTS PROFITS ------------------ -------------------- % % ------------------ -------------------- NUR Media-Solutions 100 100 NUR Europe 100 100 NUR America 100 100 NUR Asia Pacific 100 100 NUR Shanghai 100 100 NUR Germany *) 84 84
*) Due to the sale of the subsidiary, its statements of income are consolidated for the period ending June 30, 1999. d. Cash equivalents: The Company considers all highly liquid investments originally purchased with maturities of three months or less to be cash equivalents. F-13 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- e. Marketable securities: The Company accounts for investments in debt and equity securities (other than those accounted for under the equity method of accounting) in accordance with FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Management determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determinations at each balance sheet date. Management has classified all of its marketable securities as trading securities. These securities are carried at their fair value based upon the quoted market price of those investments. Net realized and unrealized gains and losses on these securities are included in the statement of income. f. Inventories: Inventories are stated at the lower of cost or market value. Cost is determined as follows: Raw materials - by the "first-in, first-out" method; work-in-progress and finished products - on the basis of computed manufacturing costs. The Company annually reviews the inventory for obsolescence, based on the sales activity of its products, and provides a reserve where appropriate. g. Investments in affiliates: The investment in companies, partnerships and joint ventures, over which the Company can exercise significant influence (generally, entities in which the Company holds 20% to 50% of ownership or voting rights) are presented using the equity method of accounting. The Company generally discontinues applying the equity method when its investment (including advances and loans) is reduced to zero and it has not guaranteed obligations of the affiliate or otherwise committed to provide further financial support to the affiliate. Where the Company's share of an affiliate's losses is greater than the investment in such an affiliate and in which the Company has guaranteed obligations of the affiliate, the excess amount is presented as a liability. Jointly controlled entities (generally entities in which the Company holds 50% ownership or voting rights) are accounted for using the equity method. h. Restricted long term bank deposit: Restricted long term bank deposit is maintained with banks mainly to secure obligations of customers. The Company is restricted from withdrawing any portion of the long term bank deposit at any time, until the repayment of the leasing obligation by the customer. The restricted long term bank deposit will mature approximately in 2001, is linked to the U.S. dollar and bears interest at a rate of 5%. F-14 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- i. Property and equipment: These assets are stated at cost, net of grant received and accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The annual depreciation rates are as follows:
% ------------------------------------------ Machinery and equipment 10 - 33 Motor vehicles 15 Office furniture and equipment 6 - 10 Building 3 Leasehold improvements Over the term of the lease period
j. Other assets: Other assets are stated at amortized cost. Amortization is calculated using the straight-line method over the estimated useful lives, at the following annual rates:
% ---------------- Distribution rights 20 Patent rights 10
k. Accrued severance pay, net: The Company's liability for severance pay is calculated pursuant to Israeli severance pay law based on the most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. The Company records as expense the net increase in its funded or unfunded severance liability. Employees are entitled to one month salary for each year of employment, or a portion thereof. The Company's liability is fully provided by monthly deposits with severance pay funds, insurance policies and by an accrual. Deposits with severance pay funds and insurance policies are not under the control of the Company. 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. The value of the deposited funds are based on the cash surrendered value of these policies, and include immaterial profits. Severance expenses for the years ended December 31, 1997, 1998 and 1999 were $ 312 thousand $ 314 thousand and $ 440 thousand, respectively. F-15 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- l. Income taxes: The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". This statement prescribes the use of the liability method, whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value. m. Basic and diluted earnings per share: Basic earnings per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted 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". n. Accounting for stock-based compensation: The Company has elected to account for stock-based compensation in accordance with the provisions of Accounting Principles Board Opinion No. 25 ("APB-25"), "Accounting for Stock Issued to Employees". Under APB-25, when the exercise price of the Company's share options equals or is higher than the market price of the underlying shares on the date of grant, no compensation expense is recognized. The pro-forma information with respect to the fair value of the options is provided in accordance with the provisions of Statement No. 123 (see Note 17). In accounting for options granted to other than employees, the provisions of Statement of Financial Accounting Standard Board No. 123 "Accounting for Stock-Based Compensation", were applied. The fair value of these options was estimated at the grant date using the Black-Scholes option pricing model. o. Revenue recognition 1. Revenues from sales of products are recognized upon shipment provided that no significant vendor obligations remain and collection is deemed probable. 2. Revenues from services are recognized ratably over the term of the agreements. p. Warranty costs: The Company provides a warranty for up to six months, at no extra charge. A provision which to date has been insignificant is recorded for probable costs, in connection with warranties, based on the Company's experience (in respect of most of these costs the Company has warranties from its suppliers). F-16 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- q. Research and development costs: Research and development costs are charged to expense as incurred. Grants are netted from research and development costs on an accrual basis as the related expenses are incurred. r. Royalty-bearing grants: Royalty-bearing grants from the Government of Israel for funding of approved research projects and for funding marketing activity are recognized at the time in which the Company is entitled to such grants, on the basis of the related costs incurred. s. Advertising costs: The Company expenses advertising costs as incurred. Advertising expenses for the years ended December 31, 1997, 1998 and 1999 are $ 252 thousand, $ 492 thousand and $ 602 thousand, respectively. t. Concentrations of credit risk: SFAS No. 105, "Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk", requires disclosure of any significant off-balance-sheet and credit risk concentrations. The Company has no significant off-balance-sheet concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities, trade receivables and restricted cash. Cash, cash equivalents and restricted cash are deposited with major banks in Israel, the United States, Asia and Belgium. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company's cash and cash equivalents and restricted cash are financially sound, and, accordingly, minimal credit risk exists with respect to these financial instruments. The Company's trade receivables are mainly derived from sales to customers in the United States, Asia and Europe. The Company has adopted credit policies and standards intended to accommodate industry growth and inherent risk. Management believes that credit risks are moderated by the diversity of its end customers and geographic sales areas. The Company performs ongoing credit evaluations of its customers' financial condition and requires collateral as deemed necessary. The Company's marketable securities include investment in U.S. company. Management believes that this company is financially sound and accordingly minimal credit risks exists with respect to these marketable securities. F-17 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- u. Fair value of financial instruments: The estimated fair value of financial instruments has been determined by the Company using available market information and valuation methodologies. Considerable judgment is required in estimating fair values. Accordingly, the estimates may not be indicative of the amounts the Company could realize in a current market exchange. The carrying amounts of cash and cash equivalents, restricted cash, trade receivables, short-term bank credit and loans and marketable securities approximate fair values, due to the short term maturities of these instruments and the terms of the deposits. The carrying amounts of the Company's long-term borrowing arrangements approximate their fair value. The fair value of the Company's long-term loan is estimated using discounted cash flow analyses, based on the Company's current increment borrowing rates for similar types of borrowing arrangements. v. Impact of recently issued accounting standards: In June 1998, the Financial Accounting Standards Board issued No. 133 ("SFAS 133"), "Accounting for Derivative instruments and Hedging Activities" ("SFAS No. 133"). This statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The FASB has issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". The Statement defers for one year the effective date of SFAS No. 133. The rule will apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company does not expect the impact of this new statement on the Company's consolidated balance sheets or results of operations to be material. w. Reclassification: Certain amounts from prior years have been reclassified to conform with current period presentation. NOTE 3:- CASH AND CASH EQUIVALENTS
INTEREST RATE DECEMBER 31, ---------------------------- ------------------------------------ LINKAGE TERMS 1998 1999 1998 1999 -------------------------------------- ----- ----- ----- ----- % U.S. DOLLARS IN THOUSANDS ---------------------------- ------------------------------------ U.S. dollars 5.1 1.75 1,297 6,995 DM 3.3 -- 698 -- Euro -- -- -- 533 Belgian Franks -- 0.56 163 955 Other -- 0.57 169 707 ----- -----
F-18 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - ----------------------------------------------------------------------------- 2,327 9,190 ===== =====
F-19 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 4:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
DECEMBER 31, -------------------------------------- 1998 1999 ----------------- ----------------- U.S. DOLLARS IN THOUSANDS -------------------------------------- Government authorities 665 -- Participations and grants receivable 683 1,351 Related parties (1) 93 65 Deferred income taxes (2) 42 784 Employees 95 291 Advances to suppliers 437 265 Prepaid expenses 561 628 Other 180 289 ----- ----- 2,756 3,673 ===== =====
(1) Balances for two executives that are linked to the U.S. dollar and bears annual interest at the rate of 2%. (2) See Note 18. NOTE 5:- INVENTORIES
DECEMBER 31, -------------------------------------- 1998 1999 ----------------- ----------------- U.S. DOLLARS IN THOUSANDS -------------------------------------- Raw materials 1,539 1,763 Work-in-progress 226 2,158 Finished products 1,934 6,768 ------ ------ 3,699 10,689 ====== ======
NOTE 6:- INVESTMENTS IN AFFILIATES
DECEMBER 31, 1999 ------------------ Equity, net (a) (b) 339 Long-term loans 284 ------------------ Total investments in affiliates 623 ================== (a) As follows: Net equity as at purchase date: Cost of additionally acquired shares 264 Accumulated net earnings 75 ------------------ 339 ==================
F-20 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (b) (1) In October 1999, the Company entered into a joint venture, with Nur Pro Engineering Ltd. for the assembly of the Company's printers. Under the establishment agreements, the Company has the option to purchase the other 50% of Nur Pro Engineering or to sell its 50%, if certain conditions as described in the agreements are met (including a Buy me, Buy you mechanism). The Company granted the following loans to Nur Pro Engineering: A loan is the amount of $ 175 thousand linked to the U.S. dollar and bearing annual interest at the rate of 3%. A maturity date has not been determined. A loan in the amount of $ 100 thousand linked to the NIS with no interest to be repaid after 20 years. (2) In December 1999, the Company established Stillachem , a joint venture in which the Company owns 50.1%. Stillachem is engaged in development and manufacture of special ink for digital printing systems. NOTE 7:- PROPERTY AND EQUIPMENT
MACHINERY OFFICE BUILDING AND AND MOTOR FURNITURE AND LEASEHOLD EQUIPMENT VEHICLES EQUIPMENT IMPROVEMENTS GRANTS TOTAL ------------- ------------ -------------- ----------------- ------------ ------------- U.S. DOLLARS IN THOUSANDS ---------------------------------------------------------------------------------------------- Cost as of January 1, 1999 1,319 345 1,664 1,209 (266) 4,271 Additions 801 2 625 70 - 1,498 Disposals (799) (235) (529) (17) - (1,580) ------------- ------------ -------------- ----------------- ------------ ------------- Balance as of December 31, 1999 1,321 112 1,760 1,262 (266) 4,189 ------------- ------------ -------------- ----------------- ------------ ------------- Accumulated depreciation as of January 1, 1999 133 105 793 232 (50) 1,213 Additions 248 46 408 136 (56) 782 Disposals (119) (88) (319) (3) - (529) ------------- ------------ -------------- ----------------- ------------ ------------- Balance as of December 31, 1999 262 63 882 365 (106) 1,466 ------------- ------------ -------------- ----------------- ------------ ------------- Depreciated cost as of December 31, 1999 1,059 49 878 897 (160) 2,723 ============= ============ ============== ================= ============ ============= Depreciated cost as of December 31, 1998 1,186 240 871 977 (216) 3,058 ============= ============ ============== ================= ============ =============
Depreciation expense amounted to $ 496 thousand, $ 647 thousand and $ 782 thousand for the years ended December 31, 1997, 1998 and 1999, respectively. As for charges, see Note 15. F-21 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 8:- OTHER ASSETS, NET
DECEMBER 31, ----------------------------------- 1998 1999 ----------------- -------------- U.S. DOLLARS IN THOUSANDS ----------------------------------- Cost: Distribution rights 700 700 Patent rights 61 72 ----------------- -------------- 761 772 ----------------- -------------- Accumulated amortization: Distribution rights 490 630 Patent rights 35 45 ----------------- -------------- 525 675 ----------------- -------------- Amortized cost 236 97 ================= ==============
Amortization of distribution and patent rights were $ 148 thousand, $ 145 thousand and $ 150 thousand for the years ended December 31, 1997, 1998 and 1999, respectively. NOTE 9:- LEASES a. Nur America Inc. leases office space and demo-center facility under a ten-year operating lease agreement ending October 2008. b. Nur Europe S.A. leases office space and warehouse facilities under a 15 year capital lease agreement ending in December 2011. c. Nur Media Solutions lease office space under a lease agreement expiring in December 2002. d. Nur Shangai leases space for use as a warehouse as well as a demo-center and offices in a separate location under lease agreements expiring in 2000 and 2001, respectively. e. Nur Asia pacific leases offices and warehouse space under a one year agreement. f. The Company entered into a lease agreement with a former shareholder (Moshe Nur) according to which the Company leases two adjacent buildings. During 1996 and 1997, the Company paid $ 545 thousand in respect of the construction of the building, on behalf of Moshe Nur. In 1997, Moshe Nur experienced financial difficulties, resulting in the filing of a petition for bankruptcy. According to a settlement agreement signed in September 1998 (see Note 14e), it was agreed that the Company's payments are considered as a pre-payment of the lease until July 2000. The Company recorded $ 162 thousand and $ 120 thousand as rent expenses, in connection with such prepaid expenses for the years ended December 31, 1998 and 1999, respectively. F-22 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- g. Future minimum lease payments as of December 31, 1999, under the aforementioned non- cancelable leases, are as follows (U.S. dollars in thousands): 2000 77 2001 84 2002 89 2003 92 Thereafter 683 ---------------- 1,025 ================
h. Rental expenses were $ 350 thousand, $ 220 thousand and $ 297 thousand for the each of the years ended December 31, 1997, 1998 and 1999, respectively. NOTE 10:- SHORT-TERM BANK CREDIT AND LOANS
WEIGHTED AVERAGE INTEREST LINKAGE RATE DECEMBER 31. --------------------------- ----------------------------- TERMS 1998 1999 1998 1999 -------------- ------------ -------------- ------------- -------------- % U.S. DOLLARS IN THOUSANDS --------------------------- ----------------------------- Revolving bank credit Belgian Franks 5 - 173 - Revolving bank credit NIS 17 16.5 112 18 Short-term loans U.S. dollar 7.2+1.5 9.23 1,214 1,480 Short-term loans NIS 17.7 - 683 - Short-term loans Belgian Franks Libor+2.5 4.4 790 1,245 -------------- -------------- 2,972 2,743 ============== ==============
The weighted average interest rate was 9% and 7% for the years ended December 31, 1998 and 1999, respectively The unused line of credit, denominated in NIS, Belgian Franks and US dollars, at December 31, 1999 is $ 3,405 thousand. NOTE 11:- ACCRUED EXPENSES AND OTHER LIABILITIES
DECEMBER 31, -------------------------------------- 1998 1999 ----------------- ----------------- U.S. DOLLARS IN THOUSANDS -------------------------------------- Employees and payroll accruals 670 1,567 Government authorities 301 835 Royalties payable 664 396 Current maturities of long-term liabilities 293 293 Warranty and installation 90 462 Accrued expenses 908 2,020 ----------------- ----------------- 2,926 5,573 ================= =================
F-24 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 12:- LONG-TERM LOANS a. Composed as follows:
LINKAGE WEIGHTED AVERAGE TERMS INTEREST RATE DECEMBER 31, ------------- --------------------------- ------------------------------- 1998 1999 1998 1999 ----------- ----------- ------------- -------------- % U.S. DOLLARS IN THOUSANDS --------------------------- ------------------------------- From banks U.S. Libor + dollar 3.12 7.5 20 1,611 From leasing Belgian companies Franks 6.6 6.6 1,154 871 ------------- -------------- 1,174 2,482 Less - current maturities 224 832 ------------- -------------- 950 1,650 ============= ==============
b. Aggregate maturities of long-term loans:
DECEMBER 31, -------------------------------------- 1998 1999 ----------------- ----------------- U.S. DOLLARS IN THOUSANDS -------------------------------------- First year (current maturities) 224 832 ----------------- ----------------- Second year 188 813 Third year 170 408 Fourth year 118 46 Fifth year and thereafter 474 383 ----------------- ----------------- 950 1,650 ----------------- ----------------- 1,174 2,482 ================= =================
NOTE 13:- LONG-TERM LIABILITY In connection with various claims filed by Dochovna group (the developer of Outboard Printer and several companies he controls), Idanit and the Company, a settlement was reached in December 1998, according to which the Company will pay a total of $ 880 thousand during a three year period. The Company fully provided for the said amount in 1998. The Company paid Dochovna group total amount of $ 293 thousand for each of the years ended December 31, 1998 and 1999. As of balance sheet date the total liability amounts to $ 586 thousand. F-24 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Future payments shall bear annual interest of 6% unless the Company pays the full amount by March 31, 2000. The parties to the settlements were Dochovna Idanit, Scitex corporation Ltd. (which acquired Idanit), Meital and Jacob Markovits (Meital CEO). NOTE 14:- CONTINGENT LIABILITIES a. The Company entered into several project plans with the Chief Scientist of the Government of Israel regarding the development of the printers and the Mega Light, a discontinued product. The Company has an obligation to pay royalties at the rate of 2% - 3% of the sales derived from the applicable products developed within the framework of such research and development projects, up to an amount equal to 100% - 150% of the grant received, in NIS linked to the exchange rate of the U.S. dollar. The Company has no obligation to repay this amount if sales are not sufficient to satisfy the royalty obligations. As of December 31, 1999, the Company has a contingent obligation to pay royalties in the amount of $ 1,152 thousand. b. The Company is required to pay royalties to the Fund for the Encouragement of Marketing Activity at the rate of 3% of the increases in export sales of products for which the Company received participations for its marketing activities, up to an amount equal to 100% of the grant received. Royalties regarding grants received in 1999 bears LIBOR interest. The grant is repayable only in respect of sales of the related products, as a percentage of the growth in export sales. If there is no increase in export sales, or if the Company ceases producing the relevant products, the grant would not be repaid. As of December 31, 1999, the Company has a contingent obligation to pay royalties in the amount of $ 597 thousand. c. In May 1996, the Company signed an agreement as follows: 1. Exercise the option to purchase all of Shamrock's (former shareholder in Nur Media Solutions) shares in Nur Media Solutions, for a consideration of one dollar. 2. Notwithstanding the above, for every year during which Nur Media Solutions' net income (after taxes) will exceed $ 1 million, the Company will pay Shamrock a sum equal to 10% of Nur Media Solutions' net income, up to a total of $ 0.5 million (accumulating from the first payment). Nur Media Solutions' net income shall be determined by its annual audited financial statements. Shamrock's right to payments under this section will expire upon the earlier of the payment of the $ 0.5 million thereunder, or at the end of the fiscal year 2002. In 1997, 1998 and 1999, Nur Media Solutions' net income (after taxes) was less than $ 1 million. d. The Company has guaranteed capital lease payments in the amount of $ 105 thousand for a printer that was leased by a subsidiary. e. During September 1998, the district court of Tel Aviv approved several settlement agreements among the Company, the special manager for Moshe Nur's assets in his F-25 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- bankruptcy proceedings, Moshe Nur and certain of his family members, two Israeli banks, and the temporary receiver of Nur Outdoor Advertising Ltd. (a company formerly affiliated with Mr. Nur). According to the settlement, all material claims against the Company relating to the lease of its offices (including confirmation of the Company's pre-payment of lease fees until July 2000), alleged breach of contracts and debts allegedly owed to any of the abovementioned parties were dismissed. The Company agreed not to file any claim against the abovementioned settling parties, provided that no claims will be filed against the Company in connection with the bankruptcy proceedings. As part of the various settlement agreements, the Company paid in 1998 an aggregate of $100 thousand. However, in the course of the bankruptcy proceedings of Moshe Nur and the companies controlled by him, the Company may, in the future, be exposed to claims arising from the actions of Moshe Nur, the liability of whom could be material. f. In 1997, claims and threats of claims were brought against the Company in respect of various matters. The Company made a provision in the amount of $ 25 thousand in respect of these claims and threats of claims based on the opinion of the Company's Israeli legal advisors. The Company's management believes that these provisions are adequate. g. In December 1999, a claim was filed against the Company in the amount of $ 330 thousand regarding a breach of an agreement to pay finders fee in connection with a private placement in 1999 (See Note 17). According to the Company's management and its legal advisors, the Company will not be obliged to pay any amount regarding this claim. h. In October 1999, the Company signed an agreement with a consultant according to which the consultant will render services in connection with the manufacture of the Company's new printers. Under this agreement, the Company is obligated to pay $ 2 thousand for each new printer. The Company has the option to end this agreement after the manufacturing of 112 printers. As of December 31, 1999, the Company has a contingent obligation to pay service fees in the amount of $ 224 thousand. i. As for contingent liability regarding acquisition of technology, see Note 1b. NOTE 15:- CHARGES, GUARANTEES AND RESTRICTED CASH a. As collateral for its liabilities to the banks, the Company granted an unlimited senior in priority lien on its machinery and equipment, motor vehicles, as well as a floating lien (a lien on the assets of the Company as they exist from time to time) on all of its assets. F-26 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- b. The collateralized liabilities are as follows:
DECEMBER 31, -------------------------------------- 1998 1999 ----------------- ----------------- U.S. DOLLARS IN THOUSANDS -------------------------------------- Short-term bank credit 2,972 2,743 Long-term liabilities, including current maturities 1,174 2,482 ---------------- ---------------- 4,146 5,225 ================ ================
NOTE 16:- TRANSACTIONS AND BALANCES WITH RELATED PARTIES a. For a lease agreement with a former shareholder, see Note 9c. b. Between September and December 1997, the Company effected a private offering of its Ordinary Shares in the United States (see also Note 17a), for which the investment banking firm of Josephthal and Co. Inc. ("Josephthal") acted as an exclusive placement agent. The chairman of Josephthal beneficially owns approximately 35.8% of the Company's Ordinary Shares. The chairman of Josephthal is the Company's chairman. As compensation for his services as the Company's exclusive placement agent, Josephthal received fees of $ 439 thousand and warrants to purchase 400,000 Ordinary Shares at an exercise price of $ 1.00 per share or less than 400,000 Ordinary Shares of the Company if the cashless alternative pursuant to the agreement has been elected. Finally, an individual employed by Josephthal was the Company's acting Chief Financial Officer from April through October 1997 received compensation of approximately $ 45 thousand. c. Transactions with related parties:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1998 1999 ---------------- ---------------- ---------------- U.S. DOLLARS IN THOUSANDS ---------------------------------------------------------- Sales: Nur Outdoor 159 - - Nur Focus 31 - - ---------------- ----------------- ----------------- 190 - - ================ ================= ================= Cost of sales: Paid to: Nur Outdoor 99 - - Nur Focus 18 - - ---------------- ----------------- ----------------- 117 - - ================ ================= ================= Selling expenses: Nur Focus - - - ================ ================= =================
d. Loans to related parties, see Note 6b and 4. F-27 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 17:- SHARE CAPITAL a. Between September and December 1997, the Company effected a private offering of its securities in the United States. In the private offering, the Company issued 4,000,000 Ordinary shares of NIS 1 par value each in consideration of $ 1 per Ordinary share. Following the initial public offering of the Company's shares in October 1995, the Company issued 155,000 warrants to Josephthal. These warrants are exercisable no later than October 2000 into 155,000 Ordinary shares of the Company at an exercise price of $ 7.20 per share, or less than 155,000 Ordinary shares of the Company if the cashless alternative pursuant to the agreement has been elected. As part of the private offering, the Company issued warrants to the placement agent, Josephthal, expiring in September 2002 to purchase 400,000 Ordinary shares of the Company at an exercise price of $ 1.00 per share or less than 400,000 Ordinary shares of the Company if the cashless alternative pursuant to the agreement has been elected. In September 1999, the Company effected a private offering of its securities. In the private offering, the Company issued 600,000 Ordinary shares of NIS 1 par value each in consideration of $ 5.5 per Ordinary share. In addition, the Company issued warrants expiring in four years to purchase 150,000 Ordinary shares of the Company at an exercise price of $ 8 per share. If certain conditions exist, the Company may induce the exercise of these warrants. b. Earnings per share: The following table sets forth the computation of historical basic and diluted earnings per share:
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1997 1998 1999 ------------- ------------ -------------- U.S. DOLLARS IN THOUSANDS ------------------------------------------------ Numerator: Net income as reported 485 1,457 7,175 ============ ============== ============= Numerator for basic earnings per share - income available to ordinary shareholders 485 1,457 7,175 ============ ============== ============= Numerator for diluted earnings per share - income available to ordinary shareholders 485 1,457 7,175 ============ ============== ============= Denominator: Weighted average Ordinary shares outstanding 7,293,640 10,880,000 11,181,137 ------------ -------------- ------------- Denominator: Denominator for basic earnings per share -weighted - average shares 7,293,640 10,880,000 11,181,137 ------------ -------------- ------------- Effect of dilutive securities Employee stock options 72,527 571,389 1,541,463 ------------ -------------- ------------- Denominator for diluted earnings per share-adjusted weighted-average shares 7,366,167 11,451,389 12,722,600 ============ ============== =============
F-28 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- c. Stock Option Plan: In October 1995, the Company's Board of Directors adopted a Flexible Stock Incentive Plan (the "Stock Incentive Plan"). The Stock Incentive Plan provides for grants of stock options to the Company's employees and outside consultants. An aggregate amount of not more than 500,000 stock options are available for grant under the Stock Incentive Plan. Of such amount, (i) not more than 414,768 options are available for grant as stock options on the basis of future services ("Service Options"), (ii) not more than 18,232 options may be granted as stock options on the basis of performance ("Performance Options" - as of December 31, 1999 there are no outstanding performance options) and (iii) not more than 67,000 options may be granted as stock options to consultants on the basis of service or performance in respect of the public offering ("Consultant Options"). The service options usually vest over a four-years period with an exercise price of not less than 80% of the fair market value of the Ordinary shares at the date of grant (as defined in the stock incentive plan). Consultant options usually vest immediately based on past serviced rendered as the board determines. The options expires usually after ten years from the date of grant. In October 1997, the Company adopted an additional stock option plan. According to that option plan, 1,200,000 options will be granted to Company's employees, directors and consultants. In October 1998 and August 1999, the Company's shareholders approved the increase in the number of options available for grant by 500,000, and 500,000 options, respectively. The options usually vest over a three-years period with an exercise price of not less than 80% of the fair market value of the common stock at the date of grant (as defined in the stock option plan). Each option usually expire after ten years from the date of grant. F-29 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- In December 1998, the Company's shareholders approved the directors share option plan ("1998 plan") according to which 250,000 options are available for grant with an exercise price of the average of the closing bid and sale price at the issuance date. Each option is vested immediately and will expire after 10 years. During 1999, the Company granted 58,333 options to directors (including the Chairman of the Board of Directors). The balance of the options at December 31, 1999 is as follows:
OPTIONS OUTSTANDING ---------------------------------------------- WEIGHTED AVAILABLE NUMBER EXERCISE AVERAGE FOR GRANT OF OPTIONS PRICE EXERCISE PRICE -------------- -------------- -------------- -------------- U.S. DOLLARS IN THOUSANDS ------------------------------ Balance as of January 1, 1997 380,229 119,771 0.3-1.75 1.34 Additional stock options plan 1,200,000 - - - Options granted (25 employees and a vendor) (325,600) 325,600 0.3-1.75 1.33 Options granted (2 employees and 3 directors) (825,000) 825,000 1-3 1.46 -------------- -------------- -------------- -------------- Balance as of December 31, 1997 429,629 1,270,371 0.3-3 1.3 Additional stock options plan 750,000 - - - Options granted (46 employees, 4 directors and 1 consultant) (655,000) 655,000 1 - 3 2 Options forfeited 150,332 (150,332) 1.4 - 2 1.4 -------------- -------------- -------------- -------------- Balance as of December 31, 1998 674,961 1,775,039 0.3 - 3 1.62 Additional stock options plan 500,000 - - - Options granted (93 employees, 4 directors and 1 consultant (693,933) 693,933 5.5 - 7.88 5.12 Options exercised - (294,573) - 1.57 -------------- -------------- -------------- -------------- Balance as of December 31, 1999 481,028 2,174,399 0.3 - 7.88 1.98 ============== ============== ============== ==============
The number of options exercisable as of December 31, 1997, 1998 and 1999 was 849,921, 1,308,622 and 1,209,967, respectively. The weighted average exercise price of options exercisable as of December 31, 1997, 1998 and 1999 is $ 1.3, $ 1.28 and $ 1.65, respectively. F-30 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The options outstanding as of December 31, 1999 have been separated into ranges of exercise price, as follows:
WEIGHTED OPTIONS WEIGHTED OPTIONS AVERAGE OUTSTANDING AVERAGE WEIGHTED EXERCISABLE EXERCISE AS OF REMAINING AVERAGE AS OF PRICE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, OF OPTIONS EXERCISE PRICE 1999 LIFE PRICE 1999 EXERCISABLE -------------- ----------------- ---------------- -------------- ---------------- --------------- $ 1.25 - 1.75 275,466 2 1.46 207,468 1.43 $ 1 - 1.5 741,500 4 1.22 710,500 1.22 $ 2 - 3 460,000 7 2.34 223,666 2.13 $ 2.75 30,000 9 2.75 30,000 2.75 $ 2.875 - 4.6 115,000 10 3.45 - - $ 5.5 - 7.875 552,433 10 5.71 38,333 7.19 ----------------- -------------- ---------------- --------------- 2,174,399 1.98 1,209,967 1.65 ================= ============== ================ ===============
d. In January 1997, the Company granted to an Israeli vendor an option to purchase 30,000 shares at an exercise price of $ 1.75 per share. In September 1998, the Company granted to its counsel an option to purchase 15,000 shares at an exercise price of $ 2.25 per share with an immediate vesting. The fair market value of the options was estimated according to FASB-123 at the grant date using Black-Scholes option valuation pricing model. The aggregate amount of compensation related to the above options was $ 12 thousand and $ 11 thousand, and was accounted for as compensation expense in the years ended December 31, 1997 and 1998, respectively. In February 1999, following a registration statement of Form F-1, the Company issued to its qualified independent underwriter options to purchase 25,000 Ordinary shares of the Company at an exercise price of $ 4.5 per share. These warrants are exercisable for a period of four years commencing February 24, 2000, and are not to be sold, transferred, assigned or hypothecated until February 2000, (except for permitted transferees). e. Pro-forma information regarding net income and earnings per share is required by FASB 123, and has been determined as if the Company has accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the grant date using the Black-Scholes option valuation pricing model with the following weighted-average assumptions for 1997, 1998 and 1999: risk-free interest rates of 6.3%, 5% and 7%, respectively, dividend yields of 0% for each year, volatility factors of the expected market price of the Company's Ordinary shares of 1.25, 0.46 and 0.59, respectively, and a weighted average expected life of the option of 10 years for each year. F-31 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The Black-Scholes model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected share price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the value of its employee stock options. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options vesting period. The Company's Pro-forma information is as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1997 1998 1999 --------------- ---------------- --------------- U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT ------------------------------------------------------ Net income, as reported 485 1,457 7,175 =============== =============== ================ Pro forma net income 129 1,251 6,443 =============== =============== ================ Pro forma basic earnings per share 0.02 0.11 0.55 =============== =============== ================ Pro forma diluted earnings per share 0.02 0.11 0.51 =============== =============== ================
The total compensation expense included in the statements of income for 1997, 1998 and 1999 is $ 91 thousand, $ 121 thousand and $ 167 thousand, respectively. Weighted average exercise price and weighted average fair value of options granted during the year was as follows: - $ 5.52 and $ 4.1, respectively, for options granted at an exercise price equal to the market price of the stock on the grant date. - $ 4.09 and $ 2.9, respectively, for options granted at an exercise price that exceeds the market price of the stock on the grant date. - $ 5.3 and $ 4.15, respectively, for options granted at an exercise price that is less than the market price of the stock on the grant date. f. Dividends: Dividends if any, will be paid in NIS. Dividends paid to shareholders outside Israel will be converted into U.S. dollars on the basis of the exchange rate prevailing at the date of payment. F-32 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 18:- TAXES ON INCOME a. Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the "law"): Certain of the Company's production facilities have been granted the status of "approved enterprise" under the law, under two separate investment plans. The implementation of the investments under the first and second plan was finalized in 1993 and 1998, respectively. According to the provisions of this law, the Company elected to enjoy "alternative benefits" which provide tax exemption in exchange for waiver of grants. Accordingly, the Company's income from the approved enterprise will be tax-exempt for a period of two and four years for the first and second plan, respectively, commencing with the year it first earns taxable income. Based on the percentage of foreign ownership of the Company, income derived during the remaining periods of five and three years of benefits in taxable at the rate of 15% or 20%, for the first and second plan, respectively. The period of tax benefits detailed above is subject to limits of 12 years from the commencement of production, or 14 years from receiving the approval, whichever is earlier. Given the abovementioned conditions, the period of benefits for the first and second plan commenced in 1994 and 1999 and will terminate in 2000 and 2005, respectively. The tax-exempt profits earned by the Company's "approved enterprise" can be distributed to shareholders without subjecting the Company to taxes only upon the complete liquidation of the Company. The retained tax-exempt profits as of December 31, 1999 are $ 5,802 thousand. If these retained tax-exempt profits are distributed in a manner other than upon the complete liquidation of the Company, they would be taxed at the corporate tax rate applicable to such profits as if the Company had not elected the alternative tax benefits (currently - 15% or 20% for an "approved enterprise" based on the percentage of foreign ownership of the company) and an income tax liability of approximately $ 1,160 thousand would be incurred. The Company has decided to permanently invest the tax exempt income resulting from the "approved enterprise" status and not to distribute such income as dividends. Accordingly, no deferred income taxes have been provided in respect of said tax exempt income. Income from sources other than the "approved enterprise" during the periods of benefits, will be taxable at regular tax rate of 36%. The law also entitles the Company to claim accelerated rates of depreciation on equipment used by the "approved enterprise" during five tax years. The Company applied for a third plan under "approved enterprise" status, and is a now negotiating with the Investment Center. F-33 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- b. Measurement of results for tax purposes: Results for tax purposes are measured in terms of earnings in NIS after certain adjustments for increases in the Israeli Consumer Price Index ("CPI"). As explained in Note 2b., the financial statements are measured in U.S. dollars. The difference between the annual change in the Israeli CPI and in the NIS/dollar exchange rate causes a difference between taxable income and the income before taxes shown in the financial statements. In accordance with paragraph g(f) of SFAS No. 109, the Company has not provided deferred income taxes on the difference between the reporting currency and the tax bases of assets and liabilities. c. Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969: The Company is an "industrial company" under the above law and as such is entitled to claim accelerated rates of depreciation, in accordance with regulations published under the inflationary adjustments law. The Company is also entitled to deduct the offering expenses and patent amortization from its taxable income in three and eight equal annual installments, respectively. d. A reconciliation of the theoretical tax expense, assuming all income is taxed at the regular statutory rate applied to corporations in Israel up to December 31, 1999, and the actual tax expense, is as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------ 1997 1998 1999 -------------- ---------- ----------- U.S. DOLLARS IN THOUSANDS ------------------------------------------ Theoretical tax expense computed at the rate of 36% 208 635 2,853 Increase (decrease) in taxes: Approved enterprise (1) - - (1,274) Effect of certain adjustments on the results for tax purposes and the Israeli CPI 61 91 118 Carryforward loss, generated during the year for which a valuation allowance was provided - - 522 Utilization of operating carryforward tax losses from prior years (202) (462) (1,421) -------------- ---------- ----------- Actual tax expense 67 264 798 ============== ========== =========== (1) Basic earnings per share amounts of the tax benefits resulting from the exemption - - 0.11 ============== ========== ============ (1) Diluted earnings per share amounts of the tax benefits resulting from the exemption - - 0.1 ============== ========== ============
F-34 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1997 1998 1999 -------------- ---------- ----------- U.S. DOLLARS IN THOUSANDS ------------------------------------------ e. Taxes on income (benefit) included in the statements of income: Current: Domestic - - 1,132 Foreign 94 298 533 -------------- ---------- ------------ 94 298 1,665 ============== ========== ============ Deferred: Domestic - - (531) Foreign (27) (34) (336) -------------- ---------- ------------ (27) (34) (867) ============== ========== ============
f. Deferred taxes: Deferred tax assets are comprised of the following:
YEAR ENDED DECEMBER 31, ------------------------------------- 1998 1999 ----------------- ----------------- U.S. DOLLARS IN THOUSANDS ------------------------------------- Provisions for severance pay 34 12 Others 92 147 Net operating loss and deductions carryforward 3,195 2,296 ----------------- ---------------- Gross deferred tax assets 3,321 2,455 ----------------- ---------------- Fixed assets (82) (3) Inventories (20) - ----------------- ---------------- Gross deferred tax liabilities (102) (3) ----------------- ---------------- Valuation allowance (1) (3,177) (1,543) ----------------- ---------------- Net deferred tax assets 42 909 ================= ================ Presented as follows: Current assets 42 784 Long-term assets - 125 ----------------- ---------------- 42 909 ================= ================
F-35 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (1) The Company's subsidiaries have provided valuation allowances against the deferred tax assets in respect of tax loss carryforward and other temporary differences due to history of losses and current uncertainty concerning its ability to realize these deferred tax assets in the future. g. Income tax assessments, losses and deductions carried forward to future years: At December 31, 1999, the Company had available deductions (excluding capital losses totaling $ 2,413 thousand) aggregating to $ 1,421 thousand, which will expire in the years 2000 to 2005. Nur America, Nur Media Solutions, Nur Europe and Nur Shanghai had available carryforward losses as of December 31, 1999 aggregating to $ 4,957 thousand which has no expiration date. h. Income (loss) before income taxes consisted of the following:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1998 1999 ---------------- ---------------- ---------------- U.S. DOLLARS IN THOUSANDS ---------------------------------------------------------- Domestic 1,156 2,535 10,318 Foreign (578) (771) (2,392) ---------------- ---------------- ---------------- 578 1,764 7,926 ================ ================ ================
NOTE 19:- REPORTABLE SEGMENTS DATA a. Summary information about geographic areas: The Company manages its business on a basis of one reportable segment. See note 1 for a brief description of the Company's business. This data is presented in accordance with SFAS 131 "Disclosures about Segments of an Enterprise and Related Information", which the Company has retroactively adopted for all periods presented. The following presents total revenues for the years ended December 31, 1997, 1998 and 1999 and long-lived assets as of December 31, 1998 and 1999:
1997 1998 1999 ------------------------- ---------------------------- ------------------------------ LONG- LONG- LONG- TOTAL LIVED TOTAL LIVED TOTAL LIVED REVENUES ASSETS REVENUES ASSETS REVENUES ASSETS ------------------------- ------------- -------------- --------------- ------------- U.S. DOLLARS IN THOUSANDS ------------------------------------------------------------------------------------- Asia *) 819 975 3,326 1,109 9,995 781 America 7,061 166 14,640 977 24,325 629 Europe 11,849 1,392 16,241 1,747 21,448 1,172 Others *) 2,230 - 2,238 - 4,951 - ------------ ------------ ------------- -------------- --------------- ------------- 21,959 2,533 36,445 3,833 60,719 2,582 ============ ============ ============= ============== =============== ============= *) Reclassified.
F-36 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Total revenues are divided by the following products:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1998 1999 ---------------- ---------------- ---------------- U.S. DOLLARS IN THOUSANDS ---------------------------------------------------------- Printers 12,023 19,052 33,474 Ink 4,571 8,619 14,044 Printed materials 3,085 4,540 2,460 Substrates - *) 894 7,274 Others 2,280 *) 3,340 3,467 ---------------- ----------------- ----------------- 21,959 36,445 60,719 ================ ================= ================= *) Reclassified. b. Major customer data: Percentage of total sales 11.18% 10.6% - ================ ================= =================
NOTE 20:- SELECTED STATEMENTS OF OPERATIONS DATA a. Selling and marketing expenses, net:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1998 1999 ---------------- ---------------- ---------------- U.S. DOLLARS IN THOUSANDS ---------------------------------------------------------- Selling and marketing expenses 4,820 6,361 9,885 Less - participation of the Fund for the Encouragement of Marketing Activity 200 250 400 ---------------- ----------------- ----------------- 4,620 6,111 9,485 ================ ================= =================
F-37 b. Financial expenses, net:
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1997 1998 1999 ---------------- ---------------- ---------------- U.S. DOLLARS IN THOUSANDS ---------------------------------------------------------- Expenses: Interest: On short-term credit 390 342 461 On long-term loans 193 67 92 Loss arising from foreign currency translations - 151 659 ---------------- ----------------- ----------------- 583 560 1,212 ---------------- ----------------- ----------------- Income: Interest 234 59 86 Gain arising from foreign currency translations 29 - 443 ---------------- ----------------- ----------------- 263 59 529 ---------------- ----------------- ----------------- 320 501 683 ================ ================= =================
F-38 NUR MACROPRINTERS LTD. NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 21:- INVESTEES
PERCENTAGE OF (1) ------------------------------------ NAME OF THE COMPANY OWNERSHIP CONTROL ------------------------------------------------------------------- ---------------- ---------------- % ------------------------------------ a. Subsidiaries outside Israel: ACTIVE: NUR Media Solutions S.A. 100 100 NUR Europe S.A. 100 100 NUR America Inc. 100 100 NUR Asia Pacific Ltd. 100 100 NUR Macroprinters (Shanghai) Co., Ltd. 100 100 Stillachem S.A. 50.1 50.1 NUR Pro Engineering Ltd. 50 50 INACTIVE: NUR Hungaria KFT (1) 100 100 Good-Lux S.A (1) 100 100 b. Subsidiaries in Israel: INACTIVE: NUR Middle East and Africa Ltd. 100 100 M.B.T. (Nur) Industries Ltd 100 100 Nur Print Technologies (1993) Ltd. 100 100
(1) Represents the percentages of ownership of Nur Media Solutions (formerly: "Nur International") in these subsidiaries. The shares of some of these subsidiaries are held in custody by the Company. - - - - - - - - - - - - - F-39 EXHIBIT INDEX
NUMBER DESCRIPTION 3.1 Memorandum of Association of the Registrant, in Hebrew with a translation to English1 3.2 Amended Articles of Association of the Registrant 2 3.3 Certificate of Name Change 3 4.1 Specimen Certificate for Ordinary Shares 1 4.2 Representative's Warrant Agreement dated October 12, 1995 1 4.3 Form of Representative's Warrant Certificate 1 4.4 Forms of Placement Agent's Warrant Agreement and Certificate 4 4.5 Forms of Qualified Independent Underwriter's Warrant Agreement and Certificate 4 4.6 Form of Warrant Agreement between the Registrant and Barak Zamir, Advocates 10.1 1995 Stock Option / Stock Purchase Plan 1 10.2 Amendment to the 1995 Stock Option / Stock Purchase Plan 4 10.3 1997 Stock Option Plan 5 10.4 1998 Non-Employee Director Share Option Plan 6 10.5 Lease Agreement between the Registrant and Mr. Moshe Nur dated October 4, 1993, as amended on May 29, 1995, in Hebrew with a translation to English 1 10.6 Lease Agreement for office space in Brussels, Belgium between Nivellease, S.A. and the Registrant dated November 25, 1996 4 10.7 Lease Agreement for office space in Newton Centre, Massachusetts between WHTR Real Estate Limited Partnership and the Registrant dated July 10, 1998 4 10.9 Distribution Agreement between Imaje S.A. and the Registrant dated June 26, 1995 1 10.10 Settlement Agreements relating to Moshe Nur and his affiliated companies 4 10.16 Bank Hapoalin revolving loan agreement 4, 7
51 10.17 Agreement between I.T.S. Machinery Development Ltd. and the Registrant dated February 10, 1997 4 10.18 Form of confidentiality agreement 4 10.19 Agreement dated September 13, 1998 between "Meital" Electronic Technology Ltd. and Markowitz Yaakov and the Registrant 4 21 List of Subsidiaries of the Registrant 23.1 Consent of Kost Forer & Gabbay (S-8) 23.2 Consent of Kost Forer & Gabbay (F-3) 23.3 Consent of Willy Knyrim (F-3) 23.4 Consent of Willy Knyrim (S-8) 27.1 Financial Data Schedule as of and for the year ended December 31, 1995 5 27.2 Financial Data Schedule as of and for the year ended December 31, 1996 6 27.3 Financial Data Schedule as of and for the year ended December 31, 1997 7 27.4 Financial Data Schedule as of and for the year ended December 31, 1998 8 27.5 Financial Data Schedule as of and for the year ended December 31, 1999
- ---------- 1/ Previously filed with the Company's Registration Statement (File No. 33-93160) on Form F-1 and incorporated by reference herein. 2/ Previously filed with the Company's Form F-3 (File No. 333-92493) and incorporated by reference herein. 3/ Previously filed with the Company's Form 6-K dated January 7, 1998 and incorporated by reference herein 4/ Previously filed with the Company's Form F-1 (File No. 333-66103) and incorporated by reference herein. 5/ Previously filed with the Company's Form 20-F for the year ended December 31, 1997 and incorporated by reference herein. 6/ Previously filed with the Company's Form 6-K dated November 13, 1998 and incorporated by reference herein. 7/ Filed in summary form. Original filed in paper format pursuant to Form SE. 8/ Previously filed with the Company's Form 20-F for the year ended December 31, 1998 and incorporated by reference herein. EX-4.6 2 EXHIBIT 4.6 Exhibit 4.6 WARRANT AGREEMENT THIS WARRANT AGREEMENT (the "AGREEMENT") made as of the 11 th day of January, 1999, by and among NUR MACROPRINTERS LTD., an Israeli company (the "COMPANY") and [Barak Zamir, Advocates] ("BZ"). WHEREAS BZ is a service provider of the Company; and WHEREAS the Company desires to grant BZ and BZ desires to receive, a warrant (the "WARRANT") to purchase up to 15,000 (fifteen thousand) Ordinary Shares of par value NIS 1.00 each of the Company ("ORDINARY Shares"); and WHEREAS the parties wish to determine the terms and conditions of the Warrant, as set forth herein. NOW, THEREFORE, in the consideration of the mutual promises and covenants set forth herein, the parties agree as follows: 1. GRANT. Subject to the terms and conditions hereof, the Company hereby grants BZ, the right to purchase, at any time from January 11,2000 until 5:30 P.M., Israel time, on January 11, 2004, (the "EXERCISE PERIOD"), at the initial exercise price per share of US$2.75 (subject to adjustment as provided in Article 8 hereof), up to 15,000 (fifteen thousand) fully paid and non-assessable Ordinary Shares ("WARRANT SHARES"). 2. WARRANT CERTIFICATES. The Warrant certificate (the "WARRANT CERTIFICATE") delivered and to be delivered pursuant to this Agreement shall be in the form set forth in EXHIBIT A attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. EXERCISE OF WARRANT. The Warrant are exercisable at an initial exercise price (subject to adjustment as provided in Section 8 hereof) per Warrant Share set forth in Section 6 hereof, payable by certified check. Upon surrender of the Warrant Certificate with a Notice of Election to Purchase, in the form set forth in EXHIBIT B, duly executed, together with payment of the Purchase Price (as hereinafter defined) for the Warrant Shares purchased at the Company's principal offices (presently located at 5 David Navon Street, Moshav Magshimim, Israel, 56910) BZ shall be entitled to receive a certificate or certificates for the Warrant Shares so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the BZ thereof, in whole or in part (but not as to fractional Ordinary Shares underlying the Warrant). The Warrant may be exercised to purchase all or part of the total number of Ordinary Shares requested thereby. In the case of the purchase of less than all the Warrant Shares the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Warrant Shares purchasable thereunder. Without derogating from the aforesaid, immediately after the end of the Exercise Period, the right of the BZ to exercise the Warrant shall automatically expire. 4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrant, the issuance of certificates for the Warrant Shares shall be made forthwith (and in any event within five (5) business days thereafter) without charge to the BZ thereof, and such certificates shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the BZ thereof; provided, however, that the Company shall not be required to pay any tax (other than stamp duty) which may be (i) due as a result of, or in connection with, the receipt of this Warrant by BZ and/or the issuance by the Company of the Warrant Shares, or (ii) payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of BZ, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the Warrant Shares shall be executed on behalf of the Company, as provided by its Articles of Association.. 5. RESTRICTION ON TRANSFER OF WARRANT. BZ hereby, by its acceptance of this certificate, covenants and agrees that the Warrant described therein are being acquired as an investment and not with a view to the distribution thereof. BZ shall not assign or transfer of any of the Warrant Certificates to any third party, aside from assignments or transfers to entities controlling, controlled or under common control with, BZ. For purpose of this Section 5, "CONRTOL" shall bear the meaning of such term in Section 1 of the Israeli Securities Law, 1968. 6. EXERCISE PRICE. 6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise provided in Section 8 hereof, the initial exercise price of each Warrant shall be US$[2].00 per Warrant Share. The adjusted exercise price of each Warrant shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 8 hereof. 6.2 EXERCISE PRICE. The term "EXERCISE PRICE" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. REGISTRATION RIGHTS. 7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Warrant, and the Warrant Shares, have not been registered under the Securities Act of 1933, as amended (the "ACT"). Upon exercise, in part or in whole, of the Warrant certificates representing the Warrant Shares shall bear the following (or similar) legend: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended ("ACT"), and may not be offered or sold except pursuant to (i) an effective registration statement under the Act, (ii) to the extent applicable, Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) an opinion of counsel, if such opinion shall be reasonably satisfactory to counsel to the issuer, that an exemption from registration under such Act is available." 7.2 INCIDENTAL REGISTRATION. If the Company at any time after the exercise of the Warrant Shares proposes to register any of its securities on any form (other than a Registration Statement on Form S-8 or any successor form for securities to be offered to employees of the Company pursuant to any employee benefit plan), for its own account or for the account of any other person it shall give notice to BZ of such intention. Upon the written request of BZ given within twenty (20) days after receipt of any such notice, the Company shall include in such registration all of the Warrant Shares indicated in such request, so as to permit the disposition of the shares so registered in the manner requested by BZ. Notwithstanding any other provision of this Section 7.2, with respect to an underwritten public offering by the Company, if the managing underwriter advises the Company in writing that marketing or other factors require a limitation of the number of shares to be underwritten, then there shall be excluded from such registration and underwriting, to the extent necessary to satisfy such limitation, (i) first, the Warrant Shares requested to be included in such registration by BZ, and (ii) second, shares held by other shareholders of the Company who are entitled to have their shares included in such registration. To the extent Warrant Shares are excluded from such underwriting, BZ shall agree not to sell its Warrant Shares for such period, not to exceed 180 days, as may be required by the managing underwriter. In connection with any underwritten offering, the Company shall not be required under this Section 7.2 to include any of the Warrant Shares in such underwriting unless BZ accepts the terms of the underwriting (including standard indemnities to the underwriters and the Company) as agreed upon between the Company and the underwriters selected by it. All expenses incurred in connection with any registration under Section 7.2 shall be borne by the Company; provided, however, that BZ shall pay its pro rata portion of the discounts payable to any underwriter. BZ shall not be entitled to exercise any right provided for in this Section 7.2, after two years following the issuance of the Warrant Shares by the Company. In addition, the right of BZ to request registration pursuant to Section 7.2 shall terminate upon such date that all Warrant Shares held or proposed to be sold may immediately be sold under Rule 144 (or any successor rule) during any sixty-day period. 8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES. 8.1 SUBDIVISION AND COMBINATION. In case the Company shall at any time subdivide or combine the outstanding Ordinary Shares, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 8.2 STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company shall pay a dividend on, or make a distribution of, Ordinary Shares or of the Company's share capital convertible into Ordinary Shares, the Exercise Price shall forthwith be proportionately decreased. An adjustment made pursuant to this Section 8.2 shall be made as of the record date for the subject stock dividend or distribution. 8.3 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 8, the number of Ordinary Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full amount by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Ordinary Shares issuable upon exercise of the Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 8.4 DEFINITION OF ORDINARY SHARES. For the purpose of this Agreement, the term "Ordinary Shares" shall mean (i) the class of shares designated as Ordinary Shares in the Articles of Association of the Company as may be amended as of the date hereof, or (ii) any other class of shares resulting from successive changes or reclassifications of such Ordinary Shares consisting solely of changes in nominal value, or from nominal value to no nominal value, or from no nominal value to nominal value. 8.5 MERGER OR CONSOLIDATION. In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, or sale by the Company of all or substantially all of its assets to another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Ordinary Shares), the corporation formed by such consolidation or merger or acquiror of such assets shall execute and deliver to BZ a supplemental warrant agreement providing that BZ shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares receivable upon such consolidation or merger, by a holder of the number of Ordinary Shares of the Company for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in Section 8. The above provision of this Subsection shall similarly apply to successive consolidations or mergers. 8.6 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No adjustment of the Exercise Price shall be made: (a) Upon the issuance or sale of the Warrant or the Ordinary Shares issuable upon the exercise of the Warrant, or the options, rights and Warrant issued and outstanding on the date hereof; or (b) If the amount of said adjustment shall be less than 2 cents ($.02) per Ordinary Share, provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to at least 2 cents ($.02) per Ordinary Share. 9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered BZ at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Ordinary Shares in such denominations as shall be designated by the BZ thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrant, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be required to issue certificates representing fractions of Ordinary Shares upon the exercise of the Warrant, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of Ordinary Shares, or other securities, properties or rights. 11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all times reserve and keep available out of its authorized Ordinary Shares, solely for the purpose of issuance upon the exercise of the Warrant, such number of Ordinary Shares or other securities, properties or rights as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrant and payment of the Exercise Price therefor, all Warrant Shares shall be duly and validly issued, full paid, non-assessable and not subject to the preemptive rights of any shareholders. 12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall be construed as conferring upon BZ the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. 13. NOTICES. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to the registered BZ of the Warrant, to 103 Hashmonaim St., Tel-Aviv 67133; or (b) If to the Company, at P.O. Box 8440, Moshav Magshimim, Israel, 56910 or to such other address as the Company may designate by notice to BZ. 14. SUCCESSORS. All the covenants and provisions of this Agreement shall be binding upon and inure to the benefit of the Company, BZ and their respective successors and assigns hereunder. 15. TERMINATION. This Agreement shall terminate at the close of business on January 11, 2004. 16. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and each Warrant Certificate issued hereunder shall be deemed to be subject to, and construed in accordance with, the laws of the State of Israel, without giving effect to its rules governing the conflicts of laws. The Company and BZ hereby agree that any action, proceeding or claim against it arising out of, or relating in any way to, this Agreement shall be brought and enforced in the courts of the Tel-Aviv district, Israel, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. 17. ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. 18. SEVERABILITY. If any provision of this Agreement shall be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 19. CAPTIONS. The caption headings of the Sections of this Agreement are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 20. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and any other BZ(s) of the Warrant Certificates or Ordinary Shares any right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company any other BZ(s) of the Warrant Certificates or Ordinary Shares. 21. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. - ------------------------------ ---------------------------- NUR MACROPRINTERS LTD. BARAK ZAMIR, ADVOCATES By: Erez Shachar, Hilel Kramer By: Yoram Zamir, Avner Barak Partners EXHIBIT A THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. NO. W- Exercisable into 15,000 Ordinary Shares ------------ WARRANT CERTIFICATE This Warrant Certificate certifies that Avner Barak and Yoram Zamir, Advocates ("BZ") are the registered holder of a warrant exercisable, at any time from October __, 1999 until 5:30 p.m. Israel time on October __, 2003 (the "EXERCISE PERIOD" and "EXPIRATION DATE"), up to 15,000 fully-paid and non-assessable Ordinary Shares, NIS 1.0 nominal value per share (the "ORDINARY SHARES" and "WARRANT SHARES") of Nur Macroprinters Ltd., an Israeli corporation (the "COMPANY"), at the initial exercise price, subject to adjustment in certain events, of US$[2].00 per Ordinary Share (the "EXERCISE PRICE"); upon surrender of this Warrant Certificate and payment of the applicable Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the Warrant Agreement dated as of October __, 1999 between the Company and BZ (the "WARRANT AGREEMENT"). Payment of the applicable Exercise Price shall be made by certified check payable to the order of the Company. No Warrant may be exercised after 5:30 p.m., Israel time, on the Expiration Date, at which time all Warrant evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrant evidenced by this Warrant Certificate are part of a duly authorized issue of Warrant issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference herein and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and BZ. The Warrant Agreement provides that upon the occurrence of certain events, the then applicable Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of BZ, issue a new Warrant Certificate evidencing the adjustment in the then applicable Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrant; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of BZ as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrant shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrant evidenced by this Certificate, the Company shall forthwith issue to BZ hereof a new Warrant Certificate representing such number of unexercised Warrant. The Company may deem and treat BZ as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to BZ, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate stamp. Dated October ____, 1999 ---------------------------- NUR MACROPRINTERS LTD. By: Erez Shachar President & Chief Executive Officer EXHIBIT B [FORM OF ELECTION TO PURCHASE] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase [CHECK APPROPRIATE BOX]: / / all the Ordinary Shares under the Warrant Cerfificate; or / / part [__________][INDICATE NUMBER] of the Ordinary Shares under the Warrant Cerfificate; and herewith tenders in payment for such securities a certified check payable to the order of NUR MACROPRINTERS LTD. in the amount of $__________ , all in accordance with the terms hereof. The undersigned requests that a certificate for such securities be registered in the name of_______________________________ ______________________________ whose address is _______________________________ such Certificate be delivered to ___________________________________ whose address is____________________________________________________________________. Dated: Signature ------------------------------- (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) EX-21.1 3 EXHIBIT 21.1 Exhibit 21.1 LIST OF SUBSIDIARIES
Jurisdiction Percent Owned Name of Subsidiary of Incorporation by Registrant - ------------------ ---------------- ------------- ACTIVE NUR Media Solutions S.A. Belgium 100% NUR Europe S.A. Belgium 100% NUR America Inc. Delaware 100% NUR Macroprinters (Shanghai) Co., Ltd. China 100% NUR Pro Engineering Ltd. Israel 50% Stillachem S.A. Belgium 50.1% NUR Asia Pacific Ltd. Hong Kong 100% INACTIVE NUR Middle East & Africa Ltd. Israel 100% NUR Hungaria KFT (1) Hungary 100% Good-Lux S.A. (1) Luxembourg 100% M.B.T. (NUR) Industries Ltd. Israel 100% NUR Print Technologies (1993) Ltd. Israel 100%
- ------------------- (1) Represents the percentages of ownership of NUR Media Solutions S.A. in these subsidiaries. EX-23.1 4 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Form S-8 pertaining to the Employees' Stock Option Plans and Non-Employee Director Share Option Plan of Nur Macroprinters of our report dated February 16, 2000, with respect to the consolidated financial statements of Nur Macroprinters included in its Annual Report (Form 20-F) for the year ended December 31, 1999, filed with the Securities and Exchange Commission. Tel Aviv, Israel April 30, 2000 Yours truly, /s/ Kost, Forer and Gabbay KOST, FORER and GABBAY A member of Ernst & Young International EX-23.2 5 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Form F-3 of Nur Macroprinters Ltd. and in the related Prospectus of our report dated February 16, 2000, with respect to the consolidated financial statements of Nur Macroprinters Ltd. included in its Annual Report (Form 20-F) for the year ended December 31, 1999, filed with the Securities and Exchange Commission. Tel Aviv, Israel April 30, 2000 Yours truly, /s/ KOST, FORER and GABBAY KOST, FORER and GABBAY A member of Ernst & Young International EX-23.3 6 EXHIBIT 23.3 Exhibit 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the incorporation by reference of our report dated April 21, 1999 of Nur Macroprinter Ltd. in its Registration Statement on Form F-3 filed with the Securities and Exchange Commission and pertaining for the registration of 8,463,173 Ordinary Shares of Nur Macroprinters Ltd. Kost, Germany /s/ Willy Knyrim November 30, 1999 ---------------------------------- Willy Knyrim DIPLOM-FINANCIALIST WILLY KNYRIM WIRTSCHAFTSPRUFER-STEUERBERATUR HUMBOLDTSTR, 37 34117 KASSEL Tel. (0561) 709 69.0 Fax (0561) 10 25 73 EX-23.4 7 EXHIBIT 23.4 Exhibit 23.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the incorporation by reference of our report dated April 21, 1999 of Nur Macroprinter Ltd. in its Registration Statement on Form S-8 filed with the Securities and Exchange Commission and pertaining for the registration of 2,950,000 Ordinary Shares of Nur Macroprinters Ltd. issuable upon exercise of options available for grant under its 1995 Flexible Stock Incentive Plan, 1997 Stock Option Plan and 1998 Non-Employee Director Share Option Plan. Kost, Germany /s/ Willy Knyrim November 30, 1999 ---------------------------------- Willy Knyrim DIPLOM-FINANCIALIST WILLY KNYRIM WIRTSCHAFTSPRUFER-STEUERBERATUR HUMBOLDTSTR, 37 34117 KASSEL Tel. (0561) 709 69.0 Fax (0561) 10 25 73 EX-27.1 8 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANTS FINANCIAL STATEMENTS FOR THE YEAR END DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 9,190 0 16,610 1,290 10,689 35,199 4,189 1,466 39,648 19,182 0 0 0 2,940 14,923 39,648 60,719 60,719 31,784 19,279 (243) 1,890 683 7,926 798 7,128 0 47 0 7,175 0.64 0.56
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